Logistics: Dimensional Weight Rating Could Be a “Win-Win-Win”

Whether you're a retailer, manufacturer, or retail or industrial distributor, e-commerce is changing your life and forcing you to think differently about how you fill, package, and ship orders. Given the projections for growth of e-commerce sales in the coming years, it's only going to get worse. In my view, that's an opportunity for supply chain professionals to deliver value for their companies.

That was driven home last Thursday, when I had the opportunity to speak at the monthly meeting of the Distribution Management Association of Southern California, in Ontario, California. As the name suggests, it's a trade association for logistics and supply chain professionals in the Inland Empire who warehouse, distribute and transport all those goods coming through the ports in Los Angeles and Long Beach.

Before the event got underway, I chatted with a group of local executives from UPS and FedEx Ground. At one point, the conversation turned to e-commerce and shipping costs, and I asked how the new dimensional weight pricing system was working out. The response from one of the two - since we were off the record, I don’t want to identify his company - was that it is not working out as anticipated - or hoped for - and for a surprising reason.

As someone who just sticks his toe into the transportation waters now and then, I'd always assumed this new approach was about driving more revenue for the parcel carriers. According to this exec, that's true but not for the reason I'd anticipated. Parcel carriers have to keep up with the growth of e-commerce just like shippers. They have two choices: Buy more planes, trucks, and courier vans to handle the additional volume or get better utilization from their existing assets.

As this executive explained it, his company had hoped to drive more revenue through better utilization – getting more stuff on the existing fleet. For that to happen, parcel shippers would have to change their behavior. Rather than continue to ship orders in over-sized boxes with air pillows and peanuts to fill the void, shippers would right size their packages to lower their shipping costs.

In that scenario, dimensional weight pricing is a win-win-win. The parcel shipper wins by getting more stuff on its planes, trucks, and vans – putting off the day when it has to buy more of the same. The materials handling industry wins by implementing automated packaging systems that can right size the shipping container. And the retailer, manufacturer, or distributor wins through better pricing on parcel shipments and by being more sustainable.

Perhaps there’s a fourth win - the customer is happier because they're sending less packaging into the waste cycle.

Sounds good, right? So what’s happened? According to this executive, behavior has not changed. Rather than take advantage of the carrot by shipping in right-sized packages, they're being beaten with the stick, and paying more money to ship bigger packages. Yes, the parcel carrier is getting more revenue, but they would rather be more efficient through better asset utilization.

As supply chain professionals, there's an opportunity in that story to innovate in our operations and reduce our costs. That way, everyone wins.

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