Dim Weight Pricing and How it Could Affect Your Shipping Charges

The way in which ground shipping charges are derived is about to change in 2015. Are you prepared? Both FedEx and UPS announced plans to apply dimensional weight pricing on all packages. The two companies already use this pricing on many of their other services, but have now opted to expand this practice further. Both companies believe these changes will help to reduce excess packaging materials and overall package sizes in order to better optimize loads, which may ultimately lead to related reductions in fuel use, vehicle emissions and transportation costs.

What is Dimensional Weight Pricing?
Dimensional weight pricing takes into account the exterior package size. This is the amount of space a package occupies when in the cargo area of a transport vehicle in relation to its actual weight. Currently FedEx Ground applies dimensional weight pricing to packages measuring three cubic feet or greater, whereas FedEx Express applies it to all packages. Meanwhile, UPS already uses dimensional pricing for packages carried in its air network and larger pieces shipped via ground. However, with the recently announced changes to pricing, shipping questions are rising.

Take for example an average three-pound package. Its length (L) and width (W) each measure 10 inches, while its height (H) is nine inches. Under dimensional weight pricing, the new billed weight becomes six pounds. Under the current pricing plan, a shipper would be charged by the three-pound weight; under the dimensional weight pricing plan to take effect in 2015, the weight for price calculation increases 100 percent.

The Impact on Retailers
What does this change in shipping charges mean for retailers? It likely means an increase in overall shipping costs and perhaps even the end of "free shipping" for customers. According to some studies, the majority of B-to-B and B-to-C shipments weigh less than 20 pounds. In fact, it's believed 32 percent of all ground packages will be affected by the price increase, with the majority of those weighing less than five pounds.

Shipping is already one of the biggest and most rapidly increasing costs for online retailers, as noted by Amazon.com in its recent earnings report. As such, retailers will need to review carrier contracts. Larger companies such as Wal-Mart will likely attempt to grandfather in current pricing rules when they renegotiate contracts. However, smaller retailers will have less room for negotiation and therefore will be more likely to have to pass along the price increases to customers.

Solutions Do Exist
Along with negotiating contracts, alternative solutions exist. For example, the U.S. Postal Service announced it will not implement dimensional weight pricing like FedEx and UPS. Regional carriers such as Eastern Connection, OnTrac and Spee-Dee Delivery may be additional solutions. At this time, none of these carriers have announced plans to switch to dimensional weight pricing.

Options do indeed exist, but where to find them? Both FedEx and UPS provide assistance to shippers by offering such consulting services for the best types of packaging to use, the most efficient means to packing such boxes, and the best service to use. But perhaps even more important, shippers should first request a dim analysis from their carrier to determine how the changes may affect them. Shipping needs vary from one retailer to the next, and perhaps the services of an independent third-party firm may be in order. Such a firm can also perform a dim analysis as well as recommend alternative solutions to reduce shipping costs.

Take Action
Changes in shipping are underway. Be prepared, educate yourself and know your options in advance before these changes take effect in 2015.

John Haber is the founder and CEO of Spend Management Experts, a consulting and technology services company that optimizes shipping, freight and transportation spend.