We've all heard the buzz regarding the major parcel carriers’ price increase on ground shipments smaller than 3 cubic feet, but you may not realize the financial impact it will have on your shipping costs.
What we will see and feel on January 1, 2015 is the industry’s single largest rate hike in 15 years (coinciding with the regular annual price increase we see in the industry). Unless shippers adequately prepare, some experts believe they can expect an average 30% cost increase.
Before we explore solutions, let’s discuss what dimensional weight measurement (DIM) is and what will change in 2015.
- What is DIM weight? DIM weight pricing utilizes a formula to calculate a billable weight based on a package’s volume. You calculate DIM by multiplying Length (inches) by width (inches) by height (inches) and dividing the product by a DIM Factor (166 for UPS ground and FedEx ground).
- What will change? Today, packages under 3 cubic feet are not subject to DIM pricing, so your shipping rate is based on actual weight. If you were shipping a 2 pound item, let’s say a football in an 8”X8”X12” box, you would be charged for the actual weight of the package. Starting in 2015, all ground shipments will be subject to DIM weight pricing, and rates will be based on the greater of a package’s actual or DIM weight. With the new DIM pricing, your 2-pound football would be billed like a 5-pound package due to its volume.
If your football was going from Atlanta to Chicago, the price could increase $1.42 or more. If you manufacture footballs and ship 50,000 units per quarter…that is over a $35k increase in shipping costs in 4 months.
Below is a chart of the 25 most popular box sizes used in ground parcel. Anything under 5184 cubic inches (3 cubic feet) will be affected by this rate increase. The most widely used box sizes are highlighted in yellow. These sizes represent up to 75% of all shipments.
- Begrudgingly go kicking and screaming into 2015 complaining about the lack of parcel shipping options, but still paying crazy rate hikes. – Not recommended.
- Pass along all added costs to consumers and risk them shopping with another brand because brand X is more innovative and can offer better packaging and prices? – Not recommended.
- Become more innovative than your competitor by optimizing carrier agreements and improving package design? Yup. This is the answer!
- Manually calculate DIM weight vs. actual weight for products. Most of your products will fit into a handful of size boxes and by estimating the projected rate increase you can plan accordingly
- Educate employees about the DIM weight changes. Education and knowledge is key in keeping your costs low
- Properly understand your current packaging characteristics
- Strive for smaller and more senseable packages