Nov. 2 2012 08:45 AM

    Have you ever looked at your invoice and thought, "This can't be right? Why did we pay so much?" With new FedEx rates going into effect on Monday, January 7, 2013, shippers should already be evaluating their current agreements and invoices—allowing them to identify potential areas of impact and then budget accordingly. After all, if you budget your shipping based solely on the stated increase (which, this year is 3.9%), chances are good—if not great—that your shipping bill will increase by a much higher percentage. 

    Minimum Billable Weight
    FedEx isn't telling you about this, and if you are a lightweight Air shipper, you need to know how this affects your FedEx agreement. Minimum billable weight applies to all Domestic and International Air shipments packaged in a FedEx Express box or tube. The trigger for this surcharge (as it's considered contractually) is the FedEx packaging. If you use your own packaging you will be subject the dimensional weight applied to your shipments. If you use FedEx's packaging you become subject to the Minimum Billable Weight (MBW).

    Minimum Billable Weight applies to the following (per the 2012 FedEx Service Guide):
    • A minimum billable weight of 2 lbs. applies to the FedEx® Small Box, FedEx® Medium Box and FedEx® Large Box for U.S. and U.S. export shipments;
    • A minimum billable weight of 6 lbs. applies to the FedEx® Tube for U.S. shipments;
    • A minimum billable weight of 7 lbs. applies to the FedEx Tube for U.S. export shipments.

    What this means is, if you ship bathing suits for example, and your shipment weighs less than 2lbs, FedEx will round up your shipment weight to 2lbs, and you will be charged at the 2lbs shipment weight. If your shipment actually weighs 1lb, the 2012 list rate for Standard Overnight Zone 5 is $38.70. With MBW your shipment will bump to 2lbs, and you will be charged at a list rate of $42.85—that's over a 10% rate increase per package.

    Residential Fee: Ground Residential versus Home Delivery
    For 2012, the listed Home Delivery Residential Fee is $2.55, and Ground Residential is $3.00. In 2011 the former was $2.45 (a 3.9% increase YOY), the latter $2.75 (an 8.3% increase YOY). When you factor in the freight increase, rates will increase by over 15% on a Ground Residential package.

    So, two questions arise. First, how do we determine what defines a Ground Residential package and second, why would this fee even exist? Unlike UPS's Residential network, which can take packages up to 150lbs, FedEx Home Delivery will only accept packages at 70lbs or less. Anything over 70lbs must move in the Ground Commercial network but is still considered a Residential package and subject to all Residential fees—including Delivery Area Surcharge (the fee for Ground Residential DAS is $1 higher for 2012 than Ground Commercial).

    Ground Residential fees should be negotiated. Since the package is now moving in the Commercial network, it will not be delivered free of charge on Saturday, as it would have been with Home Delivery. If the shipment doesn't arrive on Friday, your consignee will need to wait until Monday for the delivery unless other fee inclusive arrangements are made. It doesn't work that way with UPS. Simply put, UPS keeps both Commercial and Residential packages in one network, therefore one network equals one Residential Charge. 

    The 3 Cubic Foot Rule
    One of the sneakiest items on a FedEx invoice is billed weight. You ship an 8lbs package and get billed for 30lbs. Worse yet, it often goes undetected month after month. This is "dimming", and you pay the higher weight due to the 3 Cubic Foot Rule.

    For Ground packages, any package 3 Cubic Feet or larger gets assessed with a dimensional weight. FedEx calculates your dimensional weight by multiplying the length by width by height of each package in inches. If the total inches are 5,184 or higher you are now subject to dimensional (dim) weight. To calculate your dim weight—the weight which you will be billed—take the total inches and divide by 166 (for shipments within the U.S) or 139 (shipments to Canada). If the dimensional weight is greater than the actual weight you may be assessed charges based on dim weight, which becomes your billed weight. Simply put, this means that your list rate will increase. Your package may actually weigh 8lbs, but given the box size, it dims to 30lbs, and is now seen as a 30lbs package. So it is charged at the 30lbs list rate, almost quadrupling your actual base rate. 

    Air packages absorb the dim differently. With Air we see either a dim or MBW (as mentioned earlier). If you use FedEx packaging you are subject to MBW; if you use your own packaging you are subject to dimensional weight. You are not subject to both simultaneously—packaging determines the rating system applied.
    Dimensional weight applies to all Air packages; there is no 3 Cubic Foot Rule with Air. The calculation is the same—length x width x height. Divisors are still 166 (for shipments within the U.S. and shipments between the U.S. and Puerto Rico) and 139 (U.S. Export and U.S. Import shipments). FedEx applies dim weight per package or per shipment to all FedEx Express U.S. shipments in a customer's own packaging and per shipment to Export and Import shipments as well as U.S. to Puerto Rico—again, in your packaging. It's worth emphasizing again that all Air shipments dim, not just those over 3 cubic feet.

    Conclusion
    Never feel trapped in your agreement. Transportation is not a monopolistic industry and shippers must take advantage of opportunities for cost containment. Don't fall prey to the assumption what FedEx isn't telling you, won't hurt you. 

     Brittany Beecroft, MBA, is the Small Parcel Pricing Manager for AFS, based in Shreveport, LA. Prior to joining AFS, Brittany spent 12 years at FedEx as a Strategic Pricing Analyst, analyzing over 5,000 agreements in her FedEx tenure. She consults regularly with some of the largest shippers in the world and is a sought after speaker and consultant.
     
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