In early May, FedEx announced it was moving to dimensional weight pricing for all ground shipments in 2015. Signaling a possible shift in how carriers price shipments, the move left many shippers wondering if UPS would follow suit. 

And follow it did. On June 17, UPS announced that it too would price all ground shipments by dimensional weight starting December 29, 2014. This isn’t the first time dimensional weight pricing has stirred controversy among shippers. In 2010, FedEx and UPS separately announced they would change the dimensional weight volumetric divisor from 194 to 166 for domestic shipments, and 166 to 139 for international. Compounded by other rate and surcharge changes announced at the time, shippers saw delivery costs rise 20 to 30 percent for low-weight, high-bulk shipments. 

Fast forward four years (and a cumulative 27.5% jump in general rates for FedEx and UPS Ground delivery) and shippers are again facing an alarming cost increase – one they will have to absorb, or pass on to their own customers. While shippers are used to paying dimensional weight pricing for lightweight packages sized greater than three cubic feet, they are not used to this pricing model for shipments less than three cubic feet. For these packages, the price increase could be 30% or more. 

In other words, add these cost increases together and the cost to ship some low weight, high bulk packages will be 75 to 80% more in 2015 compared to 2011. These changes come at a precarious time for shippers, especially those in industries like retail where margin is razor thin and consumers are accustomed to low-cost or free shipping. 

Shippers that plan to use FedEx or UPS ground services in 2015 can – and should – take immediate action to negate or minimize the impact of dimensional weight pricing changes. These actions include:

Quantify the impact. Analyze the short- and long-term impact of changes to dimensional weight pricing and define how these changes will impact shipping costs in 2015. Don’t forget to factor in average annual increases to general rate, surcharge and accessorial costs to get a realistic view of shipping expenses in the year ahead. 

Explore packaging alternatives. When UPS and FedEx announced dimensional weight changes in the fall of 2010, they gave shippers little time to prepare their supply chains before the changes took effect in early 2011. Fortunately, shippers have more runway before the current changes take effect to explore and implement packaging alternatives that can minimize the cost increase. Both major carriers are even providing free package design testing services and resources to assist customers in this endeavor. 

Quantify carrier cost-to-serve. Shippers often fail to determine specific areas of their unique shipping profile where UPS or FedEx are getting economies of scale, pick-up/delivery density and other factors that reduce the carriers’ cost to serve the shipper. This analysis often identifies opportunities to optimize carrier relationships and reduce costs. 

Evaluate hybrid alternatives. There are some good hybrid service offerings that can be used to ship impacted packages. Examples include FedEx SmartPost, UPS SurePost and DHL GlobalMail.

Go regional. Mid-year price increases are just one reason that more shippers are shifting volume to regional carriers. In order to compete with the likes of UPS and FedEx, some regional carriers are forming “super regional” networks that provide comparable service levels at 20 to 40% less cost. 

A final word – the carrier landscape is changing faster than many realize. Some changes present cost risks, while others present savings opportunities. Discerning risk from reward requires shippers to have a granular view of carrier cost-to-serve in the current pricing environment, and the alternatives available. This approach has led mega-shippers like Amazon.com and Walmart to rethink their entire shipping experience, whether its same day shipping or assembling their own fleet. These radical changes may not be a fit for every shipper, but the mindset of challenging the status quo is.

Jim Haller is Program Director of Transportation Services for NPI, a transportation spend management advisory firm (www.npifinancial.com). A 33-year veteran of the transportation industry, and 17-year veteran of UPS, Jim helps companies optimize their carrier relationships and agreements to reduce shipping costs. Contact him directly at jhaller@npifinancial.com. 
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