At least Jesse James robbed with a gun! Thats always my first response when I am asked the question, Why does my carrier (read UPS and FedEx Ground) charge me so much to deliver oversized packages? The truth of the matter is that the carriers are sticking shippers with outrageously high prices for servicing large packages for one simple reason: they have been able to get away with it! Shipping managers are unable to accurately compare the additional expense carriers incur to service a large package to the increased price the carrier charges. So its easy pickings for the carriers! Well, its time to shed some light on the subject.
First, when is a package considered oversized? By carrier definition, a package is classified as Oversize 1 (OS1) if it exceeds 84 inches in length and girth combined, is less than or equal to 108 inches in length and girth combined and weighs less than 30 pounds. The package is treated as a 30-pound package by the carrier when calculating the billable weight. Oversize 2 (OS2) applies when a package exceeds 108 inches in length and girth combined and weighs less than 70 pounds. It is treated as a 70-pound package by the carrier when calculating the billable weight.
I recently completed some work for a client that has a high percentage of OS1 packages about 75% to be exact. The package size is a little over three cubic feet. UPS and FedEx Ground were charging the 30-pound rate when the package weighed only eight pounds. Although the packages are 90 inches in combined length and girth, they are symmetrical and conveyable during carrier sortation at the satellite and hub facilities. So the package requires no special handling. In this companys case, the incremental revenue the carriers were receiving far outdistanced the incremental cost to service the package. Take a look at the base price differences between an eight-pound package and a 30-pound package. For zone 4, an eight-pound package is $4.87 and a 30-pound package is $8.91. For zone 6, it is $5.65 and $10.60. For zone 8, its $6.79 and $19.60.
On the carriers cost side, package size significantly impacts linehaul operating cost. The bigger the packages, the fewer packages per trailer and the higher the per package linehaul cost. So it makes sense that carriers want more revenue to offset their increased operating expense. Fair enough. But, in most cases, to treat the package as if it weighs 30 pounds when calculating the billable weight is excessive. For example, lets say a typical eight-pound package is one cubic foot. Lets also say that the linehaul cost to service the average zone-8 package is $1.40. So in the case of my client whose package is three cubic feet, the carrier expense would increase by a factor of three (three cubic feet/one cubic foot). So the zone-8 linehaul cost for a three-cubic-foot package is $4.20. Yet the incremental price for an eight- and 30-pound, zone-8 package is a whopping $12.81 ($19.60 - $6.79). Thats a great trade off for a carrier whose incremental linehaul expense is a mere $2.80, but its plain old price gouging to the shipper.
And dont let the carriers fool you into thinking the dock or pick-up and delivery expense for a larger package is significant. It isnt, and the small amount that may exist certainly doesnt warrant the excessive oversize charge. So the next time your carrier account representative stops by to give you a mug, hat or his obligatory luncheon invitation, ask him if he would explain to you how his company justifies the excessive oversize price when its incremental expenses are so small. His answer will be entertaining, and I am sure youll be able to teach him a thing or two. And while you are at it, demand greater incentive to offset the carriers bludgeoning prices.
No matter how it works out for you, one thing is certain. Somewhere, somehow, Jesse James is looking down with a smile and thinking to himself, If only stage coach robberies were this easy! If only, indeed!
Joe Loughran is president of SmartTran, Inc. SmartTran is a transportation consulting company offering services in carrier rate negotiation, guarantee refund service and logistics planning. SmartTrans management team has over 60 years of experience in parcel transportation management. Joe can be reached by phone at 724-934-0626 or by e-mail at loughran@smarttran.com.
