Please download the PDF in order to see the charts referenced in the article. As always, we will also be publishing this analysis in our January/February issue, so you'll be able to have it in hard copy format, as well.
On September 29th FedEx Express was the first of the parcel carriers to announce their 2011 rate increase. They were followed by UPS on November 1st, USPS on November 2nd, coming back to FedEx with their Ground release on December 3rd. The USPS changes go into effect on January 2nd with FedEx and UPS taking effect on January 3rd. A couple of "Other Charges" do not go into effect until January 17th.
For a taste of what's in this year's article, you will see as in years past that the actual increases by service level vary from the average increases announced in the series of press releases. Unlike recent history, you will find one of the providers taking a rate decrease in one of their service levels in order to entice volume growth. While that applies to a single, select service, for others you will see a wide variance from zero to over 10%. You will find that some minimum charges exceed the average increase while other minimums remain unchanged from this year.
But the big news for 2011 is the change to the dimensional weight calculation for domestic and international, and a later section of this article will be devoted to this important change.
Last year's Rate Analysis included seven charts covering the major domestic services. This year we have expanded the coverage to include hundredweight and international services and are providing 18 charts with additional illustrations of the dimensional changes to provide greater visibility into the 2011 rate increases to help you determine the impact that the 2011 increases will have on your business based on the services, weight levels, and distance or countries to which you ship.
USPS
When the USPS announced that the overall price change for all Shipping Services was going to be 3.6%, it was almost lost in all the news regarding their Flat-Rate products offering. There appeared to be a theme to this year's announcement and that theme was Flat-Rate, mentioned 15 times in the opening paragraphs. Figure 1 shows the rate increases for existing Flat-Rate products is less then their 3.6% announced overall increase.
See Figure 1: Priority Flat-Rate Sample Rates
In addition to the existing product line, the following new flat-rate products will be introduced after the first of the year:
• Priority Mail legal-sized and padded envelopes
• Specialty sized Priority Mail envelopes including Gift Card, Window and Small
• Two sizes of Regional Rate boxes
The core product in the USPS' competitive products segment is still Priority Mail. Figure 2 outlines the 2011 percentage increases for Commercial Base and Commercial Plus.
See Figure 2: USPS Priority Mail Increases
This year's Commercial Base percentage increase is much less and also more uniform then last year's when we saw average/zone jumps of 6.4% in zone L,1,2; 10.5% in zone 2, and a low of 3.9% in zone 8. The Commercial Plus increase looks to be a rather consistent increase in the 2% range but is close to double the overall 1% increase we saw in last year's analysis. Last year the Postal Service introduced a new half-pound rate for Priority Commercial Plus shippers. At the bottom of Figure 2 you will see the increase for this product is about 2% in the short zones to over 6% in the longer zone 8.
Flat-rate products are not the only new additions from the USPS in 2011. The cubic pricing program started last year will grow. Prices for the Priority Cubic rate program are listed in Figure 3 as is the new Critical Mail program.
See Figure 3: USPS Priority Mail New Cubic & Critical Mail Services.
From the Postal News of November 2nd, "Critical Mail is another innovative product offering for January available to Commercial Plus customers. Offering fast, consistent time-in-transit service for sensitive documents such as event tickets, identification cards and high-value direct mail, Critical Mail provides customers with tracking and free Delivery Confirmation. Critical Mail is a category of Priority Mail with First-Class Mail service standards. Additional extra services such as insurance and signature confirmation are also available. Critical Mail requires using USPS-supplied envelopes at a mailing cost of $3.50 for letters and $4.25 for larger, flat-size pieces.
Moving from Priority Mail to Express Mail you see the service level that will be decreasing its rates in 2011. While Express Mail Commercial Base prices remain flat, the Express Mail Commercial Plus prices will be going down 5%.
See Figure 4: USPS Express Mail Increases
An important note for companies looking to take advantage of the Commercial Plus pricing program- the volume requirements have been reduced from the 2010 qualifying levels. Starting in 2011 the qualifier for Express Mail will be 5,000 shipments per year, Priority Mail will be 5,000 per year for docs/flats and 75,000 per year for packages, and the new Critical Mail will start out with a 5,000 per year qualifier. That's works out to approximately 20 pieces per day.
UPS
On November 1st UPS announced, "UPS Ground services will increase a net 4.9% through a combination of a 5.9% increase in rates and a 1% reduction in the UPS Ground services fuel surcharge. UPS Air and International services will increase a net 4.9% through a combination of a 6.9% increase in rates and a 2% reduction in the UPS Air and International services fuel surcharge. In late-November, UPS posted the Preview Rates.
See Figure 5: Ground Absolute Minimum Charge
In assessing the Ground increase we begin with the zone 2, one-pound rate that is used to establish the Absolute Minimum Charge (AMC). Figure 5 follows a pattern from previous years; this particular zone/weight increase of 6.8% is greater than the announced base rate change of 5.9%.
Taking a closer look at the Ground rates in Figure 6, we see that lighter weight shipments have rate increases a point or two above the announced average. In comparing this year's rate analysis to last year's study we also noticed that the 2010 1-5 lb. zone 2 and zone 3 increases were 6.5% and 6.7% respectively compared to this year's 8.0% for both. Overall, the avg/zone increase for 2011 is also running fractions of a percent higher than last year's increase.
See Figure 6: Ground Service Increases
Switching gears to Domestic Air services, we found that the Next Day, 2 Day, and 3 Day Select products follow a similar pattern with smaller overall rate increases in the short zones compared to the increases in the long zones as depicted in Figures 7 and 8.
See Figures 7: UPS Overnight Service
See Figure 8: UPS 2 Day and 3 Day Select Service Increase
We are adding an analysis of the Hundredweight base rate changes to this year's article. Figure 9 provides the percentage increases by tier for each service level. Note that the minimum charges for both the 3 Day and Ground levels did not increase.
See Figure 9: Hundredweight Service Increases
This year we are also providing a glimpse at the suite of International Air export and import services that cover over 200 countries. Given the comprehensive nature of international distribution, it will be important for shippers to take a closer look at the key zones they export to and import from because the base rate changes range from less than 2% to over 10% depending on the international zone. We encourage anyone shipping internationally to take a close look at Figures 10-12 and identify the key zones where they are conducting their business.
See Figures 10: Canada & Mexico Export
See Figure11: International Export
See Figure12: International Import Services
Regarding Surcharges, Accessorials and Other Charges, UPS released these and other changes:
• Address Correction Charge for Ground will increase $1.00 (+ 10%)
• Delivery Area Surcharges will increase $0.15 (+ 9%) for commercial addresses, and $0.25 (+ 10%) for residential addresses
• Declared Value will increase $0.05 (+ 7%) per $100 of the value declared, with a minimum charge of $2.25 (+ 7%)
• Delivery Confirmation Signature Required and Delivery Confirmation Adult Signature Required will increase $0.25 (+ 8% Signature and +6% Adult Signature)
• Residential Surcharge for Ground and Air will increase $0.25 (+ 11% Ground and +10% Air)
The incremental increase in Delivery Area Surcharges is rising at a faster rate this coming year then last year. For 2010 the DAS commercial increase was $0.10 compared to 2011's $0.15 while the DAS residential increase was $0.10 last year compared to the $0.25 raise for this coming year.
In addition to surcharges, UPS also posted their Area Surcharge zip codes list. There are a total of 23,751 zip codes that will be subject to additional surcharges. 4,186 zips fall under the Delivery Area Surcharge category, 19,268 zips are listed under the Extended Delivery Surcharge, both in the lower 48 states. An additional 78 Remote Hawaii and 219 Remote Alaska zip codes are also subject to surcharges.
FedEx
As they've done in recent years, FedEx Express was the first carrier to announce their 2011 rate increase on September 29th and FedEx Ground was the last to announce on December 3rd.
See Figure 13: FedEx Overnight Services
The percentage increases for the three Overnight Service levels listed in Figure 13 virtually mirror the avg/zone percentage increases we saw in last year's analysis. But the increases in 2 Day and Express Saver show a different pattern from what we saw in the 2010 rate increase.
See Figure 14: FedEx 2 Day & Express Saver Services
The avg/zone increases in the 2011 charts for 2 Day service are a full point to a point and a half less than they were in 2010, while the increases for Express Saver are substantially greater then last year. A couple examples will illustrate this point. The 2010 Express Saver increase for 1-5 lb in zone 2 was 1.5%, but in 2011 this increase is 8.9%. Some of the highest rate increases in all of this year's analysis are in Express Saver zones 2-4, 6 lbs and above where we see the rates going up over 10%. It's interesting to see these increases because shippers can route these shorter zone shipments via Ground at a lower price. This increase may have an impact on Undeliverable Express shipments that are returned and billed at the Express Saver rate (see page 115 in the Terms & Conditions section of the FedEx Service Guide.)
This year we've also added analysis on the Multiweight and International Express for FedEx as well. Rate increases for the various Express Multiweight services in Figure 15 show a similar pattern to the Express services with 2 Day having the lowest increases, Express Saver the highest, and the Overnight services in between.
See Figure 15: Multiweight Services
Internationally, the increases in Figure 16 look to be even across the various weight levels in Puerto Rico, Canada and Mexico. Moving out of North America, Export rates rise between a low of 2% up to almost 8% depending on shipment's destination. Imports may be less than 2% or as high as 9%.
See Figure 16: Puerto Rico, Canada and Mexico
See Figure17: International Export Services
See Figure 18: International Import Services
Here are some of the Surcharges and Other Fees changes from the FedEx Express released:
• Additional Handling Charge from $7.50 up to $8.00 (+7%)
• Delivery Area Surcharge for commercial and extended commercial from $1.70 up to $1.85 (+8%)
• Delivery Area Surcharge for residential from $2.50 up to $2.75 (+10%)
• Delivery Area Surcharge for extended residential from $2.75 up to $3.00 (+9%)
• Direct Signature Required moves from $3.00 to $3.25 (+ 8%) and Adult Signature Required goes from $4.00 to $4.25 (+ 6%)
• Residential Delivery Charge from $2.50 up to $2.75 (+ 9%)
Other changes taking effect on January 17th include a per shipment Residential Delivery Charge for Express ($2.75) and Express Freight ($110) shipments from the U.S. to Canada delivered to a home or private residence, including businesses operated out of a home. U.S. Import-related packages and freight shipments from all origins to the U.S. will also be subject to these changes.
There is also an $8.00 Additional Handling Charge that may be applied to First Overnight and Express U.S. Export services for packages that 1.) measures greater than 60 inches in length; 2.) measures greater than 30 inches in length along its second-longest side; 3.) has an actual weight of greater than 70 lbs; or 4.) does not meet other packaging guidelines.
On December 3rd FedEx updated the 2011 Rate Information on their web site by posting their 2011 Ground & Multiweight rates. As in past years, FedEx Ground rates mirror the UPS Ground base rates through 70 pounds and are $0.05 less 71-150 pounds.
Whether it is FedEx, UPS or the USPS, I encourage readers to go to the carrier web sites to confirm these and other rate and rule changes. I also suggest that while you're on those sites, be sure to download a copy of the latest Terms & Conditions document for your records as well.
While the above Additional Handling Charge may seem like a rather small item, it is an example of how the size and weight of your shipments really do matter- as we're about to find out in the next section.
The Dimensional Weight Calculation
Differences between announced average versus specific rate increases and changes in surcharges happen every year, but the change that may have the biggest impact on parcel shippers going into 2011 are the new Dim Factors. The divisors for domestic ground and air change from 194 down to 166 and the divisor for international air moves from 166 down to 139. While the Dim Factors do not apply to ground shipments less than 3 cubic feet, that minimum measure does not hold true for air, making all air packages subject to dimensionalization.
By now, shippers should have heard all the news related to this change. For anyone who has not, as of the time of this writing, you can access the specifics at either:
http://www.fedex.com/us/2011rates/otherchanges.html
http://www.rates.ups.com/
I also anticipate the carriers to update these changes with their respective Service Guides and applicable Terms & Conditions to be published on January 3, 2011.
What is the real impact of this change? The adjacent illustration takes three box sizes and shows you the difference between the old and new dim factors across ground, domestic air and international air.
See Illustration of the Dimensional Weight Calculation Change
The first thing you may notice is the importance of the 3 cubic foot rule minimum on ground shipments. That helped to ensure the dimensional rule did not apply to two of the packages (as well as any other box sizes with a smaller volume then those chosen in this illustration). But there is no 3 cubic foot minimum on air shipments so how will air shippers be impacted?
Let's focus on the 18 x 12 x 12 box across the three services. If this box is shipped via ground, the Dim Factor does not apply; but if shipped via domestic air the new Dim Factor changes it from 14 lb. up to 16 lb. representing a 14% increase in billable weight. If this same box is shipped via international air the new Dim Factor increases it from 16 lb. up to 19 lb., nearly a 19% change in billable weight.
That's why many of the industry pundits are talking about the impact the Dimensional Weight Calculation will have on many shippers. The design of the package, type of package selected, and especially the choice of void fill become more important. Packaging efficiently and densely to ensure the shipment arrives damage free while trying to avoid Dim Weight adjustments will be a challenge for shippers in 2011.
Closing Comments
There has always been a great deal of talk about rate increases being excessive, some of the highest in history and no doubt you will hear those comments regarding the 2011 changes. PARCEL has been kind enough to extend these pages in order to provide you with information to help you better determine the impact of the rate change. But it's neither the hype nor a review of base rates that is going to determine the impact that the 2011 parcel rate increase will have on your company. The real impact will be based on the terms of your carrier agreement.
Let me wrap-up this year's analysis by reiterating a point I made last year:
Rates themselves are only one piece of an increasingly complex puzzle you must solve in order to properly identify your total cost of parcel transportation. No matter which carrier you are using, you'll need clear visibility into your package distribution pattern, a thorough understanding of your service agreement as well as a review of the applicable Terms & Conditions from the carrier's Service Guides and Tariffs in order to determine the specific impact this year's rate change will have on your business.
Doug Kahl is Founder & Principal of Integrity Logistics Consulting Group, Executive Consultant, Parcel for TranzAct Technologies, and a contributing writer to PARCEL. Contact him at doug.kahl@integrityLCG.com.
View Charts for PARCEL article.pdf
On September 29th FedEx Express was the first of the parcel carriers to announce their 2011 rate increase. They were followed by UPS on November 1st, USPS on November 2nd, coming back to FedEx with their Ground release on December 3rd. The USPS changes go into effect on January 2nd with FedEx and UPS taking effect on January 3rd. A couple of "Other Charges" do not go into effect until January 17th.
For a taste of what's in this year's article, you will see as in years past that the actual increases by service level vary from the average increases announced in the series of press releases. Unlike recent history, you will find one of the providers taking a rate decrease in one of their service levels in order to entice volume growth. While that applies to a single, select service, for others you will see a wide variance from zero to over 10%. You will find that some minimum charges exceed the average increase while other minimums remain unchanged from this year.
But the big news for 2011 is the change to the dimensional weight calculation for domestic and international, and a later section of this article will be devoted to this important change.
Last year's Rate Analysis included seven charts covering the major domestic services. This year we have expanded the coverage to include hundredweight and international services and are providing 18 charts with additional illustrations of the dimensional changes to provide greater visibility into the 2011 rate increases to help you determine the impact that the 2011 increases will have on your business based on the services, weight levels, and distance or countries to which you ship.
USPS
When the USPS announced that the overall price change for all Shipping Services was going to be 3.6%, it was almost lost in all the news regarding their Flat-Rate products offering. There appeared to be a theme to this year's announcement and that theme was Flat-Rate, mentioned 15 times in the opening paragraphs. Figure 1 shows the rate increases for existing Flat-Rate products is less then their 3.6% announced overall increase.
See Figure 1: Priority Flat-Rate Sample Rates
In addition to the existing product line, the following new flat-rate products will be introduced after the first of the year:
• Priority Mail legal-sized and padded envelopes
• Specialty sized Priority Mail envelopes including Gift Card, Window and Small
• Two sizes of Regional Rate boxes
The core product in the USPS' competitive products segment is still Priority Mail. Figure 2 outlines the 2011 percentage increases for Commercial Base and Commercial Plus.
See Figure 2: USPS Priority Mail Increases
This year's Commercial Base percentage increase is much less and also more uniform then last year's when we saw average/zone jumps of 6.4% in zone L,1,2; 10.5% in zone 2, and a low of 3.9% in zone 8. The Commercial Plus increase looks to be a rather consistent increase in the 2% range but is close to double the overall 1% increase we saw in last year's analysis. Last year the Postal Service introduced a new half-pound rate for Priority Commercial Plus shippers. At the bottom of Figure 2 you will see the increase for this product is about 2% in the short zones to over 6% in the longer zone 8.
Flat-rate products are not the only new additions from the USPS in 2011. The cubic pricing program started last year will grow. Prices for the Priority Cubic rate program are listed in Figure 3 as is the new Critical Mail program.
See Figure 3: USPS Priority Mail New Cubic & Critical Mail Services.
From the Postal News of November 2nd, "Critical Mail is another innovative product offering for January available to Commercial Plus customers. Offering fast, consistent time-in-transit service for sensitive documents such as event tickets, identification cards and high-value direct mail, Critical Mail provides customers with tracking and free Delivery Confirmation. Critical Mail is a category of Priority Mail with First-Class Mail service standards. Additional extra services such as insurance and signature confirmation are also available. Critical Mail requires using USPS-supplied envelopes at a mailing cost of $3.50 for letters and $4.25 for larger, flat-size pieces.
Moving from Priority Mail to Express Mail you see the service level that will be decreasing its rates in 2011. While Express Mail Commercial Base prices remain flat, the Express Mail Commercial Plus prices will be going down 5%.
See Figure 4: USPS Express Mail Increases
An important note for companies looking to take advantage of the Commercial Plus pricing program- the volume requirements have been reduced from the 2010 qualifying levels. Starting in 2011 the qualifier for Express Mail will be 5,000 shipments per year, Priority Mail will be 5,000 per year for docs/flats and 75,000 per year for packages, and the new Critical Mail will start out with a 5,000 per year qualifier. That's works out to approximately 20 pieces per day.
UPS
On November 1st UPS announced, "UPS Ground services will increase a net 4.9% through a combination of a 5.9% increase in rates and a 1% reduction in the UPS Ground services fuel surcharge. UPS Air and International services will increase a net 4.9% through a combination of a 6.9% increase in rates and a 2% reduction in the UPS Air and International services fuel surcharge. In late-November, UPS posted the Preview Rates.
See Figure 5: Ground Absolute Minimum Charge
In assessing the Ground increase we begin with the zone 2, one-pound rate that is used to establish the Absolute Minimum Charge (AMC). Figure 5 follows a pattern from previous years; this particular zone/weight increase of 6.8% is greater than the announced base rate change of 5.9%.
Taking a closer look at the Ground rates in Figure 6, we see that lighter weight shipments have rate increases a point or two above the announced average. In comparing this year's rate analysis to last year's study we also noticed that the 2010 1-5 lb. zone 2 and zone 3 increases were 6.5% and 6.7% respectively compared to this year's 8.0% for both. Overall, the avg/zone increase for 2011 is also running fractions of a percent higher than last year's increase.
See Figure 6: Ground Service Increases
Switching gears to Domestic Air services, we found that the Next Day, 2 Day, and 3 Day Select products follow a similar pattern with smaller overall rate increases in the short zones compared to the increases in the long zones as depicted in Figures 7 and 8.
See Figures 7: UPS Overnight Service
See Figure 8: UPS 2 Day and 3 Day Select Service Increase
We are adding an analysis of the Hundredweight base rate changes to this year's article. Figure 9 provides the percentage increases by tier for each service level. Note that the minimum charges for both the 3 Day and Ground levels did not increase.
See Figure 9: Hundredweight Service Increases
This year we are also providing a glimpse at the suite of International Air export and import services that cover over 200 countries. Given the comprehensive nature of international distribution, it will be important for shippers to take a closer look at the key zones they export to and import from because the base rate changes range from less than 2% to over 10% depending on the international zone. We encourage anyone shipping internationally to take a close look at Figures 10-12 and identify the key zones where they are conducting their business.
See Figures 10: Canada & Mexico Export
See Figure11: International Export
See Figure12: International Import Services
Regarding Surcharges, Accessorials and Other Charges, UPS released these and other changes:
• Address Correction Charge for Ground will increase $1.00 (+ 10%)
• Delivery Area Surcharges will increase $0.15 (+ 9%) for commercial addresses, and $0.25 (+ 10%) for residential addresses
• Declared Value will increase $0.05 (+ 7%) per $100 of the value declared, with a minimum charge of $2.25 (+ 7%)
• Delivery Confirmation Signature Required and Delivery Confirmation Adult Signature Required will increase $0.25 (+ 8% Signature and +6% Adult Signature)
• Residential Surcharge for Ground and Air will increase $0.25 (+ 11% Ground and +10% Air)
The incremental increase in Delivery Area Surcharges is rising at a faster rate this coming year then last year. For 2010 the DAS commercial increase was $0.10 compared to 2011's $0.15 while the DAS residential increase was $0.10 last year compared to the $0.25 raise for this coming year.
In addition to surcharges, UPS also posted their Area Surcharge zip codes list. There are a total of 23,751 zip codes that will be subject to additional surcharges. 4,186 zips fall under the Delivery Area Surcharge category, 19,268 zips are listed under the Extended Delivery Surcharge, both in the lower 48 states. An additional 78 Remote Hawaii and 219 Remote Alaska zip codes are also subject to surcharges.
FedEx
As they've done in recent years, FedEx Express was the first carrier to announce their 2011 rate increase on September 29th and FedEx Ground was the last to announce on December 3rd.
See Figure 13: FedEx Overnight Services
The percentage increases for the three Overnight Service levels listed in Figure 13 virtually mirror the avg/zone percentage increases we saw in last year's analysis. But the increases in 2 Day and Express Saver show a different pattern from what we saw in the 2010 rate increase.
See Figure 14: FedEx 2 Day & Express Saver Services
The avg/zone increases in the 2011 charts for 2 Day service are a full point to a point and a half less than they were in 2010, while the increases for Express Saver are substantially greater then last year. A couple examples will illustrate this point. The 2010 Express Saver increase for 1-5 lb in zone 2 was 1.5%, but in 2011 this increase is 8.9%. Some of the highest rate increases in all of this year's analysis are in Express Saver zones 2-4, 6 lbs and above where we see the rates going up over 10%. It's interesting to see these increases because shippers can route these shorter zone shipments via Ground at a lower price. This increase may have an impact on Undeliverable Express shipments that are returned and billed at the Express Saver rate (see page 115 in the Terms & Conditions section of the FedEx Service Guide.)
This year we've also added analysis on the Multiweight and International Express for FedEx as well. Rate increases for the various Express Multiweight services in Figure 15 show a similar pattern to the Express services with 2 Day having the lowest increases, Express Saver the highest, and the Overnight services in between.
See Figure 15: Multiweight Services
Internationally, the increases in Figure 16 look to be even across the various weight levels in Puerto Rico, Canada and Mexico. Moving out of North America, Export rates rise between a low of 2% up to almost 8% depending on shipment's destination. Imports may be less than 2% or as high as 9%.
See Figure 16: Puerto Rico, Canada and Mexico
See Figure17: International Export Services
See Figure 18: International Import Services
Here are some of the Surcharges and Other Fees changes from the FedEx Express released:
• Additional Handling Charge from $7.50 up to $8.00 (+7%)
• Delivery Area Surcharge for commercial and extended commercial from $1.70 up to $1.85 (+8%)
• Delivery Area Surcharge for residential from $2.50 up to $2.75 (+10%)
• Delivery Area Surcharge for extended residential from $2.75 up to $3.00 (+9%)
• Direct Signature Required moves from $3.00 to $3.25 (+ 8%) and Adult Signature Required goes from $4.00 to $4.25 (+ 6%)
• Residential Delivery Charge from $2.50 up to $2.75 (+ 9%)
Other changes taking effect on January 17th include a per shipment Residential Delivery Charge for Express ($2.75) and Express Freight ($110) shipments from the U.S. to Canada delivered to a home or private residence, including businesses operated out of a home. U.S. Import-related packages and freight shipments from all origins to the U.S. will also be subject to these changes.
There is also an $8.00 Additional Handling Charge that may be applied to First Overnight and Express U.S. Export services for packages that 1.) measures greater than 60 inches in length; 2.) measures greater than 30 inches in length along its second-longest side; 3.) has an actual weight of greater than 70 lbs; or 4.) does not meet other packaging guidelines.
On December 3rd FedEx updated the 2011 Rate Information on their web site by posting their 2011 Ground & Multiweight rates. As in past years, FedEx Ground rates mirror the UPS Ground base rates through 70 pounds and are $0.05 less 71-150 pounds.
Whether it is FedEx, UPS or the USPS, I encourage readers to go to the carrier web sites to confirm these and other rate and rule changes. I also suggest that while you're on those sites, be sure to download a copy of the latest Terms & Conditions document for your records as well.
While the above Additional Handling Charge may seem like a rather small item, it is an example of how the size and weight of your shipments really do matter- as we're about to find out in the next section.
The Dimensional Weight Calculation
Differences between announced average versus specific rate increases and changes in surcharges happen every year, but the change that may have the biggest impact on parcel shippers going into 2011 are the new Dim Factors. The divisors for domestic ground and air change from 194 down to 166 and the divisor for international air moves from 166 down to 139. While the Dim Factors do not apply to ground shipments less than 3 cubic feet, that minimum measure does not hold true for air, making all air packages subject to dimensionalization.
By now, shippers should have heard all the news related to this change. For anyone who has not, as of the time of this writing, you can access the specifics at either:
http://www.fedex.com/us/2011rates/otherchanges.html
http://www.rates.ups.com/
I also anticipate the carriers to update these changes with their respective Service Guides and applicable Terms & Conditions to be published on January 3, 2011.
What is the real impact of this change? The adjacent illustration takes three box sizes and shows you the difference between the old and new dim factors across ground, domestic air and international air.
See Illustration of the Dimensional Weight Calculation Change
The first thing you may notice is the importance of the 3 cubic foot rule minimum on ground shipments. That helped to ensure the dimensional rule did not apply to two of the packages (as well as any other box sizes with a smaller volume then those chosen in this illustration). But there is no 3 cubic foot minimum on air shipments so how will air shippers be impacted?
Let's focus on the 18 x 12 x 12 box across the three services. If this box is shipped via ground, the Dim Factor does not apply; but if shipped via domestic air the new Dim Factor changes it from 14 lb. up to 16 lb. representing a 14% increase in billable weight. If this same box is shipped via international air the new Dim Factor increases it from 16 lb. up to 19 lb., nearly a 19% change in billable weight.
That's why many of the industry pundits are talking about the impact the Dimensional Weight Calculation will have on many shippers. The design of the package, type of package selected, and especially the choice of void fill become more important. Packaging efficiently and densely to ensure the shipment arrives damage free while trying to avoid Dim Weight adjustments will be a challenge for shippers in 2011.
Closing Comments
There has always been a great deal of talk about rate increases being excessive, some of the highest in history and no doubt you will hear those comments regarding the 2011 changes. PARCEL has been kind enough to extend these pages in order to provide you with information to help you better determine the impact of the rate change. But it's neither the hype nor a review of base rates that is going to determine the impact that the 2011 parcel rate increase will have on your company. The real impact will be based on the terms of your carrier agreement.
Let me wrap-up this year's analysis by reiterating a point I made last year:
Rates themselves are only one piece of an increasingly complex puzzle you must solve in order to properly identify your total cost of parcel transportation. No matter which carrier you are using, you'll need clear visibility into your package distribution pattern, a thorough understanding of your service agreement as well as a review of the applicable Terms & Conditions from the carrier's Service Guides and Tariffs in order to determine the specific impact this year's rate change will have on your business.
Doug Kahl is Founder & Principal of Integrity Logistics Consulting Group, Executive Consultant, Parcel for TranzAct Technologies, and a contributing writer to PARCEL. Contact him at doug.kahl@integrityLCG.com.
View Charts for PARCEL article.pdf
