As the owner of one of the largest and fastest growing Parcel Auditing and Contract Negotiating firms in the domestic US, I am constantly fielding inquiries from shippers regarding their small parcel shipping costs. It's clear from the questions I get, that people, regardless of the size of their company, are not fully aware of the tremendous impact the yearly UPS/Fed Ex increases are having on an organization’s transportation costs. The most common question I am hearing is “Why are my 2011 shipping costs skyrocketing while my shipping volume is flat from 2010?
I am not surprised by the lack of understanding, with the parcel carrier’s weekly billing and their agreements becoming more and more complex. Carriers traditionally lead companies to believe that the yearly increases are primarily in their “base rates”, when in fact, the increases carriers make in their “accessorial or surcharges” can be far more significant than the increase in the rates. Many people believe that in 2011 their parcel shipping spend will increase by about 5%. In reality, the “base rate” increase combined with the increase in “accessorial fees and surcharges” can lead to an overall shipping cost increase of 6% to 10%; in many instance even higher.
Being aware of the full impact of the increases, and having extensive reporting visibility into your shipping costs is necessary to help mitigate your ever increasing overall shipping spend. I encourage everyone I meet to open a discussion with their parcel carrier with regards to rate increases and the effect of its overall impact on your company. I urge people to renegotiate pricing and contractual considerations and fully understand where the rate increases are coming from. I would venture to say that companies will realize a 10% to 25% annual savings with the proper due diligence and auditing process in place.
In 2011, the most significant change was in the way that carriers calculate their dimensional weights - the divisor used to calculate dimensional weight changed from 194 to 166. It is an absolute necessity for companies to fully understand the Dimensional Weight calculations and how to minimize the cost, and how this increase affects your particular business. Any ground package with dimensions (length x width x height) exceeding 5184 cubic inches (3 cubic feet) will be subjected to the carriers dimensional weight calculation (length x width x height divided by 166); whichever is greater, the actual weight of the package or the dimensional weight is what you will be billed for. Note: All air packages are subjected to the dimensional weight calculation regardless of actual weigh and size.
As an example, if you shipped a ground package in 2010 weighing 15 lbs. and that package was 8000 cubic inches (20”L x 20”w x 20”h) it would have been billed at 42 lbs (8000 cubic inches divided by 194 = 41.23) . If you were to ship that same package in 2011 it will be billed at 49 lbs (8000 cubic inches divided by 166 = 48.19). On this particular package, the change in the divisor from 194 to 166 resulted in a 17% increase in your billed weight. If you’re shipping thousands of packages a year, as all of my clients do, this becomes a significant amount of money.
My response to people who broach this subject with me is always the same - have complete visibility into your packages’ characteristics and distribution pattern in order to determine the full impact of this year's rate and accessorial changes. Remember the 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. I also strongly recommend they hire a professional Parcel Contract Negotiation firm that knows as much, and likely more than your carrier does. Keep in mind; professional auditing and contract negotiating firms only make money by reducing company’s shipping costs, while your carrier’s account manager only makes money by increasing your company’s cost. If your carrier’s account manager tries to deter you from using a professional third party auditing and contract negotiating company, perhaps your terrific relationship isn’t as terrific as you thought. And please remember two very important things: (1) never, ever give up your right to claim refunds for packages that are delivered late; no matter what your carrier tells you or offers you, this is never in your company’s best interest and (2) the carriers are not your partners; they are your vendors.
I am not surprised by the lack of understanding, with the parcel carrier’s weekly billing and their agreements becoming more and more complex. Carriers traditionally lead companies to believe that the yearly increases are primarily in their “base rates”, when in fact, the increases carriers make in their “accessorial or surcharges” can be far more significant than the increase in the rates. Many people believe that in 2011 their parcel shipping spend will increase by about 5%. In reality, the “base rate” increase combined with the increase in “accessorial fees and surcharges” can lead to an overall shipping cost increase of 6% to 10%; in many instance even higher.
Being aware of the full impact of the increases, and having extensive reporting visibility into your shipping costs is necessary to help mitigate your ever increasing overall shipping spend. I encourage everyone I meet to open a discussion with their parcel carrier with regards to rate increases and the effect of its overall impact on your company. I urge people to renegotiate pricing and contractual considerations and fully understand where the rate increases are coming from. I would venture to say that companies will realize a 10% to 25% annual savings with the proper due diligence and auditing process in place.
In 2011, the most significant change was in the way that carriers calculate their dimensional weights - the divisor used to calculate dimensional weight changed from 194 to 166. It is an absolute necessity for companies to fully understand the Dimensional Weight calculations and how to minimize the cost, and how this increase affects your particular business. Any ground package with dimensions (length x width x height) exceeding 5184 cubic inches (3 cubic feet) will be subjected to the carriers dimensional weight calculation (length x width x height divided by 166); whichever is greater, the actual weight of the package or the dimensional weight is what you will be billed for. Note: All air packages are subjected to the dimensional weight calculation regardless of actual weigh and size.
As an example, if you shipped a ground package in 2010 weighing 15 lbs. and that package was 8000 cubic inches (20”L x 20”w x 20”h) it would have been billed at 42 lbs (8000 cubic inches divided by 194 = 41.23) . If you were to ship that same package in 2011 it will be billed at 49 lbs (8000 cubic inches divided by 166 = 48.19). On this particular package, the change in the divisor from 194 to 166 resulted in a 17% increase in your billed weight. If you’re shipping thousands of packages a year, as all of my clients do, this becomes a significant amount of money.
My response to people who broach this subject with me is always the same - have complete visibility into your packages’ characteristics and distribution pattern in order to determine the full impact of this year's rate and accessorial changes. Remember the 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. I also strongly recommend they hire a professional Parcel Contract Negotiation firm that knows as much, and likely more than your carrier does. Keep in mind; professional auditing and contract negotiating firms only make money by reducing company’s shipping costs, while your carrier’s account manager only makes money by increasing your company’s cost. If your carrier’s account manager tries to deter you from using a professional third party auditing and contract negotiating company, perhaps your terrific relationship isn’t as terrific as you thought. And please remember two very important things: (1) never, ever give up your right to claim refunds for packages that are delivered late; no matter what your carrier tells you or offers you, this is never in your company’s best interest and (2) the carriers are not your partners; they are your vendors.
