Many shippers we’ve talked to over the last several months have some basic misunderstandings about DIM weighting, and the resulting planning efforts are often leading them down the wrong path. We’ve already covered how DIM weight is calculated in previous articles. Now let’s take a look at some of the “common knowledge” that’s circulating out there.
Many shippers are planning, or have executed, a shift from Ground to Surepost/Smartpost to avoid the DIM issue. Where UPS is the current carrier, there are some serious issues to consider. Surepost packages have been subject to DIM weighting for some time. However, the same threshold that was in place for Ground also applied to Surepost. If a package was smaller than three cubic feet, DIM weighting did not apply. UPS changed this in the 2015 GRI; removing the threshold so that now all Surepost packages are subject to DIM weighting regardless of size. This means that simple conversion from Ground to Surepost does not solve the problem. Certainly if your Surepost rates are lower than Ground, this strategy should reduce the impact, but most times the cost advantage of Surepost revolves around surcharges, not the transportation rates. So the cost/benefit equation is really no different now than it was pre-GRI.
For FedEx the issue is simpler (for now). FedEx Smartpost packages are not subject to DIM weighting. Not only have they not removed the threshold, there wasn’t a threshold to remove as DIM weighting simply doesn’t apply to Smartpost packages. However, the industry consensus is that FedEx will move to implementing DIM weighting for Smartpost sooner rather than later. The expectation is that FedEx will implement this change with the 2016 GRI if not before. And few would be surprised if the change was made mid-2015.
Various regional / niche carriers handle DIM weighting in different ways. Spee Dee Delivery doesn’t DIM packages with a length + girth of less than 130 inches. While OnTrac’s Service Guide does not reference a DIM threshold, their standard DIM Divisor is still 194, giving them an advantage over UPS and FedEx. Standard terms and conditions vary across the regional players, but we have seen more willingness to accommodate shippers through contractual concessions from the smaller carrier than we have seen with the big two.
And let’s not forget the USPS. At this time DIM weighting and cubic pricing is not part of the USPS’ standard pricing logic. While the USPS will occasionally propose contractual pricing based on package cube, this is not an issue for most shippers. This makes the USPS a viable option in mitigating the budget impact of the new DIM logic. The September 2014 rate cut at the USPS makes the USPS an even better option. However, shippers should bear in mind that a rate increase has been requested and, if approved, would make them less attractive than they are today.
This brings us to the topic of negotiated concessions. Leaving aside the obvious operational options (carton studies, fill optimization, etc.), negotiated concessions are the most effective way to mitigate the impact of DIM weighting. Generally speaking there are four ways to approach this:
1. DIM Divisor – All other things being equal, increasing the DIM divisor will reduce the DIM weight on your packages. What divisor do you need to eliminate the impact of removing the threshold? That will vary from shipper to shipper, and will require careful analysis to quantify.
2. Contractual Thresholds – UPS and FedEx have removed the 3 cubic foot threshold for Ground, and UPS has removed it for Surepost as well. But this doesn’t mean that thresholds cannot be implemented via pricing agreement. Both carriers have the capability to implement threshold logic in their pricing systems, so this is a legitimate option for most midsize-to-large shippers.
3. Tiered DIM Structures – A final option is to negotiate a tiered DIM program. Usually this is set up such that packages below a certain cubic threshold would be subject to one DIM divisors, while packages above that threshold would be subject to another. An example is provided below:
Threshold Dim Divisor
Many shippers are planning, or have executed, a shift from Ground to Surepost/Smartpost to avoid the DIM issue. Where UPS is the current carrier, there are some serious issues to consider. Surepost packages have been subject to DIM weighting for some time. However, the same threshold that was in place for Ground also applied to Surepost. If a package was smaller than three cubic feet, DIM weighting did not apply. UPS changed this in the 2015 GRI; removing the threshold so that now all Surepost packages are subject to DIM weighting regardless of size. This means that simple conversion from Ground to Surepost does not solve the problem. Certainly if your Surepost rates are lower than Ground, this strategy should reduce the impact, but most times the cost advantage of Surepost revolves around surcharges, not the transportation rates. So the cost/benefit equation is really no different now than it was pre-GRI.
For FedEx the issue is simpler (for now). FedEx Smartpost packages are not subject to DIM weighting. Not only have they not removed the threshold, there wasn’t a threshold to remove as DIM weighting simply doesn’t apply to Smartpost packages. However, the industry consensus is that FedEx will move to implementing DIM weighting for Smartpost sooner rather than later. The expectation is that FedEx will implement this change with the 2016 GRI if not before. And few would be surprised if the change was made mid-2015.
Various regional / niche carriers handle DIM weighting in different ways. Spee Dee Delivery doesn’t DIM packages with a length + girth of less than 130 inches. While OnTrac’s Service Guide does not reference a DIM threshold, their standard DIM Divisor is still 194, giving them an advantage over UPS and FedEx. Standard terms and conditions vary across the regional players, but we have seen more willingness to accommodate shippers through contractual concessions from the smaller carrier than we have seen with the big two.
And let’s not forget the USPS. At this time DIM weighting and cubic pricing is not part of the USPS’ standard pricing logic. While the USPS will occasionally propose contractual pricing based on package cube, this is not an issue for most shippers. This makes the USPS a viable option in mitigating the budget impact of the new DIM logic. The September 2014 rate cut at the USPS makes the USPS an even better option. However, shippers should bear in mind that a rate increase has been requested and, if approved, would make them less attractive than they are today.
This brings us to the topic of negotiated concessions. Leaving aside the obvious operational options (carton studies, fill optimization, etc.), negotiated concessions are the most effective way to mitigate the impact of DIM weighting. Generally speaking there are four ways to approach this:
1. DIM Divisor – All other things being equal, increasing the DIM divisor will reduce the DIM weight on your packages. What divisor do you need to eliminate the impact of removing the threshold? That will vary from shipper to shipper, and will require careful analysis to quantify.
2. Contractual Thresholds – UPS and FedEx have removed the 3 cubic foot threshold for Ground, and UPS has removed it for Surepost as well. But this doesn’t mean that thresholds cannot be implemented via pricing agreement. Both carriers have the capability to implement threshold logic in their pricing systems, so this is a legitimate option for most midsize-to-large shippers.
3. Tiered DIM Structures – A final option is to negotiate a tiered DIM program. Usually this is set up such that packages below a certain cubic threshold would be subject to one DIM divisors, while packages above that threshold would be subject to another. An example is provided below:
Threshold Dim Divisor
< 3 cu. ft. 194
>= 3 cu. ft. 225
4 Through other means - Most shippers are less concerned about why they are being charged than what they are being charged. Therefore, the carriers could offset the increased charges stemming from DIM weighting by offering concessions in different areas; be that transportation charges, surcharges, fuel, rebates, etc.
With all of these strategies, play close attention to the term of the concession. It is common practice for both UPS and FedEx to offer these concessions for a one year term only, even when the agreement term is longer.
Joe Wilkinson is Director, Consulting, Transportation Solutions for enVista.
With all of these strategies, play close attention to the term of the concession. It is common practice for both UPS and FedEx to offer these concessions for a one year term only, even when the agreement term is longer.
Joe Wilkinson is Director, Consulting, Transportation Solutions for enVista.
