As most of us have heard by now, FedEx Express, FedEx Ground, and FedEx Freight, subsidiaries of FedEx Corp., will increase shipping rates effective January 1, 2018 by an average of 4.9%. The change will impact the following:
· Express package and freight standard list rates for US, US export, and US import services
· FedEx Ground and Home Delivery standard list rates
· FedEx Freight rates
As everyone is busy digesting what this means to their individual businesses, it’s important not to lose sight of a change that was announced with slightly less fanfare. Potentially one of the most impactful changes for 2018 comes with the announcement that FedEx will begin applying a dimensional weight (DIM) factor of 139 to all SmartPost packages. This change will become effective on January 22. The change will align SmartPost dimensional weight pricing with that of FedEx Express and FedEx Ground. It also more closely aligns FedEx SmartPost dimensional weight pricing with that of UPS SurePost, although UPS still has a higher DIM factor for packages measuring less than one cubic foot. (As of this writing, UPS has not announced their 2018 rate changes.)
Looking at a few examples can help illustrate the impact of this change. Consider the following three SmartPost packages, all rated using the non-discounted FedEx SmartPost rates for zone 5. The examples compare the 2017, non-dimensionalized rate to the 2018 dimensionalized rate. The percentage cost increase is significant and illustrates why the 4.9% announced average should be taken with a grain of salt and why changes to DIM pricing are often more impactful than other changes.
For the time being at least, this change gives UPS a slight advantage given that SurePost packages that measure less than one cubic foot are being dimensionalized using a factor of 166. As previously stated, it remains to be seen what changes are in store for UPS in 2018.
Most shippers understand by now that there is usually very little correlation between the carriers’ announced average increase and the actual increase by service level, zone, and weight. Additionally, shippers understand that the impact to their parcel budget can vary significantly from the announced average increase. The devil is in the details, as illustrated above using the SmartPost DIM examples.
Dave Sullivan is a Senior Consultant for Shipware, LLC, a San Diego-based parcel consulting firm. Dave has over 17 years of experience in logistics and transportation with a keen understanding for how the carriers structure margin-based parcel contracts. Dave also has extensive experience in LTL contract and rate structure, parcel network design and contract negotiation. Dave has dedicated his career to assisting well-known companies dramatically reduce their shipping costs.