Within the logistics and supply chain spheres, it is possible to find a sheer array of terms and sub-processes that come into play when trying to get the whole picture. It is 2017 and it is quite clear that next year will be crucial for the way prices of small packages and LTL, commonly referred to as “less than truckload”, shipments. In order to always provide new insights and inputs about this field, David Kiger has previously talked about different parts and components of the both the whole supply chain and logistics, which is why addressing the packaging topic makes perfect sense.
FedEx and UPS, both of which are known for dominating the national small and traditional package market with more than 85% share between the two, recently announced that dimensional weight, a new concept also known as dim weight, would be applied to all Canadian and North American shipments. And even though dimensional weight pricing, which was also coined as volumetric pricing in the past, has always been the traditional standard in air shipments for decades, the application is now being used in small packages and ground transportation. During its conception, the aforementioned companies, FedEx and UPS, started to try the dimensional weight pricing approach to shipments larger than three cubic feet. Nonetheless, the change that took place and was implemented in the United States applies now to all kinds of ground packages irrespective of size.
But, what does dimensional weight mean after all? In short: shipping costs are calculated based on the highest of two different measurements: package size or package weight. Package weight is pretty much self-explanatory and does not require further explanation, since pretty much everyone is familiar with the approach; however, it is quite foreseeable that for many companies and individuals receiving shipments fees based on the using package size as the basis will be a whole new phenomenon that is going to cost them a lot of effort, resources, and money.
The calculations behind the aforementioned process are length times width times height—L x W x H—with all dimensions conceived in inches and then divided by a predetermined divisor: 166. The resulting figure is subsequently rounded up to the nearest number and, ultimately, that describes the package’s dimensional weight. All those shipments and dispatches to Canada, because this approach spans over Canada aside from the United States as well, use the divisor of 139, thusly making the shipments up to 20% more expensive.
And what is the driver or motive behind this whole dimensional weight pricing approach? The key reason is the staggering growth of the e-commerce industry and the tremendous impact it has brought to the small and traditional package delivery industry. Long before any individual became aware about Amazon, the small and traditional package industry was pretty much nonexistent, and it was rather somewhat of a business to business model approach, with thousands of many small packages going out daily to a finite number of recipients. The shipper actually managed to become relatively efficient and effective in their methodologies, which allowed them to comply with the shipments without major issues.
But today’s e-commerce juncture is quite inefficient. Moreover, the traditional or regular e-commerce package methodology is composed of up to 35% air and filling material, leaving UPS and FedEx trailers extremely airy. And while many retailers can haul up to more than 40,000 pounds of freight, small package couriers and carriers are now constantly struggling to get a hold of 20,000 pounds in a single trailer. The traditional and regularly accepted way of calculating the bills based merely on the package’s weight would give companies no solid reason to scale their operations to a more efficient level. In fact, such inefficiency merely passed along to transportation. By using and putting dimensional weight pricing into practice, both FedEx and UPS have come up with a new way to push the inefficiency sanction to the source of origin, in this case, the shippers.
So, as businesses start to internalize this methodology, those resourceful and adaptive shippers will see minor alterations in their traditional shipping costs; however, those that are used to shipping lots of filling material and air will be subject of tremendous challenges ahead in order to maintain their profit and margins. Shipping cost increases can surpass the $1 billion mark, making this shift a tremendous and unexpected potential for shipping companies, especially for UPS and its counterpart FedEx. And since there have been, since the inception of the approach, many voices of suggestions on how to cope with dimensional weight, most businesses without important or significant volumes are simply unable to foresee and anticipate much of a positive outcome while coming up with a modification in either lead times or the calculation of the application.
On the other hand, many well-established and large companies have already reached more suitable terms, and definitely more favorable figures, regarding dimensional weight—with many actually securing delays as long as a whole year, while other were provided with a much better (larger in this case) divisor than the aforementioned 166, thusly making the impact of the measurement less daunting and dreadful.
* Featured Image courtesy of Pixabay at Pexels.com