Dimensional Rating is Pure Profit for UPS and FedEx

By: Michael Everson

DigitalShipper Logistics Software – Small Parcel & LTL Shipping Execution Software

Whether you’re a manufacturer, distributor or retailer, the recent changes in the way carriers charge for shipping consumer goods has already had an impact on your bottom line. In a move that was announced during the first half of 2014, FedEx and UPS altered the manner in which they would charge companies using their services.

According to Logistics Management, the prices for all FedEx Ground parcels would be levied according to dimensions and weight starting Jan. 1, 2015. Shortly thereafter, UPS followed suit announcing it would charge according to DIM standards instead of the weight alone for all Ground shipments, where previously it was only applied to packages measuring three cubic feet (5184 cubic feet) or greater. Business owners and shippers have had a significant amount of time to prepare for and anticipate the effects of the new pricing models, but it’s only recently that they’ve been able to experience them firsthand.

The prediction, as Logistics Management noted, was that FedEx and UPS would see larger profit margins without a significant rise in labor costs. In other words, it would be business as usual for the carriers, but organizations distributing goods through the carriers would see a rise in costs. The third-quarter fiscal reports for FedEx suggest that that model is working. This is good news for the carriers, but where does it leave companies that depend on these services to move their products and materials from supplier to the manufacturer to the customer and finally the consumer? The overarching question for your company is this: How do you adjust to the pricing models and maintain profitability?

 Looking at the issue from all sides

Although weight is still an issue, the length, width and height of the parcel have a significant influence on the price of shipping items. In the most recent publication of Parcel Industry magazine, an article laid out how much difference a year makes in cost to the shipper. Between 2014 and 2015, the dollar figure for transportation costs can rise anywhere between 25 and 100 percent. A portion of this your business absorbs, and some of it is passed onto the customer – neither of which is optimal.

One strategy to limit your expenses is to deal directly with FedEx and UPS to negotiate rates. Parcel Industry explained that both of these carriers are willing to reach an agreement with shippers that may end up bringing down advertised rates further to offset the new dimensional costs. Ultimately, it will depend on how well you make the case according to your shipping volume, location and past relationship with the carriers.

 Take an integrated approach

Depending on the functionality of your warehouse management software; you may be able to get ahead of the game by taking a comprehensive look at the dimensions of your most frequently shipped items. In some cases, the software is capable of capturing box dimensions in combination with weight measurement tools, which gives you a clear view of what the pounds per cubic feet will be. According to the publication, any PCF (pounds per cubic foot) measurements lower than 10.4 means the dimensional pricing scale will have a major impact on shipping. Anything above that number won’t likely have as much of an influence on costs.

At the same time, parcel shipping software is a critical tool in helping give you insight into the costs you’ll see while working with either carrier. The most effective technology will allow you to automatically compare costs between carriers to see which one will offer the most competitive price depending on the parcels’ dimensions, weight and destination. When you integrate shipping software with your WMS, you’ll be in the strongest position to lower shipping costs and keep profit margins steady or potentially grow them.