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Your shipping costs just went up

Your shipping costs just went up

Your shipping costs just went upWere you aware that your shipping costs just went up? They certainly did, and if you are a business that ships many cartons then you may want to reevaluate your shipping proceesses.

When we pack a box we often focus on the weight of the carton, as that is largely the determining factor in the shipping costs, right? Well, not any longer. As of December 29th, 2014 United Parcel Service (affectionately known as UPS) will base their shipping costs on the dimension of the box and it’s weight, for ground service. One week later, Federal Express (affectionately known as FedEx) will follow the UPS lead.

The UPS press release can be read by clicking here.

The United States Postal Service (affectionately known as USPS) has not yet adopted this pricing model. While this may be seen as a choice to create a competitive advantage, some suggest that it’s because USPS may lack the systems to properly  calculate dimensional-weight pricing.

Dimensional-weight pricing or pricing that takes into effect mass is not a new method. International shipping companies, air along with sea shipping containers, have used this as a pricing model for many years. But it comes at a time when decreasing gasoline prices have benefited the bottom lines of airlines and shipping companies alike. And while the UPS press release claims a side benefit of reduced waste in packaging material usage, it also suggests that competing with the transportation industry for over the road business, which offers large transaction values, is a goal as well.

Specifically Dimensional Weight pricing is a pricing method takes into account exterior package size (the amount of space a package occupies when in the cargo area of the transport vehicle) in relation to its actual weight to determine the appropriate price. The dimensional weight calculation will apply if it is greater than the actual weight.

In other words, shippers should carefully consider ways to minimize the box/package size and ensure that the parcel packaging is the size necessary to fit the contents without a lot of wasted space.

UPS offers a digital brochure (really a slick marketing piece) to justify this new direction as a “green” initiative- see it here (pdf).

FedEx has been using dimensional-weight pricing for larger dimension cartons for some time now, to packages measuring three cubic feet or greater. They also issued a press release, which can be read here.

In a related matter, the Postal Regulatory Commission, the body that rules on the agency’s pricing actions, recently approved a USPS proposal to reduce the rates on two of its “Priority Mail” one- to three-day delivery products for high-volume customers. This took effect in September 2014 and is expected to affect two Priority Mail services:

  • Commercial Base: no volume requirements and is available to customers that give parcels to USPS using specific methods of tender.
  • Commercial Plus: requires that users have shipped at least 50,000 Priority Mail pieces in the prior year; geared toward high-volume users like e-tailers, big business-to-business (B2B) shippers, and parcel consolidators that aggregate packages from multiple shippers and induct them deep into the USPS distribution network to get sizable bulk discounts.

While announcing it was rolling back rates, USPS said it would not implement any new dimensional weight pricing on its parcel shipments.

Your shipping costs just went up

Without a doubt, almost everyone’s shipping costs just went up, and there may be a significant increase in costs for shippers who tender lightweight but bulky parcels that occupy a disproportionate amount of space aboard a delivery vehicle.  We expect this to heavily impact consumer goods being purchased online. Invest the time now to review your company’s packaging process; it may help you minimize the increase in shipping costs.

Years ago, while attending a B-school program, there was a pun regarding which weighed more: a pound of feathers or a pound of lead? Common sense would suggest they weight the same, as a pound weights a pound. Not so when calculated using the Avoirdupois method, which uses weight and mass- the feathers would weigh more. Or so the joke goes…

Now it will certainly cost more to ship the feathers than to ship the lead.

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