A DIM Future for Packaging
From the largest corporations to the smallest Etsy e-tailers, the shift to a dimensional weight pricing model is having a drastic effect on the way items are packaged and shipped. Shippers need to be smarter with their packages, or new costs could give them a swift kick to the bank account.
The new pricing model shouldn't come as too much of a surprise. Large parcel shipping companies such as UPS and FedEx have had an eye on dimensional weight pricing for awhile. While the growth of the e-commerce market created unprecedented shipping volumes, costs have also soared for parcel carriers. At the same time, a shortage of drivers and equipment has left them scrambling for capacity. The plan, or at least the hope, is that dimensional weight pricing will relieve some of their pain. But what about shippers?
What is Dimensional (DIM) Weight Pricing?
Dimensional Weight Pricing utilizes a formula to calculate the minimum billable weight based on a package's cubic volume. You can calculate DIM for your parcel by multiplying length-in-inches by width by height, and dividing the product by a DIM factor. For FedEx and UPS, that DIM factor is 166 for domestic shipments.
Why should I care?
On Jan. 1, 2015, the major parcel carriers implemented DIM weight pricing on ground packages smaller than three cubic feet. The billable weight for packages is now whichever weight is greater between actual weight and dimensional weight.
Previously, the rate for ground parcels smaller than three cubic feet was based on actual weight, while those larger than three cubic feet were subject to DIM weight. The recent change affects shipping costs because it is estimated that up to 75 percent of the most widely used box sizes are less than three cubic feet. Some industry experts predict an average increase of approximately 30 percent in parcel shipping costs due to DIM, in addition to the recent 4.9-percent annual increase taken for 2015 by the same carriers.
I didn't do anything to prepare. What can I do to catch up?
Don't panic, but don't hesitate. Start with a parcel analysis to see how many of your shipments are smaller than three cubic feet, and concentrate on making changes in that segment. Here are some initial steps to take:
Be more efficient with your packaging. Train your employees to find the most cost-effective boxes and packaging for each shipment, and have different options on hand. It's no longer "one size fits all."
Compare and optimize carriers. Shop around, and select carriers that offer the best pricing options for your commonly shipped sizes.
Track small packages. Where are most of your smaller boxes being delivered? Could you group them into larger shipments to a regional center, and have them delivered by local carriers who charge less?
I sort of made a plan, but how do I know if it's working?
Request transparency from your parcel carriers. They should make billing easy and transparent, enabling you to choose the best options for your business.
Evaluate your cost for small packages shipped in 2014 against what you're spending in 2015. Be sure to compare same-size packages going to the same destination. See if your competitors have increased shipping prices for customers, and by how much. Track your shipping volumes to see if your customers are also shopping around for options.
I have a plan, but how can I make it better?
Keep your plan dynamic—don't let it rest on a shelf. There are many more options than you might think, so keep exploring efficiencies. When was the last time you looked at and updated the sizes and materials you use for packaging? Can you address any factors upstream in the supply chain to improve density before the product is packed for shipping?
I ship in big volumes, so how will DIM affect me?
You can take advantage of the economies of less-than-truckload (LTL) by adopting a consolidation/deconsolidation program that focuses your volume shipments in the most cost-effective mode. One such strategy is zone skipping, where you bypass the parcel carrier's traditional "zones." This is accomplished by utilizing LTL carriers to transport shipments to the parcel carrier's hub in the destination state or region. The parcel carrier then unpacks the load, and delivers the individual parcels to their final destination.
We don't have the in-house expertise to manage all this. So where do we start?
A logistics partner with expertise and success in engineering parcel solutions might be an option. The right partner will have comprehensive analysis resources and tools, a solid grasp of the market from both carrier and shipper perspectives, deep understanding of parcel-pricing models, senior-level relationships with carriers, and robust dashboard and reporting capabilities.