Economic Development

A New Dimension

Shippers need a game plan for revamped FedEx and UPS pricing

August 1, 2014
Trans

The other shoe has dropped.

As many experts predicted, UPS will institute dimensional weight pricing for all of its Ground services and Standard to Canada packages starting Dec. 29. UPS already applies this method for many of its air and ground services for packages measuring 3 cubic feet or larger.

The carrier’s announcement of this change came nearly seven weeks after FedEx announced it was implementing dimensional weight pricing for all ground packages starting in 2015. Many industry analysts called this the most significant parcel pricing change in decades.

What Is Dimensional Pricing?

Dimensional weight pricing sets the transportation price based on the volume of package or the amount of space a package takes up in a truck/trailer in relation to the actual weight of the package.

For example, under the new format, a package that is 17 inches by 17 inches by 17 inches but weighs only 5 pounds will be billed at the 30-pound rate. The cost difference for this package could be greater than a 50 percent increase over the current rate.

The ramifications of this format could be far reaching and substantial, influencing B2B and B2C industries. Although not every shipment will be affected, as much as 30 percent of all ground packages could be subject to higher costs, with low weight/high cube taking an even bigger hit.

Be Proactive

It is recommended that shippers using either FedEx or UPS exclusively should learn all they can about the new rate structure. It is critical that they assess and understand the potential impact on their businesses.

Even shippers that benefit from multi-carrier relationships need to ensure that they have a sophisticated landed-cost rate shopping system to maximize control over costs, because a static routing guide will likely no longer be sufficient.

Shippers are likely to re-evaluate their carrier portfolios, examine more-robust parcel rating options and explore the merits of condensing their packaging. Given the strong likelihood that these rate changes will increase the average landed cost for shippers, regardless of their industry, shippers will raise the threshold for free or discounted shipping.

Given the complexity of parcel contracts, however, many shippers are turning to third-party logistics (3PL) companies that specialize in parcel auditing and mediation to analyze how the FedEx and UPS — and potentially other private carriers’ — announcements will play out in the marketplace and affect their businesses.

Teaming up with a 3PL provider that has expertise in parcel and transportation management as well as visibility to billions of dollars in parcel freight annually can provide valuable insight to shippers.

The right 3PL provider can do the following:

  • Educate shippers on this change.
  • Perform a comprehensive analysis using the existing shipper-carrier contract to determine the landed cost impact at the package-level detail.
  • Identify what areas of pricing/contract terms (minimums, discounts, dimensional factors) to address and then quantify the value of those pricing levers in order to prioritize the combination that delivers the most value.
  • Mediate the process with FedEx and UPS and other carriers to address the pricing levers and mitigate the impact.
  • Provide guidance throughout the life of the carrier contract to ensure that charges are correct.

Whether you saw this coming or were caught off guard, the bottom line is that a switch to dimensional pricing is a fundamental shift in carrier rate strategy that stands to have a widespread effect — on shippers and consumers.

 With a few months to go before the changes take place, it’s vital to take advantage of this time to assess how you will be affected and determine whether you need to make changes too.  

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