Many business owners are in for a surprise this week when they receive their January invoices from UPS and FedEx. That’s because they will finally see the impact of dimensional weight pricing.
UPS and FedEx began applying this new pricing method to all Ground shipments in January 2015 – and now businesses are seeing substantial price hikes for larger, lightweight packages.
The big questions on business owners’ minds are: why are UPS and FedEx using this type of pricing for packages, and how can I stay competitive in light of the new pricing model?
The short answer to the “why dimensional weight pricing” question is “ecommerce.”
With the growth of ecommerce comes an increase in items being shipped directly to consumers, and for UPS and FedEx, this translates into more stops outside of standard business delivery circuits, with fewer packages delivered per stop. Remember: residential deliveries are a cost-intensive activity for the private carriers.
Another factor tied to the growth in ecommerce is the decrease in average shipment weight for individual packages. Instead of distributors sending bulk quantities of inventory in large, heavy packages to a single store location, they are now shipping individual products to consumers. Each of these individual products is packaged separately, often with protective material that prevents damage, but takes up space inside the box.
These packages not only weigh less, they accumulate more room on a truck. In fact, the 2013 holiday season delivery crisis occurred in part because UPS and FedEx found they had insufficient capacity in airplanes, trucks and vans to handle the late seasonal surge in ecommerce package volume.
By moving to a dimensional weight pricing model, UPS and FedEx can increase revenue that has been lost because of these trends. But where does this leave business owners?
Next Steps for Businesses
When it comes to dimensional weight pricing, business owners have three options.
- They can accept the new rating method and pass the cost on to customers
- The can reduce package size where possible without damaging merchandise
- They can explore alternative shipping carriers, like the U.S. Postal Service
The USPS did not increase shipping costs in January 2015 and in fact, in September 2014, actually reduced rates for Priority Mail, making it an affordable option to FedEx and UPS Ground shipments for packages that weigh up to 40 pounds. (It should be noted that the U.S. Postal Service does have dimensional weight pricing, but it does not apply to packages less than one cubic foot in size.)
At the end of the day, the shipping ecosystem changes frequently. So, it’s important for businesses to stay up-to-date with the latest news on rules and rates, be open to new solutions, and regularly evaluate their shipping mix – that’s the only way to save money and stay ahead.
For more on dimensional weight pricing and what you can do about it, download our white paper
Also, don’t forget to check out our dimensional weight pricing calculator to find out how the new DIM weight rules could impact your costs and where you could save money with the USPS!