No matter what line of business, everyone relies on shipping. Whether it’s shipping out to customers’ doorsteps or ordering from wholesalers to stock store shelves, a company’s approach to logistics can bring unparalleled success or cascading failure. But just like the captain of a sturdy ship, navigating the chaotic seas of commerce can be daunting as industry standards and consumer trends rarely stay the same.
UPDATE (Apr. 2017): the pricing rules for dimensional weight have changed since this article was first published last summer. While we’ll include the original rules in this article for historical reference and comparison, the new rules have been appended to the bottom of this post. Feel free to scroll down to skip ahead to the current rules.
Some of you might have noticed, however, that the cost of shipping has increased over the past few years. While I wish you can say it’s just your imagination, you’re not seeing things. Since last year, U.S. shipping carriers like UPS, FedEx, and the USPS have moved toward dimensional weight pricing which has, in turn, increased shipping costs.
Before your blood pressure rises along with the price to ship to Maine, rest assured the change isn’t all bad. Certainly, it’s no fun paying more, but this challenge to a largely unchanged model might actually pay off in the long run for everyone. Not to mention the environment and infrastructure stands to benefit too.
But by now you might be wondering: what is dimensional weight pricing exactly?
Historically, shipping companies calculated cost based on gross weight: the more a something weighed, the more it’d cost to ship. Though the system made enough sense, it didn’t take large, light packages into account. Since these bulky packages took up more room, less individual containers could fit into a single delivery truck. That said, it’s easy to see where it’d start really costing these companies money.
In contrast, dimensional weight pricing (or volumetric pricing) is calculated based on a package’s size as opposed to physical weight. By using dimensional weight (volume), these space-eating packages no longer have to eat through your bottom line too. Now, the cost relationship has changed to the more space something takes up, the more it costs to ship.
For example, let’s look at shipping a 5-pound package measuring 14” x 16” x 12” domestically with UPS. While the old billable weight would’ve been five pounds, here’s the process to find the new billable (dimensional) weight:
With this new system, this package’s billable weight is now 16 pounds based on its dimensional weight. With that in mind, it’s wise to research a company’s DIM factor ahead of time and compare.
As of 2015, both FedEX and UPS have DIM factors of 166 cubic inches per pound for domestic shipping and 139 cubic inches per pound for international shipping. USPS, by contrast, only charges using dimensional weight for packages larger than a cubic foot (12” x 12” x 12”), though otherwise their domestic DIM factor is 194.
A good rule of thumb: the higher the DIM factor, the lower the DIM weight will be for the same package. In other words, if that earlier 5-pound example was shipped with USPS, it’d be just under 14 pounds.
Try out a few examples for yourself. There’s also a helpful calculator available to crunch the numbers for you.
Regardless of one’s love for math, the equation remains the same: if dimensional weight increases billable weight, then cost increases as well. At first glance, the only parties that seem to benefit from this arrangement are the shipping companies. Moreover, this new system is still a ways off from being standardized in practice. Transportation Insight mentioned concerns over shipper diligence in calculating these extra details:
“A critical issue for any company to understand is that the change to dimensional weight pricing has the potential to increase UPS Shipping Charge Correction fees or FedEx “audited” charges. Unfortunately, many shippers simply weigh their packages and do not enter the dimensions because it’s less labor intensive. Moving forward, if shippers do not enter the dimensions at the time of manifest, they will receive out of week billing adjustments and potentially lost profit. This is especially true if the shipper passes the shipping cost along to the consignee. By not capturing the true dimensional weight, shippers will only pass along a portion of the total cost. Not only will they lose profit, but it will become very challenging to properly understand total landed cost for a particular order.”
In other words, ensuring the new standard sticks will minimize the cost of human error. But even if everything runs smoothly and shippers input all the necessary information (yes, all four numbers), the costs of the new system could exponential.
If you’re a small business or participate in omnichannel retailing, you might have to re-evaluate your current shipping habits. One package might cost a few extra dollars, but dozens of packages a day over the course a month? That could add up faster than you’d realize.
According to Endicia’s shipping blog, retailers face a pretty big hike. In one of their examples, a 1-pound game controller (12” x 8” x 8”) costs almost 30% more; at an average of 50 packages a day for a month, that’s about $4,300 in extra monthly shipping expenses. A small 1-pound pet bed (23” x 18” x 3”) cost almost 40% more at over $5,777 a month.
While those numbers might be daunting, this doesn’t have to be reality of the new system. Like any savvy business owner, one’s practices must also adapt to react to the rest of the industry.
Given that shipping costs have relied on physical weight, it’s easy to dismiss the new system as a way for shipping companies to shift costs or charge extra. While we’ve established it’s more expensive, the new system actually encourages growth for the industry in other ways.
If dimensional weight pricing correlates with package size, it follows then that smaller packages are cheaper to ship. By finding more efficient ways to pack what you’re shipping, the less packages you need to ship. Less packages then means more money saved in dimensional weight shipping costs.
Fundamentally, dimensional weight forces us to re-examine logistics standards. Smaller packages will take up less space, meaning more packages can be moved at once and/or less delivery trucks on the road; doubly so, bundling smaller items together in less packages and minimizing void is more cost-effective.
Sure, the obvious cost of moving something from Point A to B might be higher, but factors like shipping materials and sheer quantity can easily be cut. This isn’t to mention other alternatives to standard boxes, like flexible padded envelopes or sealable pouches.
When saving money, the smart customer has no strict brand loyalty either. By keeping abreast of any DIM factor changes, keeping costs down means following the companies with the best value. In a way, this puts control back in the consumer’s hands as distributors would then compete for higher DIM factors.
Sure, it might not be as simple as making sure your products are a certain physical weight. But in the long run, dimensional weight pricing stands to push the logistics industry in a better, sustainable direction.
Besides, sometimes a shake-up like this is necessary to see growth. If that means more efficient packaging procedures, less wasted cargo space and packaging materials, and an overall more sustainable model for every participant, the benefits certainly outweigh the costs.
Our friends over at RedStag Fulfillment brought up a good point that, like everything else, DIM rules are subject to change. With that in mind, FedEx and UPS have made some revisions to their rules, which are as follows:
As always, keep yourself informed and in touch with your shipping costs and providers, working with any shipping representatives or scoping out a new service when necessary. After all, it’s up to you to make the right call for what’s best with your business.
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