Wednesday, July 2, 2014

Taking a 'Dim' View

Dimensional weight pricing will lead to parcel rate changes (and not down).

The old riddle asks “Which weighs more, a ton of lead or a ton of feathers?”

We’ll let you answer the question yourself, but be assured that under the new “dimensional weight” pricing recently announced by first FedEx and then UPS, the cost to ship the ton of feathers will go up. The move to dim weight for all shipments will amount to a substantial rate hike on something like one third of small packages the two parcel giants carry, with all lighter, less dense items impacted. Prices on those items will go up, but there will be no decrease for the heavier “ton of lead” packages. 

Carriers typically run out of cargo room in their trucks and planes long before the maximum weight limit is reached, so going to a dim weight pricing model makes tremendous sense for them, and was probably inevitable. Still, it’s a classic “heads I win, tails you lose” backdoor rate increase – don’t think this will stop the carriers from taking their regular annual increases – that should result in a huge boost to carrier revenue with no corresponding decrease, a nice bump in profitability for Brown and Purple.

The carriers have always been aware of the economics of transporting freight with varying bulk and weight, so that has factored into the discounts and offsets in shippers’ contracts, and dimensional weight is a fact of life in other modes of transportation including air. Now that all packages will be priced under the system, shippers need to adjust their operations for the new reality. The changes will not take effect until new year, so the FedEx/UPS duopoly is giving more warning than with their standard timeframe for rolling out price hikes.

TOTALogistix can work with you to offset the effect of dimensional weight pricing, both by researching and adjusting your current packaging scheme and negotiating with the carriers on your behalf. In the volatile supply chain environment, change is the one constant, but you can take steps to make it work for you.

Kirk Shearer
1-800-989-0054 x103

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