As we get closer to the end of the year, many of our customers are learning more about the potential impact of rate increases and changes recently announced by FedEx and UPS. Though both announced increased rates of approximately four percent to five percent, the major change is to use dimensional weight for pricing of smaller packages. This is significant. Specifically, in the case of UPS:
Dimensional weight pricing will apply to all UPS® Ground services and UPS® Standard to Canada packages.
I’ve placed links to the actual announcements below, but I want to summarize what this means for our customers. To put this in perspective, I’ll give you an example we used on a WebEx today.
The package in question was packed in a box (13 x 12 x 8), which is a typical box size for this customer. The average weight of the items shipped were five pounds and, depending on the ship-to location, the rate can vary. In this case, the package was being shipped and had a negotiated rate of $11.81 as shown below (Fig. 1).
After the first of the year, this will change. The rates will be based on the greater of the dimensional weight or the package weight (five pounds in this example). So how do we determine our dimensional weight?
- Calculate the cubic size in inches of the package (L x W x H). In our example, we would take 13 x 12 x 8 = 1,248 cubic inches.
- Take the cubic inches and multiply it by a divisor (set by UPS). In our example, it is 1,248 / 166 = 7.5 pounds.
- We take the larger of the actual weight (five pounds) versus the dimensional weight (7.5 pounds).
In our example, the package will be rated at 7.5 pounds instead of 5 pounds because the dimensional weight is heavier. The end result is that our rate changes from the originally $11.81 to $12.91 for the same package, an increase of about nine percent. Note: this does not include the average 4.9 percent increase that UPS is implementing in 2015. So the potential increase for this example is about 14 percent .
I hope this helps clarify what this change means and how it will impact you. Of course, every customer is different and changes may have little impact when using standard packaging. As UPS states in their announcement, they believe this will make for more efficient packaging as customers will pay a premium if they do not package efficiently.
If you’re using our Advance Ship system, dimensional and weight pricing will be determined automatically, so your system will use the correct rates as of the first of the year. Note: if you have negotiated a change in the way this will be calculated, please contact Advanced Solutions support to make sure we have addressed this for you.
Feel free to drop us a note if you have any questions.
Phil Avelar is a Senior SCM consultant at Advanced Solutions, based in Chicago. He shares his passion for solving customers problems in his blog posts, industry articles and talks. When he’s not writing, he’s working with customers to develop and apply innovative solutions to common problems in the supply chain.