Shipping Rates Are Increasing…But How Will They Affect You?
Earlier this year, FedEx® announced it would change its dimensional weight divisor for US domestic shipments. Starting January 2, 2017, the FedEx Express and FedEx Ground US domestic dimensional divisor will be changed from 166 to 139.
Months after its original GRI announcement and giving the impression it would not make more changes, UPS® followed suit, announcing a 139 divisor for US domestic services packages greater than 1,728 cubic inches and for UPS Standard from Canada import shipments. UPS’s new divisor will go into effect on January 8, 2017.
Before getting into how this will affect shippers, it’s important to first understand how the dimensional weight divisor works. To calculate a package’s dimensional weight, the package is multiplied by its length, width, and height. The product of that amount is then divided by the dimensional weight divisor.
Therefore, one can see how reducing the dimensional weight divisor from 166 to 139 can have a substantial impact on shippers. The new, higher value for the quotient (after dividing by the dimension weight divisor) means higher costs for the shipper. In fact, the new 139 dimensional weight divisor for dimensional weight calculations amounts to about a 20% increase in billable weight for online retailers that don’t have a “custom DIM factor” in their contracts.
Although both FedEx and UPS have enacted this change in their dimensional weight divisor, UPS domestic services packages less than or equal to 1,728 cubic inches will continue to use the original 166 divisor to calculate dimension weight. This variance, though helpful for some shippers, may make it more difficult for them to predict and determine shipping costs. Nonetheless, shippers must now account for it. To do so, they will need a complete, data-based picture of their shipping profile.
So, who will be most affected by this change? As described in an Internet Retailer article, shippers who frequently ship bulky but lightweight packages are at greatest risk based on the new dimensional weight divisor. Lightweight bedding, pillows, large plush toys, etc. are all likely to incur the impact of this change.
In order to prevent the new dimensional weight advisor from driving up costs, shippers should begin to look at more efficient ways to package and ship goods. But even more critically, shippers should look at their contract holistically and reassess whether it is still meeting their needs. By renegotiating carrier agreements based on comparative benchmarking information and a data analysis of their shipping profile, shippers can identify opportunities for savings to offset the new costs, or even affect it directly by negotiating a custom DIM factor into their contracts.
If you’re a retailer (and especially an online retailer), it’s more important than ever to reassess your carrier agreement and make sure new costs don’t drive up your parcel spend. For tips on negotiating your carrier agreement, download this free guide to parcel contract negotiations.