It has been just over a year since FedEx and UPS adopted new rules for dimensional (DIM) weight pricing. In addition to the annual price changes, this rule change meant that more items would be subject to DIM weight pricing (as opposed to actual weight). While nearly every merchant has had to adapt to these changes, some were affected more dramatically than others. Many estimates put the average increase in ground shipping costs to retailers at around 17% for 2015 -- a significant amount.
Now that we are a year in, it’s worth taking a look to see which strategies are working to help retailers contain costs, and which are not.
To review, DIM weight pricing is a way to establish a minimum cost to ship a package based on its density, which takes into account both the amount of space (dimensions) it takes up and its weight. To calculate current DIM weight, multiply a shipment’s height, width, and length (in inches) and then divide by the DIM weight factor (166 for domestic shipments, 139 for international). Any fraction is increased to the next whole pound. UPS and FedEx then charge for the package’s actual weight or its DIM weight, whichever is higher. Starting in January 2015, more packages were subject to the DIM weight formula, which meant that larger lightweight packages would cost more to ship.
So why did the two biggest carriers in the U.S. decide to change the rules for DIM weight? When you get down to it, the pricing was about efficiency and profit margins. With the rampant growth of ecommerce orders, single items were being shipped in large boxes with excess amounts of packing material. Since the size of trucks is constant, fewer products were being shipped per truck load—trucks were shipping more packing material than product. This meant that more trucks were needed, so costs to the carriers grew. DIM weight pricing was an attempt to make merchants more conscious of the trade-off between weight and volume and to generate additional revenue for the carriers.
Of course, that meant merchants needed to change the way they approached packaging and shipping. Some have been successful in this, but others are still looking for options to contain costs.
How have merchants changed their processes to accommodate these changes in DIM weight pricing? We’ve seen several tactics. What is interesting is that not all merchants are aware of the many tools at their disposal.
If your organization is still struggling to get a handle on the costs associated with DIM weight pricing, it’s well worth taking a look at what alternative strategies are available.
For example, an organization might:
Again, changes to the DIM weight rules affect every organization differently. So there is no overall, one-size-fits-all strategy for containing shipping and logistics costs. If your organization has yet to achieve success with one of the above strategies, it might be time to try some of the others.
Materialogic has been providing fulfillment solutions for over 35 years to clients ranging from Fortune 1000 companies to ecommerce entrepreneur startups. We have particular expertise in ecommerce order fulfillment and logistics strategy, and we are happy to answer your questions about reducing the costs of your shipping.