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.
What Is DIM Weight, and Why Are Carriers Using It?
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.
Strategies for Dealing With DIM Weight
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:
- Optimize the way items are boxed for shipping. Getting more items in a box (on average) means lower DIM weight shipping costs. So does cutting down on the filler and using smaller boxes. A good rule of thumb is this: the closer a package gets to the “ideal” density on the line between DIM weight and actual weight, the more efficient the package is from a cost perspective.
- Try new package designs. Items themselves often have their own packaging that can be more efficient. While some designs make for a great store display, they might not be the most efficient when it comes to volume and packing material. Smaller packaging with less filler material saves space. This is especially important for ecommerce, where shipping costs are huge factor – and shelf displays aren’t. More efficient packaging is also better for the environment.
- Change the location of operations. Shipping depends on distance, as well as dimensions and weight. Some retailers have considered switching from one or two central shipping locations to using multiple locations to stage and ship. This decreases shipping time, bringing value to customers and justifying the added cost in their minds.
- Work with your 3PL partner. An experienced 3PL provider can assess your shipping processes and suggest improvements. For example, your provider can help negotiate contracts with local carriers serving your specific lanes, adjust estimates and forecast, or help review pricing strategies with your organization.
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.
Thank you for taking the time to read,
Bill Young – Senior Vice President / Business Development