Experts: New UPS Dimensional Weight Pricing Will Have Significant Impact

Jun 18, 2014 1:53 PM  By

On the heels of a similar announcement last month by rival FedEx, United Parcel Service announced Tuesday it will expand dimensional weight pricing for all U.S. ground shipments, effective Dec. 29, 2014.

UPS already uses dimensional weight for domestic and international air services, as well as UPS Standard service to Mexico and larger packages sent to Canada. The company said it will also start using the billing method for all packages shipped to Canada through UPS Standard.

Dimensional weight pricing is a common industry practice that sets the shipping price based on package volume — the amount of space a package occupies in relation to its actual weight.

Last month, FedEx announced it will apply dimensional-weight pricing to all shipments starting Jan. 1, 2015. Like UPS, FedEx has used size-based pricing for express shipments and certain large packages.

Generally the switch to dimensional weight pricing is in response to rising fuel costs and the increasing popularity of online shopping. As products shipped from online marketplaces like Amazon.com and eBay are often smaller items packed in larger boxes, they can take up a lot of space on delivery trucks but are priced at lower rates.

Doug Starcke, managing partner of First Flight Solutions, a parcel spend management company made up of former UPS and FedEx employees, said the moves by the major carriers will likely lead to double-digit cost hikes for shippers when annual rate increases are factored in.

“In 2007 UPS and FedEx went to dimensional pricing for packages over 3 cubic feet, so this is just a continuation of that trend,” Starcke said. “That one hit companies shipping large items like furniture, and now everyone is getting dinged, including the guy shipping a T-shirt or pair of shoes.”

Starcke said he didn’t think regional freight carriers would follow suit with their pricing approach, which would be a boon for them. He added his company’s phones “have been ringing off the hook” since the UPS news broke.

“Folks are realizing this falls outside their comfort zone, and now they’re more willing than ever to open up to third-party providers because it’s simple math,” he said. “It’s not their core competency; growing their business is.”

Joe Bobko, principal of the Bobko Consulting Group, said regional carriers could be a good alternative to address dimensional weight pricing, but shippers needed to do deep cost analysis to determine if the numbers justified that option. He also said there’s no guarantee they won’t apply dimensional weight pricing themselves at some point.

“If you’re a shipper that has multiple pieces per shipment, regional carriers could be a good option,” Bobko said. “Or they could work if you need later pickup times or deliveries to areas where they can provide the same level of next-day service. However, they’re not always the best solution. Some regional carriers do apply surcharges. But typically the cost is much less than the major carriers.”

John Haber, founder and CEO of shipping optimization provider Spend Management Experts, said he was struck by the timing of the announcement. When UPS announced another dimensional weight rate change in 2011 it came in the fall, causing many shippers to scramble to make contingency plans and absorb costs ahead of the holiday shopping season.

“Because the change was so widely expected, and because the implications are so big for some larger shippers, I think UPS was under some pressure to make the announcement now to allow companies to complete their analyses, determine how it will impact them and make the necessary adjustments,” Haber said. “I think they’re trying to appease shippers by announcing policy earlier, as many of them weren’t happy with the timing the last time around.”

Haber and others noted that major shippers are already working with UPS on cost mitigation plans related to the rate change, including negotiating customer dimensional weight divisors that would offset some of the additional costs.

Bala Ganesh, director of marketing for UPS, said there wasn’t a connection between the timing of this announcement and the one in 2011. “It was just part of our normal business processes, the way we review things,” he said.

As far as negotiations with shippers, Ganesh said there are always “ongoing conversations with shippers regarding how to best align their costs and our expenses, so there’s nothing unusual in terms of this process.”

Ganesh added that UPS does offer a custom package sizing option through its partnership with Packsize, so shippers can generate the exact right size package for each item and thereby mitigate the impact of dimensional weight pricing. “So we do bring that solution to the table to help shippers,” he said.

For some UPS Freight customers, the company recently began offering an optional density-based pricing program. The new pricing method uses a shipment’s weight and cubic volume rather than the National Motor Freight Classification system.

You can learn more about how UPS handles dimensional weight pricing here.