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.

  • Mike Davis Hov

    Okay I shipped a package today and UPS has went way up. They charged me DIMWT to send the package for a total cost of $45.93!~!!!

    The actual weight was only 11LBS 14.0 OZ

    They charged me for 24.00 LBS and the box was full at the actual weight.

    I am/was a long time customer of UPS for several years!

    “”"”I will never use UPS again”"”‘!!!!

  • Harris Cyclery

    And now, the rest of the story … The real reason for the switch to dimensional weight is twofold. First, UPS and Fedex will continue to lose money with Amazon and other big online retailers. Amazon gets huge discounts from both carriers. It’s all part of Amazon’s “too big to fail” plan. They don’t turn a profit. If they fail, some huge investors, and UPS & Fedex will fail. I wouldn’t be surprised if Amazon has a sweetheart deal where, packages from their warehouses are not “dimmed”. So how do Fed-Up make up for the losses? They stick it to the little guy.

    Second – UPS & Fedex now have dimensional infrared scanners in all of their facilities. Every package goes down the shoot and the dimensional weight is instantly calculated. This leaves the small businesses at a huge disadvantage. We’re measuring boxes with a tape measure. If we’re off by a fraction of an inch, we get a charge-back from UPS. It’s like a slingshot going up against an AK47.

    In the past, UPS has always shared their technology with their customers. They offered us free software, scales and computers. I URGE every UPS customer to call their rep and demand that UPS supply a dimensional scanner and the matching software so that we can calculate dimensional weight they same way they do.

    • http://multichannelmerchant.com Tim Parry

      Hi, Harris – thank you for the insight and feedback!

  • Jay Speed

    With the new rates in place for over a month now the verdict is in. Customers are up in arms about the huge increases. They blame us and we have no defense. Retail prices have to be adjusted accordingly and our shipping becomes more and more of a loss. This drastic a price change will come back to haunt these carriers – it has too!

  • SantorumsNose

    This is just a money grab by FedEx and UPS. this will not impact the
    large shippers like Amazon. The large shippers pay a small percentage of
    the published rates.

    what the shippers are doing is subsidizing
    these shipping discounts by taxing the small businesses. the items I
    ship are not particularly light, my standard is an 18x16x14 box weighing
    26lbs. The cost of shipping these boxes has almost doubled since the
    dimensional shipping kicked in.

    UPS was making money on my
    shipments before, I pay almost double what Amazon pays. Yet they jack up
    the fees because the trucks are filled with low cost Amazon shipments
    that UPS isn’t making any money on.

  • SantorumsNose

    I am normally against government regulation, but UPS and Fedex are monopolies. how is it that both of them can decide to jack up their fees with “dimensional”Charges” at the same time out of pure “coincidence” this is a textbook case of price fixing and they should be investigated.