The U.S. Postal Service’s proposed rate changes and new guidelines from just about every other major parcel carrier mean that no matter what type of product you ship or which carrier you’re using to deliver goods to your customers, you can expect to pay more to ship your parcels in 2007.
Let’s start with the rate case that the USPS filed this past May and that at press time was expected to be implemented this coming May. To reap the full benefits of its investment in automation, the Postal Service is using discounts to encourage mailers to send pieces that fit within the parameters of its machinery. So whereas a mail piece’s weight was the major factor in determining postage, going forward there will be more of an emphasis on shape and bulk as well.
For instance, currently a 2-oz. letter, flat, or parcel costs $0.63 to send. Under the proposed rate case, the cost of sending a 2-oz. letter will decrease by a penny, to $0.62. But postage for a 2-oz. flat will increase to $0.82, and postage for a 2-oz. parcel will nearly double to $1.20. If your parcel is 0.75 of an inch thick or less, you’ll get charged the $0.82 rate for a flat, but if your package is thicker, you’ll be charged as the $1.20 parcel rate.
“The USPS realizes that it costs less to ship a letter than it does a flat,” says Rich Elefante, director of marketing for Atlanta-based United Parcel Service’s Mail Innovations division.
A WEIGHTY ISSUE
UPS, FedEx, and DHL are also taking size and shape into greater consideration now, with their new dimensional weight charges. UPS is implementing the charges this month; Memphis-based FedEx will put them into effect Feb. 5. And as of mid-December, Weston, FL-based DHL was planning to introduce dimensional weight classifications sometime in the first quarter of 2007.
The carriers are saying that they want better, more-precise ways to charge mailers for carrying their goods. So how much room your parcels take up in a carrier’s truck or trailer will affect what you pay.
“The dimensional-weight-based charges are in response to lower-density packages, more expensive routes, and rapidly increasing fuel costs,” says Bill Armstrong, technical development manager for Elmwood Park, NJ-based Sealed Air Corp., a manufacturer of protective packaging.
“Each type of vehicle is restricted in the volume of the trailer and the maximum amount of weight it can carry,” Armstrong explains. “Consider that traditionally, the cost of shipping a package has been based primarily on the weight of the packaged item. If a load then ‘maxes out’ by weight, the carrier receives the most revenue possible for that shipment.”
Ideally, then, a carrier would want a trailer packed with boxes loaded with heavy machinery. If, on the other hand, the volume of the trailer is filled before maximum weight is achieved — if instead of machinery, the same boxes were filled with feathers — then the carrier would receive less revenue for that shipment, but its costs for transporting it would remain pretty much the same. In these cases of low-density packages, Armstrong says, “the carrier’s profits are lessened.”
From the carriers’ point of view, dimensional weight charges ensure that their customers pay their fair share of the total vehicle capacity that their packages will occupy, by requiring a premium for low-density packages. With this new rate calculation, UPS, FedEx, and DHL will measure any package that is 3 cubic feet (5,184 cubic inches) or larger by the dimensional weight rather than the traditional oversize calculation. And as part of its rate case, the Postal Service intends to add a dimensional weight classification for packages that exceed one cubic foot.
WHAT IT MEANS TO YOU
Most marketers don’t yet have a handle on how their packaging needs will change. But change they will — perhaps dramatically, says Todd Benge, senior partner for Andover, MA-based parcel optimization provider BirdDog Solutions.
For example, Benge says, “if you run a pick-and-pack operation with only a few sizes of cartons, the dimensional weight charges that you incur will be much higher than the oversize charges that are currently in effect if your cartons are above 3 cubic feet and [weigh more than] 30 lbs.”
As a result, you may need to make available to your packers additional carton sizes to make sure parcels don’t take up more space than they need to.
If you currently have just three sizes of boxes at your packing stations and often rely on dunnage to fill up extra space, you may be better off increasing the number of standard container sizes. You will need to analyze the number of orders that are shipped out in oversize cartons to determine if adding container sizes will pay off.
“How you select your packaging will have an immediate impact on the price you’re paying,” Benge says. So marketers that tend to overpack to protect fragile materials might consider using smaller, tighter packages instead of absorbing the extra cost. “Because the dimensional weight is calculated at around 9 lbs. per cubic foot, many shippers that pack lighter boxes will need to use their packaging more effectively,” he says.
Wayne Teres, a Framingham, MA-based operations consultant, says marketers considering changing carton sizes should investigate variable depth, or multiscored, cartons when shipping. The beauty of the multiscored carton, he says, is that because the carton can expand into three sizes, mailers can essentially multiply their available carton sizes without needing more storage space.
The multiscored carton has multiple scores in the depth direction. You simply cut each side down to the desired depth with a standard box-cutting knife and fold in the resulting flap. The final carton, Teres says, has clean corners for a professional appearance and more closely conforms to the product in depth. They therefore reduce the need for void fill when shipping.
In the past it was very easy for catalogers to fill the carton with dunnage, Teres says. “You do that now, and it’s going to cost you.”
A BRIGHT SPOT
The new calculations could be good news for some merchants. Benge says that the dimensional charges will work in favor of shippers of heavier packages that are less than 3 cubic feet. For example, under the 2006 rate classification, UPS would bill a 70-lb. package measuring 81 in. × 7 in. × 7 in. an oversize 2 charge (UPS has three classifications for oversize parcels) of $41.10. With the new dimensional weight rate classification for ground packages, that same package will be billed based on its actual weight since it measures less that 3 cubic feet; the cost to ship the package will only be $23.21.
But there’s no question that the changes will make life more complicated, particularly since mailers are used to calculating the weight of packages rather than dimensions. The major carriers use laser technology to calculate the dimensions of each package; unless you can effectively measure the dimensions of each package to factor the billable weight, you are likely to see additional charges for these packages a week or two after the original invoice was paid.
Any increase in parcel delivery has mailers scrambling for ways to offset the costs. But given the new parameters such as the dimensional weight charges, “unfortunately there’s no magic bullet here,” says Rich Elefante, director of marketing for UPS Mail Innovations.
You could switch to a lower-cost packaging or void-fill material, but you must consider how that will affect the parcel’s protective powers, especially if you ship easily damaged goods. “If you save $2 million on packaging but your breakables increase by more than $500,000, your goodwill with customers will be lost — forever,” Elefante says.
Even though parcel dimensions are becoming more of a factor in determining shipping costs, weight is still a factor as well. Removing a catalog or a package insert can in some cases reduce the weight and thickness of your package. Say a 9-oz. parcel costs $2.60 to ship. If you shave 3 oz. from the parcel, you can cut costs by $0.60, to $2.00 for the parcel.