18 DC VELOCITY JULY 2014 www.dcvelocity.com
newsworthy
If one analyst is right, moves by UPS Inc. and FedEx Corp. to begin
pricing some ground packages based on their dimensions rather than
on their weight will yield more than half a billion dollars in additional
annual revenue for the two companies.
Within the past two months, both carriers said they would impose
“dimensional weight” pricing on all packages measuring less than 3
cubic feet. That represents a big chunk of both their ground delivery
mix and e-commerce traffic. The moves, which will take effect at UPS
on Dec. 29 and at FedEx on Jan. 1, will effectively make prices for
shipping lightweight, often-bulky shipments much higher than they
are now. The additional revenue will be generated without much, if
any, increase in capital investment.
Rob Martinez, president and CEO of the consultancy Shipware
LLC, said that, when fully implemented, the changes will generate
an estimated $380 million in additional annual revenue for UPS and
$170 million a year for FedEx, which has a smaller ground parcel footprint. Martinez said the programs are likely to be phased in over time,
and full implementation may take three or four years.
The additional revenue stream is a fraction of the companies’ combined revenue, which is on pace to exceed $102 billion a year by the
end of their next annual reporting period. Still, the pricing changes
could be pure gravy for the big two.
To calculate dimensional pricing, the companies use what is known
as a “volumetric divisor.” A parcel’s cube is first calculated by multiplying its length, width, and height. The cube is then divided by
the divisor, currently set at 166, to arrive at the dimensional weight.
For example, a 3-cubic-foot package measures 5,184 inches; dividing 5,184 by 166 yields a rate equivalent to that of a 31-pound box,
although the box’s actual weight is likely much less. Shippers generally
pay the greater of either the dimensional or the actual weight. Both
companies already apply dimensional pricing on ground shipments
measuring more than 3 cubic feet as well as on all of their air express
shipments.
UPS and FedEx made their announcements months ahead of time
to give customers an opportunity to change packaging practices.
Larger customers may also use the window to negotiate contractual
modifications in an effort to mitigate the potential damage to their
bottom lines, Martinez said.
The pricing change was driven in part by the explosion of e-commerce transactions, which has resulted in what the carriers could
consider an unwelcome increase in business-to-consumer (B2C)
shipments. B2C packages are lighter and are usually delivered one
residence at a time. By contrast, business-to-business (B2B) parcels
are heavier and are delivered to each stop in larger quantities, thus
maximizing a carrier’s revenue per stop. FedEx and UPS have a virtual
duopoly in the B2B segment; however, growth there has been relatively flat.
—M.S.
Dimensional pricing could add $550
million annually for UPS, FedEx
Interstate Warehousing’s Indianapolis
(Franklin), Ind., warehouse has achieved
a level 2 Safe Quality Foods (SQF)
Certification. This is the third Interstate
Warehousing facility to receive this certification. … Penske Logistics was recently
honored by Ford Motor Co. with a World
Excellence Award for outstanding performance as its lead logistics provider. …
Union Pacific Railroad was recognized as
a top service provider by Hyundai Glovis,
a logistics supplier for Hyundai Motor
America and Kia Motors America. …
Choptank Transport has been selected
as one of The Washington Post’s Top
Workplaces. … Global container carrier
APL has won the 2013–2014 Rear Admiral
Richard E. Bennis Award for Excellence in
Maritime Security, conferred by the U.S.
Coast Guard. … Crown Equipment Corp.
earned an International Forklift Truck
of the Year Award at the CeMAT material handling trade fair in Hannover,
Germany, in the “Warehouse Trucks”
category for its QuickPick Remote
order-picking technology. Additionally,
the Ohio Edison Technology Centers,
part of the state’s Development Services
Agency, recently presented Crown with
the Crystal Award for Excellence for
creating significant economic impact in
its community and the state of Ohio.
… Orbis Corp., a manufacturer of sustainable reusable packaging, has been
selected as one of The Milwaukee
Journal Sentinel’s Top Workplaces. …
Staples Inc. and Packsize International
jointly won the “Gold Sustainability”
top honor from the World Packaging
Organisation during the 45th annual
WorldStar Packaging Awards competition held during the Interpack trade fair
in Düsseldorf, Germany. … Forklift truck
manufacturer Clark Material Handling
Co. and its employees were recognized
with The Salvation Army’s Community
Partner Award. … U.S. Secretary of
Commerce Penny Pritzker presented
Gamber-Johnson LLC, a manufacturer
of rugged docking stations and vehicle
mounts, with the President’s “E” Award
for Exports.
accolades
