DC Velocity - October 2015

BY MARK B. SOLOMON, EXECUTIVE EDITOR – NEWS
PARCEL EXPRESS

IN THE SPRING OF 2014, FEDEX CORP. AND UPS Inc. announced plans to price deliveries of ground parcels measuring less than three cubic feet by their dimensions instead of their weight. At the same time, they said the respective changes would not be implemented until after the 2014 holiday season. That way, the carriers reasoned, businesses would have time to adjust to what were expected to be major changes to their shipping patterns. It would also avoid any unnecessary headaches during the hectic peak shipping period.

The start of the 2015 peak cycle is less than two months away, and shippers have been through nearly a year under the new pricing regimes. While no crystal balls were available for comment, it seems logical to postulate that, for shippers, the upcoming holiday experience will resemble that of the first 10 months: namely, those who’ve not felt much of an impact, for whatever reason, will skate through the holidays unscathed. Those whose budgets have been hit will continue to feel the pain, amplified by the increased holiday volumes and the year-round increase in shipping complexity brought about by the digital commerce and fulfillment tsunami.

When the changes were announced, several parcel
consultants who work with shippers every day warned
they would result in massive price increases for shippers
tendering lightweight, bulky packages, which account
for a large chunk of digital commerce. Dividing a
three-cubic-foot package that measures 5,184 cubic
inches by 166, the divisor set by the carriers in 2011 to
calculate dimensional weight (or dim weight), would
result in a rate equal to a 36-pound shipment, even
though the parcel’s actual weight would be much less.
Shippers generally pay the greater of the actual or
dimensional weight rate. Until this year, ground ship-
ments measuring less than three cubic feet had been
exempt from dimensional pricing.

Rob Martinez, president and CEO of consultancy Shipware LLC, who forecast huge rate increases at the time the changes were made public, said prices have indeed risen significantly throughout the year and will cause economic turbulence for shippers through the holiday period as volumes accelerate. “Just because the impact of the increases has already been felt doesn’t mean it will stop being felt,” he said.

Based on Shipware data, the 2015 billed weight for parcels moving via FedEx Ground, the company’s ground-delivery unit, was 28. 7 percent higher than the parcels’ actual weight. At FedEx Home Delivery, which delivers business-to-consumer (B2C) shipments to residences, the discrepancy was even wider; in 2015, the billed weight was 45. 1 percent higher than the actual weight, according to Shipware data. In 2014, the gap was 11. 6 percent.

At UPS, the 2015 billed weight for all its ground services was 16. 4 percent higher than the actual weight, according to Shipware data; in 2014, the discrepancy was 12. 8 percent. Martinez believes the UPS differential is not as extreme because the pricing change fell more heavily on B2C transactions and UPS handles more commercial packages than residential shipments.