As we get closer and closer to the end of the year, many of our customers are becoming more aware of the potential impact of the rate increase and change announced by FedEx and UPS this year. Though both announced increased rates of ~4-5%, the major change is to use Dimensional weight for pricing of smaller packages and this is significant. Specifically in the case of UPS
Dimensional weight pricing will apply to all UPS® Ground services and UPS® Standard to Canada packages.
I’ve placed links to the actual announcements below but I wanted to summarize what this means for our customers. To put this in perspective, I’ll give you an example we used on a WebEx today.
The package in question was packed in a box (13 x 12 x 8), which is a typical box size for this customer. The average weight of the items shipped were 5 pounds and depending on the ship-to location the rate can vary. In this case, the package in question was being shipped and had a negotiated rate of $11.81 as shown (Fig. 1).
Fig. 1 Package cost using shipping weight.
After the first of the year, this will change. The rates will be based on the greater of the dimensional weight or the package weight (5lbs in example). Ok, so how do we determine our dimensional weight?
- Calculate the cubic size in inches of the package by (L x W x H), in our example we would take 13 x 12 x 8 = 1248 cubic inches.
- Take the cubic inches and multiply it by a divisor (set by UPS) , in our example it is 1248 / 166 = 7.5 lbs.
- We take the larger of the actual weight (5 lbs) vs the Dimensional weight (7.5lbs).
In our example, the package will be rated at 7.5 lbs instead of 5 lbs because the dimensional weight is heavier. The end result is that our rate changes from the originally $11.81 to $12.91 for the same package, an increase of ~9.3%. Note that this does not include the average 4.9% increase that UPS is implementing in 2015. So the potential increase for this example is ~14% .
I hope this helps to understand what this change means and how it will impact you. Of course, every customer is different and changes may have little impact when using standard packaging. As UPS states in their announcement, they believe this will make for more efficient packaging as customers will pay a premium if they do not package efficiently.
If you’re using our Advance Ship System, dimensional and weight pricing will be determined automatically so your system will use the correct rates as of the first of the year. Note that if you have negotiated a change in the way this will be calculated, please contact Advanced Solutions support to make sure we have addressed this for you.
Feel free to drop us a note if you have a question.
References
UPS 2015 Rate Change information
Fedex 2015 Rate change Information
UPS how to determine billable weight
Phillip Avelar is a Managing partner at Advanced Solutions, based in Chicago. He works with SAP enterprises to optimize their supply chains, increase productivity and challenges the status quo. He shares his passion for solving customers problems in his blog posts, industry articles and conference talks.