September 11, 2015
The world’s two largest parcel shippers will be shaking up the world of shipping in 2015. Earlier this year, FedEx announced that dimensional weight rules would apply to all of their shipments. This change is scheduled to take effect at the beginning of 2015. UPS has decided to follow suit.
According to a spokesperson for the company, these new changes will bring the ground shipping aspect of their business up to standard with the way they bill their air shipments. This change in billing will generate an additional $350 in annual revenue — all through a simple policy change.
Understanding Dimensional Weight
Dimensional weight (DIM weight) is arrived at by using a specific formula that calculates the dimensions of a package to assign it a calculated weight. Basically, DIM weight is calculated by multiplying the length by width by height of a package, subsequently dividing that number by a standard dimensional factor. What this does is protect the company from packages that are excessively bulky but light in weight. Although the actual weight of a package can impact the cost of shipping a product, especially as far as fuel in concerned, a bulky item can cost the company even more. There is only so much room in each truck, plane or container.
Initially, dimensional weight rules have always applied to air shipments — for obvious reasons — however, these rules were not applied across the board on ground shipments. A package would have to be three cubic feet or more before dim weight rules would apply. With the new policy going into effect in 2015, all packages will be subject to the dim weight rules.
The Primary Purpose
Well, one purpose for sure is increased revenue generation, but the sensible answer is that this new policy will support sensible packing and shipping practices by businesses. It will discourage the use of packaging that will have a great deal of void space. It is important to understand that the dim weight does not make the actual weight obsolete. The customer will be billed on whichever weight is greatest — the dim weight or actual weight.
The Competitive Game of Chicken
One fact that has sort of flown under the radar in the wake of these announcements is the fact that these are two major competitors. This could have quickly turned into a game of corporate chicken between these two private carriers. For instance, if UPS had not followed suit after the announcement that FedEx made, it could have placed FedEx in a position in which they would have had to reverse their decision in order to remain competitive. On the other hand, UPS had to consider the fact that if they did not follow suit, but FedEx was still able to remain competitive, even with the increased rates, they would have sacrificed $350 million with no tangible gain.
How Does this Change Shipping in 2015?
There are multitudinous variables that should be considered when evaluating the impact that these changes will have on the shipping industry and businesses. One major variable that has to be considered is how customers will respond to the price escalation. Each of these two major carriers have an extensively large and loyal customer base. It is likely that the vast majority of these loyal customers will simply absorb the increase and move forward.
It is the not-so-loyal customer that makes this interesting. With a global economy that is perpetually volatile, companies are constantly looking for ways to reduce costs. This means that this new development could make the United States Postal Service a huge winner in this — because they do no use dimensional weight as a billing mechanism.
Those shippers that will continue to use UPS and FedEx will have to adapt new shipping practices in order to assist them in managing the overall cost of shipping. Everyone will be giving a great deal of attention to the type of packaging used for shipping purposes moving forward.
One approach that businesses might consider is addressing the issue directly with their carrier’s customer rep. This way they will be able to engage the issues as an individual entity rather than be group with the collective.
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