The New Year is bringing with it higher shipping costs for many online retailers.
The new costs started ringing up Dec. 29 when UPS Inc. began imposing dimensional weight pricing on all ground shipments. FedEx Corp. plans to do the same starting Monday, Jan. 5.
“Dimensional weight” pricing, often referred to as DIM pricing, bases shipping rates on a package’s external dimensions instead of its weight. The two companies’ changes will affect about 30% of the packages now carried by UPS and FedEx, industry experts say. The resulting average rate increases—when combined with other annual rate hikes and surcharges—will run up to 30% or more, they say.
“This is the single largest impact on shipping since the 1980s,” when increases in fuel prices resulted in double-digit percentage fuel surcharges imposed by shipping carriers, says Jack Mitchell, a former executive with FedEx, DHL and regional carrier Eastern Connection who is now president and CEO of shipping consulting firm Parcel Appraisal & Negotiations Consulting Group.
“It’s a game-changer for lightweight shippers,” says Tim Sailor, a principal owner of Navigo Consulting Group, which advises companies on logistics operations. “It’s a whole new ballgame.”
The new rules have retailers and wholesalers scrambling to figure how the changes will affect their shipping costs, profit margins and sales, and what they can do to minimize the impact. Options include renegotiating shipping contracts, using more efficient packaging, and dropping some products that are suddenly far more costly to ship. “We’re doing everything we can,” says Robert Cassidy, president and chief operating officer of eBags Inc., a web-only merchant of handbags, backpacks, luggage and accessories. He says that about 20% of eBags’ shipping volume has been affected by the shipping policy changes.
Until now, dimensional weight pricing has applied only to packages that were three cubic feet or more sent by ground shipping, and to packages shipped by air. The new policies at UPS and FedEx have extended that to virtually all packages shipped via their basic ground services, including many of the goods shipped by online retailers. 75% to 90% of online retail orders ship by ground services, shipping experts say.
To minimize the hit on their shipping costs and overall financial performance, many shippers are also looking at making their warehouse operations more efficient, swapping in new packaging materials, changing their shipping offers to customers, and checking out alternatives to UPS and FedEx.
And it comes timed with other increases to shipping costs. Ken Wood, president and founder of shipping advisory firm LJM Consultants, notes that the extension of dimensional weight pricing coincides with the annual base rate increases by both UPS and FedEx. The base rates at the two carriers are up by an overall average of 4.9% this year—the same annual rate hike the carriers have imposed for several years—but the actual average increase in the base rate for many shippers is far higher, Wood says. That’s because the 4.9% average is across all shipping zones and package sizes, including rate hikes of less than 3% for packages weighing more than 70 pounds.
Read more about the DIM pricing change and how e-retailers are adapting to it in “Smaller is more beautiful than ever” in the January 2015 issue of Internet Retailer magazine. Subscribe for free here.
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