UPS Does It As Well

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As I predicted in my last Blog, UPS today has announced they are following FedEx Ground/Home Delivery and will start charging weight based on the larger of actual or dimensional weight. According to UPS, this change will affect the cost of about 2/3 of their packages. This will substantially improve margins for both UPS and FedEx and send shippers scrambling to reduce package sizes and/or find other shipping options.

My sources inside USPS say that they have no plans to change their size and weight factors. If so, that will give shippers the opportunity to switch to Priority Mail, Standard Mail, and Parcel Select and save money. USPS will have the opportunity to pick up a lot of new business from the other carriers and improve their bottom line. Hopefully they will take advantage and improve their financial situation.

UPS and FedEx will probably exempt their larger customers for a short transition period. The hardest hit will be small shippers who could see their costs rise by 25-50%, depending on what they currently ship. The world for them will be very different.

I’m putting together the numbers for switching to USPS from UPS and FedEx in 2015. I’ll be back soon to share some opportunities.

Big Shipping (and Price) Changes Planned for 2015

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FedEx has announced that they plan to charge dimensional weights on all ground packages starting in 2015. This will be the largest single cost increase by any of the ground carriers since UPS began charging for residential service a couple decades ago. It will not affect everyone, but enormous new revenues will be generated. The questions now are whether UPS will follow suit and will the increase stick. My best guess is yes.

Readers of this Blog will remember that dimensional weight is calculated by multiplying the length, width, and height (in inches rounded up or down to the nearest inch) and dividing the total by a factor. In this case the factor is 166.

As an example, a 12” X 12” X 12” box would have a dimensional weight of 11 pounds. The calculation is 12 times 12 times 12 = 1278 cubic inches. That total divided by 166 = 10.409 and this is rounded UP to 11. In this case, the weight of the package in 2015 will be charged at the greater of the actual weight or 11 pounds.

Today, UPS and FedEx Ground/Home Delivery exempt packages under three cubic feet (5148 cubic inches) from the dimensional weight charge. A huge percentage of the boxes the two carriers transport fall into that category. Under the rules recently announced by FedEx, all packages over 166 cubic inches will be subject to the new rules. For smaller shipments 166 cubic inches and less, there will be no change. The dimensional weight is one pound, and that is also the minimum chargeable weight. Starting at 167 cubic inches, the packages will be subject to a minimum weight charge of two pounds or more, regardless of the weight.

Consider the example of the 12” X 12” X 12” box shown above. In 2015, a one cubic foot box will be billed at the greater of actual weight or 11 pounds. In 2014, a one cubic foot, five pound box would be billed at five pounds. In 2015 the same box will cost $3.42 more to ship to Zone 8, using 2014 retail pricing.

It gets worse with a three cubic foot box. Again, in 2014 the box would ship at actual weight, since it is just under the dimensional weight limit. In 2015 the same box would be the greater of actual weight or 32 pounds. A 15 pound box (actual weight) in 2015 would be charged $16.10 more to Zone 8 than in 2014 (at 2014 retail pricing). Wow.

A wild card here is USPS. Will they change their dimensional rules on Priority Mail or oversize charges on Parcel Select and Standard Parcel? If they don’t (or make minimal changes), USPS will be much more cost competitive on all packages under three cubic feet.. The extra volume might generate enough new revenue to help them break even.

Regardless, it will make more sense than ever to plan packaging to reduce box size when possible and figure out which service is best for your customers.

Stay tuned for further updates.