We use cookies to provide you with a better experience. By continuing to browse the site you are agreeing to our use of cookies in accordance with our Cookie Policy.
  • ::COVID-19 COVERAGE::
  • INDUSTRY PRESS ROOM
  • ABOUT
  • CONTACT
  • MEDIA FILE
  • Create Account
  • Sign In
  • Sign Out
  • My Account
Free Newsletters
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC.
    • Podcast
    • Blogs
      • Analytics & Big Data
      • Best Practices
      • Dispatches
      • Empowering Your Performance Edge
      • Logistics Problem Solving
      • One-Off Sound Off
      • Public Sector Logistics
      • Two Sides of the Logistics Coin
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2020
    • Upload Your Video
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC.
    • Podcast
    • Blogs
      • Analytics & Big Data
      • Best Practices
      • Dispatches
      • Empowering Your Performance Edge
      • Logistics Problem Solving
      • One-Off Sound Off
      • Public Sector Logistics
      • Two Sides of the Logistics Coin
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2020
    • Upload Your Video
Home » Higher revenue streams from parcel carriers' dimensional pricing seen continuing into 2012
newsworthy

Higher revenue streams from parcel carriers' dimensional pricing seen continuing into 2012

December 22, 2011
Mark B. Solomon
No Comments

Parcel consultants have built an industry around saving their customers money in rate negotiations with FedEx and UPS. But they have been powerless to stop the Big Two from changing their formulas for calculating shipping charges on low-density packages. For many shippers, the de facto rate increases arising from this change will more than offset any concessions they've managed to extract from the carriers.

In the fall of 2010, FedEx and UPS announced adjustments to their dimensional weight (commonly referred to as "dim weight") pricing, which determines the charge for a shipment based on package density. By shrinking the "volumetric divisor" used in calculating dim weight pricing from 194 to 166, the carriers ensured that their customers would be allowed less cubic capacity for a given shipment weight at the rates that were in effect at the time.

Shippers whose packages fell outside the new parameters could either shrink their shipments' cubic dimensions, increase their shipment density, or swallow what parcel consultant Jerry Hempstead of Orlando, Fla.-based Hempstead Consulting has called the "mother of all rate increases."

Limited options
Many customers revolted, insisting on—and often receiving—concessions that grandfathered the old dim weight pricing into their contracts. However, most did not, and because they were unable to revamp their packaging processes, got socked with price increases in the 17- to 19-percent range, depending on the nature of the shipment.

For those who demanded and received an extension of the old pricing terms, the benefits could be short-lived, according to Rob Martinez, president and CEO of Shipware LLC, a San Diego-based parcel consultancy. Martinez said most of the extensions were short-term, with some expiring in as little as six months. As a result, FedEx and UPS will see a significant pickup in their revenue streams once those extensions lapse. "The revenue windfall to the carriers was not a one-time event for 2011," Martinez said.

Martinez also said there's little chance that shippers will be able to modify the dimensions of their packages to avoid being hit with the higher charges. "Some customers might have been able to monkey with box sizes, [but] the majority are still getting hosed. Their box sizes are their box sizes," he said.

For affected shippers, one option would be to try to negotiate away the higher charges when their contracts come up for renewal. However, given the dominance of the FedEx-UPS duopoly, shippers may have little recourse unless one carrier decides to waive the new dim weight pricing scheme as a tool to wrest business from the other. For those whose contracts aren't due for renewal anytime soon, there's little prospect for relief, as neither carrier has a strong incentive to return to the old pricing formula.

FedEx expected to generate an additional $200 million in domestic and international revenue over the past two fiscal years as a result of the dimensional pricing changes, according to comments made at an internal company conference in 2010. UPS has declined to comment on the impact of the changes on its revenue stream. Analysts surmise that UPS generates even more revenue from the new pricing scheme than FedEx because it transports more packages.

Cost pressures mount
The continued pressure on dim weight pricing is part of a broader trend that is seeing the carriers push through a variety of price increases. On Jan. 2, FedEx and UPS raised their tariff rates on ground parcel deliveries by 5.9 percent, minus a one-percentage-point reduction in each carrier's fuel surcharge. However, consultants believe the announced rate hikes obscure the reality that prices will actually be rising at a faster clip for many parcel shippers. Hempstead said an analysis by his company showed that rates for ground parcels between one and 20 pounds and shipped across virtually all of the country are likely to increase in excess of 7.5 percent. In some instances, the increases will be pushing 9 percent, he said.

For example, UPS will raise rates by more than 8 percent on shipments weighing between two and 10 pounds and moving between 300 and 1,000 miles, according to the Hempstead study. The increases will be somewhat less on shipments of the same weight range moving beyond 1,000 miles, the analysis found.

Hempstead acknowledged that larger parcel shippers work under contracts and receive discounts that result in much lower package rates. He added, however, that virtually every customer of the Big Two is subject to what is known as a "minimum charge" for each package, and that those charges are rising faster than the total average increase of 5.9 percent. For instance, UPS's 2012 minimum charge of $5.49 is more than 6 percent higher than the 2011 charge of $5.17 per package, and represents a jump of nearly 31 percent over the 2008 minimum of $4.20 per package, according to Hempstead data.

Transportation Parcel & Postal Carriers
KEYWORDS FedEx Hempstead Consulting Shipware UPS
  • Related Articles

    FedEx to shift to dimensional pricing on many ground parcel shipments Jan. 1

    FedEx narrows threshold of dimensional pricing on U.S. parcel shipments, hurting shippers

    UPS, following FedEx lead, shrinks threshold of dimensional pricing on parcel shipments

Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

Recent Articles by Mark Solomon

Coming together for road safety: interview with Joshua Girard

Off the rails

Freight rate spikes shaking up the C-suite

You must login or register in order to post a comment.

Report Abusive Comment

Most Popular Articles

  • Walmart launches plan to build micro-DCs inside dozens of retail stores

  • Relaxed regulations for drone parcel delivery to take effect in March

  • Gartner survey signals increased investment in resilience over the next two years

  • Increasing Urgency for Vaccine Supplies Drives Launch of New Vaccine Manufacturing Resources on Thomasnet.com

  • What Level of Automation is Right for Your Warehouse?

Now Playing on DCV-TV

7d82a38f f300 4f37 aac7 93ec8a60c08a

Heads Up: Your CEO Could be Calling!

DCV-TV 4: Viewer Contributed
The challenge on the table is how to make the best of a tumultuous transportation market. Watch this video to hear some tips to consider. Check out last week's 2MW: https://blog.tranzact.com/2-minute-warning/note-to-ceos-dont-blame-the-logistics-department OTR with Peter Tirschewell, from the Journal of Commerce...

FEATURED WHITE PAPERS

  • Time to rethink your lift truck power

  • Warehouse Management System Project Toolkit

  • Solving Talent Management Challenges Now and In the Future

  • Shaping Up Last Mile Delivery to Surpass Customer Expectations

View More

Subscribe to DC Velocity Magazine

GET YOUR FREE SUBSCRIPTION
  • SUBSCRIBE
  • NEWSLETTERS
  • ADVERTISING
  • CUSTOMER CARE
  • CONTACT
  • ABOUT
  • STAFF
  • PRIVACY POLICY

Copyright ©2021. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing