Parcel and LTL shippers that understand the significance of moves by the nation's two biggest carriers to apply "dimensional weight" pricing to all their U.S. ground shipments are the ones trying hardest to blunt its impact, a sign that the pricing change should be taken seriously by all shippers, according to a survey recently conducted by Niagara University, consultancy Supply Chain Optimizers, and DC Velocity.
The survey, taken of 146 parcel and less-than-truckload (LTL) shippers, found that about half had a good understanding of so-called "dim weight" pricing, under which delivery rates are based on a parcel's dimensions rather than its actual weight. In mid-2014, Memphis, Tenn.-based FedEx Corp. and Atlanta-based UPS Inc. decided to abandon actual-weight pricing on domestic ground shipments measuring three cubic feet or less and adopt dimensional weight pricing on those packages, which make up a large portion of their ground traffic. (Dimensional weight pricing on ground shipments measuring more than three cubic feet has been in effect for several years.)
Aware of the impact of the new policies, about 46 percent of the better-informed shippers have already negotiated pricing adjustments with their carriers and have made changes in their packaging processes to shrink parcel cube and avoid a significant rate increase that would accompany the change in the carrier formula, according to the survey. An additional 30 percent said they had pursued packaging changes without negotiating rate adjustments, according to the findings. Seasoned shippers were also more likely to use computer systems to help select the optimum box size, as well as to install "cut to size" systems where boxes are custom-formed based on their contents, the survey found.
By contrast, more than half of the shippers who said they lacked a strong understanding of the pricing scheme had taken no action as of the time of the study, and only 20 percent of those respondents had made any adjustments to their packaging, according to survey data. In all, about 27 percent of respondents said they had done nothing in response to the carriers' actions, meaning they had accepted the rate increases that accompanied the changes in the pricing model.
"There are various successful responses to dimensional weight pricing. Taking no action is not one of them," said Jack T. Ampuja, CEO of Supply Chain Optimizers and the survey's co-author along with Jim Kling, a professor at Niagara University in Lewiston, N.Y. Shippers that simultaneously employed multiple solutions seemed to achieve the best outcomes, according to Ampuja and Kling.PAYBACK TIME
Over the years, parcel and LTL shippers have benefited greatly from the carriers' under-reliance on dimensioning equipment and systems. Though parcel carriers had the technology, they used it only for shipments measuring more than three cubic feet. As a result, they charged the actual weight for bulky, lightweight parcels, effectively underpricing portions of their trailer space. LTL carriers, without any equipment at all, resorted to tape measures and rulers, hardly a precise method for verifying product density. This allowed shippers to tender an ineffectively packaged consignment and still get away with being undercharged for the service, according to the authors.
Parcel carrier executives have said the expansion of dim weight pricing was necessary to properly compensate their companies for the space occupied by low-weight, high-cube shipments. The change would also deliver to shippers a wakeup call to re-engineer their inefficient packaging processes that just add cube to a package without providing any real value to the shipper, customer, or carrier.
More than 18 months into the dual initiatives, the explosive growth of e-commerce continues to drive traffic in these lighter, bulkier consignments, according to UPS Chairman and CEO David P. Abney. "Package weight keeps going down, but the cube keeps going up," Abney told reporters at a company event June 30.
LTL pricing occupies a world of its own. Rates are based on an intricate system of classification codes that were developed in the mid-1930s. Because charges based on classification codes are subject to interpretation, it is commonplace for shippers and carriers to get embroiled in post-delivery disputes over pricing differentials. LTL carriers that advocate dimensioning have said that it will not only yield more accurate pricing outcomes, but also reduce the frequency of so-called carrier chargebacks and the hassle that often accompanies them.
Carriers have a vested interest in promoting the dimensioning practice: By doing a better job of pricing palletized freight, carriers can recover the $65,000 cost of a dimensioning machine within 90 days, the survey's authors said.
The growing use of dimensioning equipment will force shippers to do a better job of preparing their freight for tender, Ampuja and Kling said. Those who observe the status quo will likely confront rates that are higher than they've ever paid before, they said. "The reality is that most shippers are not aware that the responsibility for proper packaging and palletization has now been pushed back to them, and most are not yet prepared to manage the function," they said.
One group that appears to be especially concerned about the impact is smaller shippers, who lack the volume clout to leverage carrier relationships to their benefit. "When we visit with smaller shippers and ask about logistics issues, dim weight pricing is typically the first topic they mention," the authors said.PARCEL SHIPPERS MORE PROACTIVE
The survey was fairly balanced among users of the two modes, with 43 percent saying they shipped mostly with parcel carriers, 37 percent saying they shipped primarily with LTL carriers, and the remaining 20 percent split down the middle.
Parcel shippers have responded more rapidly than have LTL shippers to the carriers' pricing changes, according to the survey. About 65 percent of parcel shippers have made some adjustments to their packaging, compared with 34 percent of LTL shippers. Only 42 percent of respondents who identified themselves as LTL shippers had done anything in response to the dim weight initiative, according to the survey.
Most LTL shipper respondents to the survey said they weren't comfortable with the carriers' dimensioning concepts or with the equipment being used to perform the measurements. The unease was expressed by both the experienced and the relative novice: Some 27 percent of the more-knowledgeable respondents said they were comfortable tendering their freight for dimensioning; about 36 percent of the less-knowledgeable group said they were comfortable with the practice.
A cluster of the comments focused on criticisms of the equipment and the way it's used. One respondent mentioned that "dimensional pricing can be completely skewed by a minor change" in the process.
Clark Skeen, president of Quantronix, the Farmington, Utah-based maker of the popular "CubiScan" dimensioning product line, said palletized shipments are often asymmetrical in dimension and come in multiple shapes and sizes. This, in turn, can make it difficult for even today's equipment to capture an accurate scan, he said.
"There are systems on the market that are robust, reliable, and consistent," Skeen said in an e-mail. But users need to look closely at the performance records of any system, and in the meantime, take vendor claims with a grain of salt, he added.
Ampuja and Kling said customer complaints should fade once dimensioning systems are harmonized and eventually perfected. They emphasized that shippers who invest in proper packaging and palletizing processes will, over time, reap the benefits of lower pricing on their package and LTL consignments.
However, shippers with a lot of low-density freight or with inefficient packaging models face a more long-lasting problem, namely a hit to their budgets as dimensioning forces them to pay more for shipping, they wrote. Businesses that simply can't change the configurations of their products "will not find any easy solutions to the higher rates associated with dimensional weight pricing," they said.