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

UPS Inc. said late Friday it will expand the volume of parcels that are priced on their dimensions rather than just their weight, a move that follows on the heels of a similar move by its rival, FedEx Corp., and which will subject a large number of parcels to a costlier pricing formula.

Atlanta-based UPS, the nation's largest transportation company, said that effective Jan. 8, it will reset the divisor used to calculate dimensional prices on its parcels to 139 from 166. The change will apply to all parcels measuring more than 1 cubic foot and moving within the U.S. or into the U.S. from Canada.

Parcels measuring 1 cubic foot or less will still be priced using the current divisor of 166, UPS said in an update to its 2017 service guide. It is unclear how many UPS shipments fall at or beneath the 1-cubic-foot threshold.

UPS currently determines a package's dimensions by multiplying its length, width, and height in cubic inches and dividing by 166. For example, a parcel measuring 3 cubic feet—or 5,184 cubic inches—would yield a dimensional weight equal to a 31-pound shipment, even though its actual weight could be much less. Using the new divisor of 139, that same parcel would be priced equal to that of a 37-pound shipment. The shipper pays the higher of the parcel's dimensional or actual weight. Any applicable fuel surcharges would apply to the higher dimensional-weight rate, thus further increasing a shipper's costs.

"Unlike FedEx, UPS is keeping the divisor at 166 for U.S. domestic air and ground packages that are 1 cubic foot and smaller," said Kyle Peterson, a UPS spokesman. "This will create a published-rate price advantage for UPS customers for a significant number of packages."

UPS' announcement comes two months after Memphis-based FedEx said it would reset its divisor on all domestic shipments to 139 from 166. UPS' global daily package volume of about 17 million is about 5 million pieces more than FedEx's. At the time, UPS said it did not plan any pricing changes following its announcement to raise published rates on its services for 2017.

Krish Iyer, director, shipping and tracking solutions for consultancy Neopost USA Inc., said in an e-mail Friday he was surprised by the timing of the UPS move, thinking the company would wait until next summer at the earliest before changing the divisor. UPS' published 2017 rate increases are higher than FedEx's, and some analysts had voiced concern that UPS risked shipper backlash if it acted so quickly.

The companies say the changes in their dimensional pricing formulas are needed to properly compensate them for handling lightweight, often bulky packages that occupy disproportionate amounts of space aboard a plane or ground vehicle, but that have traditionally been priced at their actual weight. As e-commerce volumes continue to grow, the companies say they are handling a larger proportion of packages with those characteristics. "Package weight keeps going down, but the cube keeps going up," UPS Chairman and CEO David P. Abney said at a company event in June.

The companies, and many industry experts, had hoped the various changes to dimensional-weight pricing, especially the 2014 adjustments, would convince e-commerce shippers to streamline their packaging. However, many parcels continue to be packaged with too much padding—which often isn't even necessary at all—or just empty space.

For years, the divisor had been set at 194. FedEx and UPS dropped it to 166 in 2011.