FedEx, UPS, and Volumetric Pricing: A Tale of Three Boxes
Spend Matters welcomes a guest post from Doug Caldwell, VP of EMEA and International at AFMS Global Logistics Management Group.
By now, just about every shipper has heard the news: effective January 1, 2015, all FedEx Ground and UPS shipments, regardless of size, will be subject to DIM (short for dimensional) charges. For many shippers, this will represent a very hefty increase. Over an eight-year period, there have been a number of major changes to ground dimensional factors:
- 2006 and earlier – UPS and FedEx apply “oversize” rules to larger ground packages, but no actual DIM factors.
- 2007 – UPS and FedEx drop the oversize rules and replace them with a more restrictive 194 DIM factor, which only applies to packages of three cubic feet and over.
- 2011 – UPS and FedEx lower the ground DIM factor from 194 to 166 (minimum remains three cubic feet).
- 2015 – FedEx to apply Ground DIM factor of 166 to all packages, not just those over three cubic feet.
Let’s set aside the actual metrics for a moment and look at how these changes, coupled with the annual rate increases, have driven up the cost of three representative ground shipments since 2010.
We have a small box (6” X 6” X 6”, 2 lbs), a medium box (12” X 12” X 12”, 8 lbs), and a large box (36” X 12” X 12”, 20 lbs). In all three cases, the shipments are between LA and New York, which is Zone 8. We are using the published list rates for commercial ground shipments, excluding fuel and other accessorial charges.
The announced average ground rate increases from both UPS and FedEx have been 4.9 percent every year since 2010, so we made the assumption that the 2015 increase will be the same 4.9 percent (we won’t know the actual number until October). Assuming that we are correct, the cumulative announced average increase from 2010 to 2015 would be 26.3 percent. The key word here is average. In actuality, lighter weight shipments have increased at a much higher percentage than 4.9 percent, virtually every year since 2010. UPS, in a recent presentation to investors, states that a key UPS pricing strategy is “targeted increases to lower weights and zones.” Historically, UPS has set the ground rates each year, and FedEx then matches them penny for penny through 70 lbs.
Small Box: This box was never subject to the DIM factor, and will not be in 2015. In 2010 the billed weight was 2 lbs, and it will be the same 2 lbs in 2015. However, the cumulative increase is a still a substantial 40.3 percent.
Medium Box: Since this box is less than three cubic feet, it didn’t DIM out in 2010, and it still doesn’t in 2014. However in 2015, the billed weight will go from 8 lbs to 11 lbs, and the cumulative increase since 2010 will be over 62 percent. In effect, this box is getting the proverbial double whammy, since it will now be subject to DIM and wasn’t before, as well as relatively high annual rate increases.
Large Box: This large box was subject to the DIM back in 2010, and it will be in 2015. Notice the 21-percent hit this box took between 2010 and 2011, when the factor was lowered from 194 to 166. From 2010 to 2015 the cumulative increase will be nearly 50 percent.
Are there any silver linings to these new DIM charges? Probably not much, but If you have high density shipments – over 10.4 lbs per cubic foot – there could be minor benefit to you. First, you were not subject to the DIM before, and will not be under the new rules. Secondly, the carriers will argue that since the shippers with “bad” cube will now be paying their fair share, it might translate into slightly lower annual rate increases in 2015 and beyond.
How About International Shipments?
These new rules apply only to North America, for domestic ground shipments in the US and Canada and for ground shipments between the two countries. For the more than 200 countries served by various carriers outside of North America, most of the DIM tightening adjustments have already been made over the last few years. And in many cases, those DIM factors are even more punitive than the 166 domestic and 139 international factors used in the US and Canada. In fact, it’s not uncommon to see 115, 111, and even lower factors in Europe and other areas of the world. Bottom line is, as of January 2015, you will be hard pressed to find a parcel shipment of any size and for any carrier that is not subject to a dimensional factor.
The AFMS Global Dimensions Factors “cheat sheet” lists the current DIM factors for carriers and countries throughout the world. Contact Doug Caldwell at email@example.com to receive a free copy.