“At least they’re waiting until after Christmas.”
I had to clean up that sentence a little bit after a fellow eCommerce store owner forwarded me the email he received from UPS last week letting him know that starting December 29, 2014 the shipping company would be using a dimensional weight formula to determine the cost of a ground shipment.
I’ve been shipping packages to customers around the world since I opened my first eCommerce store in 1994. Back then UPS didn’t want our business because residential deliveries were not convenient for them. I vividly recall a very intense meeting with my UPS account rep and his territory manager, where I not-so-politely escorted them out of the building after being told discounts were off the table because UPS doesn’t want shippers who ship to residential addresses.
Around that same time, FedEx was getting into the ground delivery business when they bought small package delivery carrier, RPS, which eventually turned into FedEx Ground. We met with an RPS account manager, who came in offered discounts in return for a significant number of packages being given to them every day instead of UPS.
We made the switch and it came along with a ton of headaches because they just weren’t good at delivering boxes of ferret food to remote portions of the country where dueling banjos played and nobody in the town had a full set of teeth.
Back then it cost less than $5 to deliver a six pound package from Pennsylvania to California. Today, the list price according to UPS’s website is $20.73, which includes a residential and fuel surcharge. Of course, shippers with a significant amount of volume don’t pay that much money, as they get discounted rates, but it’s still a big difference over the years.
This latest change, first announced a few weeks ago by FedEx, is a game changer for all eCommerce merchants and it’s sure to be accompanied by the annual rate increase both carriers hit shippers with each January.
That 6 pound box from Pennsylvania to California, depending on the size of the carton, may not ship at a 6 pound price come December 29th making shipping expenses for eCommerce merchants rise. And we all know that those costs must be passed down to the consumer, so we’re all going to be paying more to get home delivery.
For example, if today I ship a 5 pound bag of dog food in a 12” x 12” x 12” box it’s going to round up to 6 pounds and I’m going to pay the 6 pound rate, which is listed as $20.73 on the UPS website. However, if they apply the same dimensional weight formula used for air shipments, which I assume they will, that 5 pound dog of bag food in a 12” x 12” x 12” box is going to be calculated at an 11 pound rate because of the size of the carton – which list price comes out to $26.05.
According to the official UPS press release, this move is being made to increase efficiency. “Recent e-commerce shipping trends have resulted in a decrease of package density. For example, the package weight compared to the physical exterior dimension is declining. This trend causes cargo space to be less efficiently utilized, resulting in an increased cost per package.”
Of course, that was written by some number cruncher in a corner office at headquarters who’s responsible for driving up company revenue to increase shareholder value which directly impacts his already very generous retirement package he has with the shipping giant.
UPS goes on to say that, “the company believes that as a result of the dimensional weight pricing method, more shippers will seek to optimize their packaging practices. These efforts will reduce excess packaging materials and overall package sizes, leading to related reductions in fuel use, vehicle emissions and transportation costs.”
I translate that statement into, “more shippers will cram more items into smaller boxes resulting into an increase in damaged goods being delivered to customers and a higher rate of package insurance claims being denied by the shipping carrier due to insufficient packaging on behalf of the shipper.”
So basically, it’s a win-win for everyone, right?
eCommerce businesses are going to have to really re-think how they ship packages today and try to minimize the impact this new dimensional pricing is going to have on their business. It’s hard enough trying to educate consumers that shipping charges are not profit centers for businesses. They’re actual costs involved in getting that shipment from Point A to Point B.
Unfortunately, shoppers don’t care about what it costs a company to ship their order to them, they just want it at their front door as quickly as possible. This move by UPS and FedEx will go unnoticed by consumers for now, but will eventually be felt in increased shipping charges at the checkout come the new year.
While online retailers have six months to begin planning for how they’re going to handle this major shift in package weight calculation on the majority of their orders, the time to begin addressing it is now.
A good test to see how much this is going to impact your business is to take a day’s orders and when they are being shipped out, write down the ground shipment weight and cost as it exists today, then measure the box and apply the dimensional weight formula and calculate the cost based on dimensional weight. At the end of the day, add up the difference in price for each package and see what you come up with. Do this a couple days a month so you have a good sampling, then start evaluating your box sizes, package density, etc to determine if you can pack your orders more efficiently to reduce the impact this is going to have on your business.
I believe this is going to have a major impact on most online retailers and the majority of them aren’t aware just how much of an impact it’s going to have on them without applying the simple test I described above.
I’d love for you to apply that test to your shipments and let me know how you make out.
Before I leave you, I have a few predictions I want to lay out there now. First, I predict that come the new year, we’re going to see many online stores tone down free shipping offers, or increase the minimum order value for free shipping to kick in. Second, come December 29, 2014, Eli Lilly will be thanking UPS and FedEx as Prozac is going to be the number one prescribed drug to eCommerce store owners, and sales of over-the-counter headache remedies will skyrocket.