Understanding Dimensional Pricing: 19 February 2015
Companies and individuals that utilize the major shipping carriers are fairly accustomed to pricing changes, but a fundamental change in dimensional pricing is out of the ordinary. It takes a bit of study to understand how dimensional weight pricing works, and how it will affect shipping costs for various sizes and weights of packages.
Other than the carriers themselves, fulfillment companies that warehouse and ship a very high volume of products have been most concerned with educating clients about the changes. Since the pricing change was announced in mid-2014, AMS Fulfillment has done a great deal of adjusting, negotiating with carriers, communicating with clients and analyzing technology systems in order to respond to this significant change.
Knowing that its clients may be facing the largest price increase in the history of the major carriers, AMS made it a point to inform clients early on, educate them on how to possibly mitigate some of the costs, and help them to prepare, so that they can properly and accurately invoice customers for shipping costs. AMS also made changes in their own processes and systems so that information can be efficiently captured, especially for clients who re-bill exact freight costs to their customers.
Previously, dimensional pricing (DIM), for ground shipping, was only used on packages of three cubic feet or more, but as of January 2015 the DIM pricing method went into effect for all ground packages. This meant that the billable weight for every ground package would now be determined using the DIM calculation, or the actual weight, whichever turned out to be higher.
Through a series of questions and answers, AMS set out to inform clients about the changes and get their feedback, beginning with an example of domestic ground DIM weight calculation:
Actual package weight may be: 5-11 lbs.
Box size: 10″ x 12″ x 15″ 10” x 12” x 15” = 1800 cubic inches 1800 cubic inches. ÷ 166 = 10.8 lbs. Net Result: The package will be billed at the 11 lb. rate
AMS’ preliminary analysis showed that a 5-30% increase in shipping price is possible for its clients. Lightweight shippers and those with inefficient packing practices would be impacted the most. Since AMS is a high volume parcel shipper, they do have the ability to alleviate some of the impact of price increases through special discounts or directing clients to their preferred packaging optimization experts, and this they set out to do.
Analyzing the significance of the weight of a package, AMS determined that for shippers of very dense products like nuts and bolts and books and magazines, there will not be very much of a price change, but lightweight, bulky items will be significantly affected.
As a caution, AMS suggested that its client’s budget for a minimum 5-7% price increase for the products they’re currently shipping, especially if they are already experiencing a fair amount of DIM weight adjustments.
With regard to how the clients might cover costs, John Bevacqua, VP Logistics said, “For our clients who currently invoice their B-B clients based on standard rates that are reflected in the AMS ship report, we suggest that the client currently gross up the rate charges that appear on the ship report to cover the accessorial charges that appear. We suggest that this is the most economical way to deal with the dimensional pricing rate increase by spreading the cost over all shipments.”
John also offered information on DIM assessments on an order-by-order basis: “While we will be exploring cost efficient methodologies to provide this service, we do not currently have an economical solution for DIM assessment on an order by order basis. If our clients need an accurate retail rate at the time of shipment, AMS will need to put steps in place to capture DIMs. Otherwise, this can be calculated manually with the DIM formula.”
John went on to explain that when a client wants to get the best rate possible, there is an option of having a packaging engineer evaluate the packaging. AMS is identifying a recommended 3rd party to provide this service. In many cases, this will be to assist in optimizing the master cartons that clients currently use, as many of the AMS clients use master cartons to ship. In this case packaging engineers can help evaluate the best solution.
High volume shippers like AMS have the distinct advantage of negotiating a divisor for their clients. The standard divisor is 166, but AMS has negotiated a divisor of 210: Dim Formula – (LXWXH/210). The higher divisor will reduce the weight of the package, and is especially beneficial for small parcel shipments.
For more information please contact John Bevacqua by phone or email at the following:
Office 661-775-0611 or [email protected].