Online retailers get ready for what some are calling the biggest shipping fee increase on record. The previously announced FedEx and UPS expansion of dimensional weight rules may significantly increase your shipping costs. Here’s a summary, and some tips for e-retailers to avoid impact to online sales.
What are the new rules?
In 2015, ALL FedEx and UPS ground packages will be subject to a dimensional weight calculation to determine the freight cost. Previously, only air, international, and ground packages greater than 3 cubic feet were subject to dimensional weight rules. Since the vast majority of packages are under that threshold, the dimensional weight formula didn’t apply to most shipments and instead freight for those packages was calculated off of their actual weight. At the end of December 2014, every ground package is subject to dimensional weight. With the new rules, freight cost for all UPS and FedEx ground packages is based on the greater of actual weight or dimensional weight.
What is dimensional weight?
It’s a weight calculation for freight pricing based on the exterior size (dimensions) of the package – the physical space it occupies. Here’s the FedEx and UPS formula for domestic ground shipments:
(package width x length x height) / 166
Here’s how to apply it:
- Multiply the length, width, and height of your package, then divide it by 166 (the standard dimensional factor used by FedEx and UPS for domestic ground shipments).
- Round this number up to get the dimensional weight.
- Compare the dimensional weight to the actual weight of the package.
- Whichever of the two weights is higher is used to determine the shipping cost for the package.
To illustrate the before and after impact, we decided to look at an ecommerce client’s actual package that ships to an online shopper. The package dimensions are 12.5” wide by 12.5” long by 6.25” tall. The actual weight of the box and packing material is 1.59 lbs.
Here’s the math:
12.5 x 12.5 x 6.25 = 976.56
Divide by 166 = 5.88
Round up, for a dimensional weight of 6 lbs.
Actual Weight = 1.59. When rounded up, it’s 2 lbs.
The new rules will use the higher of the two weights (ie. 6 lbs) to calculate the freight cost. So, what was a 2 lb package to ship in 2014 is a 6 lb package in 2015. Try this with your own products and packages.
What are the effective dates?
December 29, 2014 for UPS and January 1 2015 for FedEx.
Impact to web retailers?
The new DIM weight rules are expected to increase rates substantially — by some 30% to 50%. Simply passing along these higher shipping costs to online shoppers at checkout may lead to an increase in abandoned shopping carts and a drop in sales. In the competitive world of ecommerce where shipping costs play a critical role and online shoppers are price sensitive, we have some tips for navigating this change.
Tips for ecommerce companies to navigate DIM weight costs.
- Get accurate DIM data for your products: If you don’t have dimensions for your products, you’ll want to get a good handle on them. And accurately maintain that data going forward. Many ecommerce websites didn’t worry about DIM data in the past because they weren’t much affected by it when freight was largely based on actual weight. With the new rules, you’ll want accurate DIM data to incorporate into your systems, website, and analysis.
- Audit regularly: It’s a wise practice to audit your shipping profit and loss on a regular basis (monthly) and make adjustments as needed.
- Minimize package size: To reduce DIM weight cost, you’ll obviously want to ship in the smallest package dimensions that gets the job done. Optimize packaging and box selection going forward.
- Evaluate all carrier options: Evaluate regional players and USPS. With USPS, DIM weight costs don’t apply for smaller packages and recently they reduced rates for Priority Mail.
- Negotiate your contract with the carrier: This includes, but is not limited to, a modified dimensional divisor.
- Evaluate free shipping or flat-rate shipping strategies on your ecommerce website: A major sore spot for online shoppers is high shipping costs at checkout. This cost plays a major role in abandoned shopping carts. So rather than pass along higher freight fees to your ecommerce customers, instead work cost into your product pricing and then offer free shipping or flat-rate shipping.
Albeit disruptive, these changes don’t necessarily translate into a negative. A thorough review of your ecommerce shipping operations and some creative strategies can keep you at par or even unearth some advantages.