Parcel shippers may be in for a shock when they open their first parcel shipping bills of 2015. By that time, FedEx Corp. and UPS Inc. will have implemented what is known as "dimensional weight pricing" for all of their ground packages, including those measuring less than three cubic feet that were previously exempt from dimensional weight, or dim weight, pricing.
For the first time, parcels falling under the three-cubic-foot dimensional threshold will be priced based on a combination of weight and carton dimensions, not their weight alone. For shippers of lightweight items with packaging heft to them, this could spell double-digit price increases because the parcels will be rated based on the amount of space they occupy in a van. No longer will the carriers haul Styrofoam popcorn and other cushioning materials that amount to little more than air for free.
The companies say the pricing changes will foster greater packaging efficiency for shippers, reduce fuel consumption through better truck utilization, and result in a smaller carbon footprint. They are also likely to generate for the carriers hundreds of millions of dollars in additional revenues without significant fleet investments. "The simple reason for the new pricing structure is it is much cheaper for [FedEx and UPS] than buying more trucks and airplanes. They want to get more product into the trucks and airplanes they already have," says Jack Walsh, director of sales and marketing for CASI, a company that provides dimensioning and weighing systems.
Before the Internet changed shopping (and shipping) habits, a large portion of parcel loads involved business-to-business shipments that were optimally packed by the manufacturer. Things are different in the age of e-commerce. Speed has now taken precedence, and for most DCs doing e-commerce fulfillment, it is faster for workers to grab a larger carton than necessary than risk having to repack an order because the carton originally selected was too small.
Jack Ampuja, president of the packaging and supply chain consulting firm Supply Chain Optimizers, says an order picker chooses the wrong sized carton about a quarter of the time. "We have all gotten that small item, such as a flash drive, packed in a breadbox-sized carton," he says.
Such packaging habits result in wasted space. "Forty percent of total shipping volume is unnecessary air," says Hanko Kiessner, CEO of Packsize, a company that provides on-demand packaging systems that enable users to build custom cartons. "If we can reduce shipping volume by 40 percent, we can actually increase fleet efficiency by 66 percent."
KNOW YOUR NUMBERS
So how can companies avoid high parcel shipping charges? The first step is to talk to the carriers. Many companies have negotiated rates, so it remains to be seen if, or by how much, the pricing changes will immediately affect them. Experts emphasize that the time for shippers to act is well before their contracts are up for renewal. "If your water bill goes up, you turn off the sprinklers," quips CASI's Walsh.
The second step is to know what is actually being shipped. "You can't make intelligent packaging decisions if you don't know the [dimensional] volume of your products," says Walsh. Few companies know their product characteristics, especially those companies that have a constant churn of stock-keeping units (SKUs). But knowing the actual weight and size of products can pay big dividends. It can make handling easier, optimize storage space, and save on shipping costs. If you know the size and weight of each item shipped, you can then optimize how the items are packed so you're not paying to transport air.
As for how you can get those dimensions, there are a number of ways. Sometimes, suppliers will provide you with that data. But more often than not, shippers have to gather the data themselves. They can measure and weigh products manually using a tape measure and a scale, but this can be very time consuming. Another option is to use automatic dimensioning and weighing systems. Not only are these systems much faster and more accurate, but they can help take the guesswork out of the carton selection process. The systems can transmit the weight and dimensional data they capture to a warehouse management system and shipping software. The software then guides packers in choosing the best packaging for the product, including the correct size carton and the amount of dunnage needed to protect its contents. Some systems will also tie into a computer screen to display the optimal way to arrange products within the carton—for instance, with heavier items on the bottom and lighter ones on top.
In addition to being used to collect data on individual SKUs handled at the facility, automated dimensioning systems can be installed at the end of the line to capture information about each package in a shipment. This information is then passed along to the carrier and can also be used for customer billing. "It is important for shippers to include the dimensions of the parcel when processing their ground shipments. If they don't, they are likely to receive significant 'back-charges' from their carrier, which cannot be passed back to the shipper's customer," notes Randy Neilson, director of sales and marketing for Quantronix, the manufacturer of CubiScan dimensioning systems. "The system will collect the parcel's ID/order license plate number as well as its length, width, height, and weight," he says. "All of this information is then electronically transferred and integrated with the user's shipping software system."
Such systems are certified as legal-for-trade dimensioning and weighing systems. Therefore, the information they gather may also be useful in settling any billing disputes that might arise with the carrier or customer.
CARTON CORRECTION
Another way to address shipping costs is to evaluate the packaging you're using to see if the cartons you employ are the best ones for your needs. Consultants like Ampuja can help shippers determine carton characteristics, the number of cartons that are ideal for their products, and the sizes those cartons should be. "Six box sizes are about optimum for manual operations," Ampuja says. Companies that use computers to select the proper box size really have no limit on the number of boxes they employ but typically use about 15 to 18 boxes, which will provide more freight savings, he says.
Ampuja notes that shippers are sometimes reluctant to increase the number of boxes they use because they feel it will complicate their operations. However, expanding their carton lineup can save money if the cartons are a better fit for their products, he says, especially if computers handle the carton selection. "The money is in the freight, not in the box," Ampuja says.
Making even minor changes in the boxes' dimensions can also greatly affect the dim weight. For example, simply trimming a half-inch off the length, a quarter-inch off the height, and so on can save significant money when multiplied by thousands of boxes.
Obviously, consideration should be made for the types of products shipped—how heavy and fragile are they? What is the ideal corrugated thickness and design to assure the products are protected? The cartons should not be too weak or too strong, but as Goldilocks would say, "Just right." Another matter to consider is the optimal amount of dunnage to use to ensure the product will survive the journey while at the same time making the most efficient use of space.
"ON-DEMAND" PACKAGING
Another option for companies looking to eliminate wasted space is to go the custom carton route. They can do this by installing an on-demand packaging system that allows them to make custom cartons on the spot. Using measurements obtained from dimensioning systems, an on-demand packaging system forms the correctly sized box for the product being shipped. In short, these systems can neutralize the effects of the new dim weight charges, as the package is already as compact as it can get. "Our solution can actually help customers see a reduction in their shipping charges even with dim weight pricing," says Packsize's Kiessner. He says customers using his company's on-demand packaging solution currently obtain at least a 20-percent overall savings even before dim weight pricing kicks in. The savings come from lower shipping charges as well as a reduction in the amount of corrugate and dunnage needed.
Using a carton of the correct size also reduces the potential for product damage. "There is no better protection for any product than the best fit, so that there is no shifting inside the box," explains Kiessner.
On-demand packaging can be especially useful for companies shipping irregularly shaped items. One such shipper is CarPartsDepot Inc., an online store that sells automotive body parts, such as bumpers, fenders, grills, radiators, hoods, and headlights. Not too many of these parts fit neatly into a standard box. For that reason, CarPartsDepot relies on a Packsize system to create the oddly shaped boxes it needs.
"We have around 6,000 SKUs. Every one has a different shape, so we need a perfectly shaped box for each item," says Tony Chiu, CarPartsDepot's general sales manager. He says the retailer captures each part's dimensions, which are then stored in a computer until it's time to create the box for the shipment. About 1,200 to 1,500 parcels ship daily from his facility. He adds that he is not worried about dim weight pricing as he is already optimized for parcel shipping. "We are saving 15 percent now and will save even more comparatively when the dimensional weight [pricing] starts."
Gartner, Inc.