Guide to Dimensional Weight Pricing

What every small Parcel shiPPer shoulD knoW

www.birddog.com/dim

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introduction

UPS® and FedEx®, along with many other major carriers, apply what is known as “dimensional (DIM) weight pricing” to certain packages. DIM weight pricing creates a billable weight based on package volume (the amount of space a package occupies in relation to its actual weight). The primary reason for doing so was to protect the premium space of a truck or plane and to ensure profits for the carrier when transporting lightweight, low density packages.

Prior to 2015, only packages shipped by air or those three cubic feet (5,184 cubic inches) or larger shipped by ground were subject to DIM weight adjustments. In 2015, the major carriers will subject all ground packages to DIM weight pricing. This means that most small lightweight boxes will now be subject to “DIMming” and will be charged by a new billable weight instead of the actual weight of the package.

This change makes it more important than ever for shippers to understand how dimensional weight is calculated, how to forecast the impact, when to make operational adjustments to minimize the impact, and how to monitor the impact once the new rules go into effect in 2015.

Did you know?

Dimensional weight is also known as DIM weight, cubed weight or volumetric weight.

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the basics: how to calculate Dim weightFirst, you must calculate the cubic size of the package in inches: multiply its length, width and height (round up or down to the nearest whole number). The cubic size is then divided by the dimensional factor*, which is currently 166 for domestic and 139 for international shipments. When determining the final DIM weight, always round up to the nearest whole pound (for example, 1.3 lbs. is considered 2 lbs.).

Domestic Dimensional Weight (lbs.) = (L x W x H) / 166 International Dimensional Weight (lbs.) = (L x W x H) / 139

*It’s important to note that the dimensional factor is subject to change in the future.

10.8an example of domestic ground Dim weight calculation:

Box size: 10”x11.5”x15”

calculation: 10”x12”x15”= 1800 c.i./ 166 DIM factor= 10.8 lbs.

net result: The package is to be billed at the 11 lb. rate as long as the actual weight is 11 Ibs. or fewer.

10”

11.5”

DIM = 11 lbs.

15”

Did you know?

Corrugated box suppliers measure package dimensions as the inside of the box, not the out outside dimensions as for DIM calculations.

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UPS and FedEx originally charged customers based only on the weight of a package. Note that the zone concept was not introduced until the 1960s. This pricing model worked well unless the package was large and lightweight (think of a box of bubble wrap). As more customers started shipping via air services, the carriers needed a way to charge based on the amount of space a package occupied (as space on a plane is much more expensive than space on a truck). The answer was found in the DIM weight calculation already adopted by common airfreight carriers in the 1930s. Through a simple calculation [(length)*(width)*(height)/194] the carriers billed based on whichever was larger: the DIM weight or the actual weight of a package to effectively charge customers for the space occupied in the plane.

What started as a simple calculation by the carriers to recover the higher expense of space on a plane, DIM weight pricing has steadily grown into one of the most impactful factors affecting the bottom line of shippers everywhere.

Why the change in Dim weight rules now? With the explosion of Internet commerce and the advent of other new supply chain strategies, carriers are moving more small, lightweight, especially residential parcels through their networks. These packages are more expensive to deliver and have impacted the growth rate of the carriers.

Although the carriers’ rates have actually increased at a rate five times that of inflation each year, this is an additional opportunity to cover their increased operating expenses and show better results to shareholders. Technology has also advanced the feasibility to use the DIM weight pricing model on all packages. Both UPS and FedEx have made sizeable investments in DC (Distribution Center) technology that automatically scans packages to measure the box dimensions needed to accurately calculate the DIM weight.

the history of Dim weight pricing

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1-3-11

12-29-141-1-15

extenDeD to GrounD PackaGes over 3 cuBic Feet

DomesticDim Factor loWereD From 194 to 166

extenDeD to all GrounD PackaGes

uPs effective date

Fedex effective date

uPs & Fedex

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uPs effective date

Fedex effective date

all air PackaGes

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small Parcel Dim changes

>3 cu.ft.

194 166

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Dim changes impact a shipper’s bottom lineIn our experience, the majority of ground shipments are in packages less than three cubic feet, so nearly all U.S. shippers across every industry will be affected by the new pricing. Here are two scenarios:

For example, a one cubic foot box measuring 12”x12”x12” (Example A) would have a DIM weight of 11 pounds. This zone four, five-pound package will now be billed at 11 pounds, resulting in a 9.8% increase at published rates. (Even with a 25% discount, the increase will be 9.7%.)

In the example of the larger two-foot cubic box (Example B) with a DIM weight of 21 pounds, a zone four, 15-pound package shipping price would increase by 16.1% with the new DIM calculation.

These increases are significant for 2015, but when forecasting the cost impact of DIM for 2015 shippers must not forget the additional impact of the annual General Rate Increase (GRI). Typically announced in the fourth quarter and implemented the first billing week of the year, the GRI has traditionally been announced as an average increase of 4.9% across all services. Though, when analyzing small, lightweight parcel shipments, in particular, the increase is actually greater, as seen in Table 1. The 2015 GRI will likely be very similar to 2014 and so shippers should add another 5.64-7.51% to the examples above to see the true impact for 2015.

examPle a

1 cubic Foot Package Zone 4, 5 lbs.

Before after Jan. ‘15 Jan. ‘15

Package chracteristics

Zone 4 4

actual Weight 5 5

cubic inches 1,728 1,728

Dim Factor 166 166

Dim Weight 11 11

Billable Weight 5 11

cost impact

Published rate $9.06 $9.95

additional cost $0.89

% increase 9.8%

9.8% cost impact

examPle B

16.1% cost impact

table 1. 2014 UPS/FedEx domestic ground rate increase by weight. See the complete BirdDog GRI analysis at www.birddog.com/gri

Weight range (in lbs.) 1-5 6-10 11-30 31-50 51-70 71-150

Percent increase 7.51% 7.10% 5.64% 4.75% 4.46% 3.64%

2 cubic Foot Package Zone 4, 15 lbs.

Before after Jan. ‘15 Jan. ‘15

Package chracteristics

Zone 4 4

actual Weight 15 15

cubic inches 3,456 3,456

Dim Factor 166 166

Dim Weight 21 21

Billable Weight 15 21

cost impact

Published rate $10.38 $12.05

additional cost $1.67

% increase 16.1%

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major impact to one pound packagesImagine a pile of many sized boxes, all weighing up to one pound each. Only the one-pound box that is no larger than the size of a standard tissue box (4” x 9”x 4”) will be billed at its true one-pound weight. Due to the new DIM calculation, the other packages will be billed at higher weights. To see what happens to a one-pound box that is “DIMmed” to a higher weight, see Chart A.

Key takeaways:

• as Dim weight (box size) increases, so does the price • longer zones are penalized more than shorter zones

Below are a few sample price increases due to the DIM adjustment:

sample Package Zone actual Weight Dim Weight Dim Price increase

a 3 1 2 9.3%

B 4 1 3 20.2%

c 6 1 4 24.5%

D 8 1 5 38.3%

Dim Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8

1 0% 0% 0% 0% 0% 0% 0%

2 9.6% 9.3% 14.7% 12.3% 13.1% 13.0% 15.3%3 11.2% 13.5% 20.2% 18.7% 19.5% 20.5% 26.0%4 13.5% 16.0% 25.1% 25.0% 24.5% 26.0% 33.1%5 16.2% 17.1% 29.0% 29.0% 27.9% 31.0% 38.3%6 18.7% 19.8% 30.2% 31.0% 29.4% 33.4% 40.1%7 23.2% 22.4% 32.0% 33.3% 32.2% 36.1% 43.0%8 26.9% 24.8% 34.5% 35.2% 35.2% 39.2% 47.4%9 28.9% 27.2% 36.0% 36.9% 37.3% 44.3% 53.6%

10 32.2% 27.7% 37.5% 39.7% 41.4% 51.2% 60.2%11 35.6% 31.7% 38.4% 40.4% 43.8% 57.5% 65.9%12 38.0% 34.7% 39.3% 42.7% 47.4% 63.5% 72.6%13 40.5% 37.2% 40.6% 44.6% 51.5% 69.7% 79.0%14 42.1% 39.9% 41.6% 46.0% 56.2% 74.8% 84.8%15 43.6% 43.0% 42.7% 49.7% 60.8% 79.9% 89.9%

chart a. Cumulative impact of weight shift from one pound by zone

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What should shippers do to prepare for the changing Dim pricing?In anticipation of the new pricing guidelines, it is important to analyze package characteristics and parcel strategy. Now, more than ever, every inch and pound of every package will be a cost factor. We have highlighted some considerations to mitigate the risk before the change goes into effect.

1. Forecast the impact: Every shipper’s impact will be different due to specific negotiated rates, discounts, DIM factor, terms, and shipping characteristics. Organizations must analyze and understand their individual financial impact. Do not forget to include the impact of the GRI. Forecasting the impact is also difficult because neither UPS nor FedEx provide the package dimensions of the boxes not currently assessed a DIM adjustment. Reach out to carrier representatives or other experts to request help with an impact analysis.

2. review products and packaging operations: There has never been a more important time for shippers to re-evaluate packaging operations to ensure boxes are packed efficiently to both protect product and minimize empty space. Take the time to uncover such inefficiencies to reduce waste and minimize the impact of the new DIM changes.

3. train the team: Even in the most sophisticated shipping organizations team members make packaging and box selections that can severely impact your bottom line. We encourage all shippers to review DIM calculations with their teams. Do not forget to include DIM training as part of onboarding and measure compliance with weekly/monthly KPI reporting. Marketing, merchandising, finance, packaging and operations should all work together!

4. investigate the addition of Dim scanners: For shippers that charge customers based on the estimated cost of the shipment, it may be time to invest in DIM scanning technology. In some cases, the ability to forecast the DIM weight is just as important as having a scale to measure the actual weight. By not doing so, the difference between what is charged to the customer and what was charged by the carrier could be an extremely impactful variance.

5. monitor freight variance and Dim impact: Finally, as the change takes place, protect freight variance through auditing. Monitor weekly reports that include:

a. What the customer was charged

b. What was billed by UPS and/or FedEx

c. A list of packages that were adjusted by DIM

d. Review possible changes to customer billing or packaging to maintain a low freight variance

Did you know?

The Dimensional Factor was created by the IATA and represents the theoretical weight or standard of density in cubic inches per pound. Use 166 for domestic packages or 166 in.3/Ib. Prior to 2011 the standard density in cubic inches per pound inch was 194.

www.birddog.com | info@birddog.com | (800) 464-3137 | alpharetta, Ga

about the authorJeff eischen Senior Partner, Professional Services

Jeff Eischen is a senior partner with the BirdDog professional services organization. Eischen engineers UPS and FedEx parcel programs for some of the largest retailers in the U.S. Prior to joining BirdDog, Eischen had a successful 20-year career at UPS with key industrial engineering, operations, marketing and corporate strategic pricing roles. He holds a Bachelor of Science degree in electrical engineering and an MBA degree from the University of Toledo. Find Jeff on LinkedIn.

about BirdDog solutionsBirdDog Solutions partners with the world’s largest shippers to strategically design and execute custom parcel programs. Your business goals are achieved by leveraging our unique combination of industry expertise, proprietary technologies, and actionable insight. BirdDog delivers results that save businesses money, mitigate risk, support growth and competitiveness, and improve inefficiencies and customer experience.