Shipping rates are about to go up again. Beginning on 1/1/15 for FedEx and 12/29/14 for UPS, shipping pricing will change and you could be negatively affected. Specifically, these price changes will affect dimensional weight pricing rates charged to customers for packages that are light, but large in size. Examples of products that might be affected include stuffed toys, pillows, floral arrangements, diapers, and toilet paper, to name a few.
Previously, FedEx applied this dimensional weight pricing only to packages measuring three cubic feet or more. In recent years, consumers have begun to take advantage of great deals like free shipping with Amazon Prime or other delivery services, and some of those odd size packages are taking up a lot of space in shipping trucks. My guess? FedEx and UPS both are finding those options are cutting into their profits.
To illustrate these changes with a real-life scenario, here is an example from Bubblefast that explains this very clearly:
Let’s say you are shipping a large five pound teddy bear in a box that measures 18” x 18” x 12”. While the actual weight is 5 pounds, the dimensional weight according to the new formula is now 18 x 18 x 12 / 166 = 23.4. That means that this five pound package will now be billed as a 24 pound package. With current rates, a package shipping from Chicago to Los Angeles would cost $10.21 today, or $23.05 in 2015. That’s a 125% increase in price!
If this concerns you, here are five things you can do now to help avoid getting the short end of the shipping stick.
- Negotiate with FedEx and UPS: You can eat the additional cost of delivery yourself, but you may want to negotiate discounted rates with UPS and FedEx. Figure out where these carriers are making too much margin based on your shipping history. Negotiate this excess margin out of your contract and compare costs between carriers to get your customers the best shipping deals.
- Rethink that package: Before the changes start happening at the end of this year, you have time to create packaging changes that minimize the effect. Choose smaller box sizes, eliminate any extra packaging materials, or consider pre-scored multi-depth boxes that can be cut to various sizes. Planning now will mitigate some of the effect on your business.
- Project the effect: Analyze the effects of changes to dimensional weight pricing. Define how these changes will affect your business in the next two years. Aside from dimensional costs, remember the anticipated increases to FedEx’s general rate, surcharge, and accessorial costs. ShipStation’s reports can help you with this: you can create reports based on carrier, service, and more to get the data you need.
- Rethink Free Shipping: After you have done the three recommended strategies above, you may still need to rethink whether and which products will still come with free shipping. Creating a shipping cost report in ShipStation can help to determine how much much you’re losing with Free Shipping, and which orders/store have cost you the most.
- Determine whether to increase your prices or be transparent: If your business tends to ship a lot of goods that can be negatively affected by these hikes, you may have to consider increasing the price of your products, so you can build shipping costs into the prices of your products. Alternatively, you could increase shipping costs. Of course, you could choose not to increase any costs, and simply accept a lower margin.
Unfortunately, this isn’t simply a rate hike: it’s a complex issue that requires your careful consideration. In order to make informed decisions for your business, please read more about these changes directly from the FedEx and UPS announcements. Remember: spend some time now analyzing how this price increase will affect your business in the future, to limit its negative affect on your business once the new year rolls around.