Dimensional Weight pricing to bog down online retailers

Shrikar Khare Posted On - March 20, 2015

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In the current fiscal year, online retailers would face the brunt of higher shipping costs.

Late December 2014, the new shipping fares had already penetrated the scenario as logistics firm UPS started imposing dimensional weight pricing on all shipments. Following suite, FedEx implied the same since early January.

The policy and the effect

Often referred to as DIM pricing, dimensional weight pricing fixes shipping rates on the basis of external dimensions of a package rather than its weight. According to industry experts, these major changes in both the logistic firms would affect as much as 30% of the packages ferried by them. They claim that the average rate hike would be as higher as around 30% and more after being combined with other annual rate hikes and surcharges.

The goods and the bads of DIM

According to Jack Mitchell, former executive with FedEx and the current president and CEO of shipping consulting firm, Parcel Appraisal and Negotiations Consulting Group; this is the solo largest impact on shipping since the 1980s when fuel prices hike had resulted in double-digit fuel surcharges imposed by shipping carriers.

Principal owner of Navigo Consulting Group, which advises companies on logistic operations, Tim Sailor said that it would act as a game-changer for lightweight shippers.

Retailers, wholesalers in fix

The new rules have set retailers and wholesalers brainstorming on how these changes would affect shipping fares, profit margins and sales and what they need to do to reduce the impact. Probable options include renegotiation of shipping rules and using better shipping practices. They also intend to drop certain products out of the shipping arena that would prove too expensive to be ferried.

The president and chief operating officer at eBags, Robert Cassidy said that they are doing everything within their capabilities. He claimed that around 20% of the web-only merchant of handbags, backpacks, luggage and accessories’; has been affected by the changes in the shipping policy.

Till date, DIM pricing used to be implied only to packages of three cubic feet or more for ground shipping and those ferried by air. But the new policies at FedEx and UPS, have extended these to virtually all packages shipped via their basic ground services. This also includes many goods shipped by online retailers.

Retailers seek logistic alternatives

To minimize the impact on their shipping services and overall financial outputs, retailers are on the lookout for making their warehouse operations more efficient. They are also in the process of swapping in new package materials and have changed their shipping offers for customers. Most importantly, they are seeking alternatives to UPS and FedEx.

This drastic shift in policies has come around at a time when there have already been other multifold hikes in shipping fares. The president and founder of shipping advisory firm, LJM Consultants, Ken Wood, explains that extension of the DIM pricing policy falls in sync with the annual base rate hike by both the logistics firms. The base fares at both FedEx and UPS zoomed by an overall average of 4.9% in the previous fiscal year which is the same that the carriers have been imposing since years, although the actual average hike in base fares for many shippers is comparatively higher, Wood said.

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