Shipping hikes a sizable problem

Retailers and other business owners attempting to calculate shipping costs will probably wish they had paid better attention in high school geometry class since a new way of calculating those costs is in effect.

Many carriers, including FedEx, UPS and DHL, have begun to use box size, which they term dimensional weight or “dim weight,” to calculate shipping costs on ground shipments, with the result that many retailers are facing higher shipping costs than under the old oversize definitions.

Dimensional weight is not a new concept. Air express carriers have used dim weight for years to determine the cost of shipping packages that are lighter and larger than average, because such packages take up extra space on airplanes.

Now, size also matters for ground shipments, leading to increased shipping costs for retailers, manufacturers and distributors that ship lighter weight, larger- sized packages. Unfortunately, the manufacturer or distributor often passes on the cost of shipping to the retailer—and in today’s environment it’s difficult to pass that increase on to customers through higher prices.

“It’s killing us,” said Robert Rehmann, of Rehmann’s Clothing in St. Johns. “I would estimate our shipping costs have about doubled, and there’s no way we can pass that increased cost on to our customers.”

Retailers who ship products to customers must also be aware of the changes in outbound shipping costs, especially before offering “free shipping.” Even when customers understand they will pay shipping costs, some retailers face losing sales when customers see shipping charges that appear exorbitant compared to past rates.

Size matters
Effective in the first quarter of 2007, UPS, FedEx Ground and DHL began calculating ground shipping charges for larger-sized packages based on dimensional weight. They discontinued the use of oversize package definitions (OS1, OS2 and OS3), a tiered system that took into account the package’s weight, length and girth to determine the cost of shipping.

“We use dimensional weight calculation because it more accurately reflects our costs to transport the package,” said FedEx spokesperson Carla Boyd.

Anyone who ships—or pays for shipping on—oversized packages must prepare for fluctuating shipping charges now that dim-weight rates are in effect for ground shipments. When using UPS, DHL or FedEx, boxes measuring three cubic feet (5,184 cubic inches) or greater may be affected.

The U.S. Postal Service followed the trend and switched to a system of dim-weight pricing on some Priority Mail packages in May. For Priority Mail traveling to zones 5 through 8, dim-weight rates are now in effect on all packages larger than one cubic foot (1,728 cubic inches).

Calculating dim weight
Back to that high school geometry class. To calculate the dimensional weight of a package, multiply length x width x height (in inches) to determine the cubic size of the package.

If the size is 5,184 cubic inches (three cubic feet) or greater, dim weight may apply; otherwise the actual weight is still the billable weight. Just for reference: a box that is 18” by 18” by 18” is slightly larger than three cubic feet.

Divide the cubic size in inches by 194 for shipments within the U.S. Round up to the nearest whole number. The resulting figure is the dimensional weight of the package.

Your package’s billable weight is either the actual or dimensional weight of the package—whichever is greater.

To complicate the whole dim-weight rate issue, the carriers may also apply an additional “oversize charge” of $40 for packages measuring greater than 130 inches in length and girth. (This is calculated by adding the package length plus twice the height plus twice the width).

Before you ship, be sure to get out your tape measure and calculator to determine the dim-weight rate and possible oversize charges.

What it means to you
If you ship (or are billed for shipping) lighter packages that are larger than three cubic feet in size, you are paying more under the new dimensional weight rate system.

How much more? That depends on the size of the package that is being shipped and on how much of your overall shipping falls into the dim- weight category.

Harry Centa of PartnerShip—which partners with MRA to provide shipping discounts of 5 to 25 percent on inbound and outbound FedEx Ground shipping—provided these two retail examples:

A 20-lb. box of shoes measures 24” x 24” x 20” and is shipped to Zone 5. Under the old oversize definitions, such a package would have been classified as OS1 and cost $10.05 to ship.

With the new dimensional weight rates, the same package has a dimensional weight of 60 lbs. and will cost $16.54 to ship. That’s an increase of 64 percent.

The length and girth of the package above is 24” + 48” + 40”, or 112”, so the oversize charge does not apply.

Note that the above rates were calculated for shipping with FedEx Ground using MRA’s Discount Shipping Program and exclude fuel surcharges and other charges. Normal rates would be higher.

A second example: a musical instrument retailer formerly shipped two guitars together in a large box, which under the old system was less expensive than shipping each separately. Now under dim-weight rates, shipping the guitars individually is more cost effective.

However, the cost of shipping one guitar is up 3 percent, while the cost of shipping two guitars in one box is up 45 percent—a big difference that the retailer discovered and changed his shipping strategy.

Winners and losers
Dim-weight billing affects those who ship larger, lightweight boxes more than others. That means some types of retail—furniture, books—will see little effect, while others, such as shoes and apparel, will be hit harder.

Gilbert Rose, of Chelsea Menswear and The Willow Tree, two apparel stores in Wyandotte, estimates that seven of 10 of his inbound packages weigh more in dim weight than in actual weight, so he is paying more on most shipments.

July’s Michigan Retail Index survey asked members whether they noticed a significant increase in their shipping this year due to dimensional weight shipping. Most who responded said they had not, but those who noticed a significant increase reported increases of 5 to 120 percent, although most percentage increases were between 30 and 40 percent.

Rose is frustrated by the increased charges. “It’s not just the higher costs, it’s the time spent figuring out if we’re being billed correctly. Sometimes we’re billed by actual weight, then when the shipper catches the error, they bill us for the dimensional weight weeks later.”

Rose now tracks both actual weight and dimensional weight on all his inbound shipping. Just the extra work of measuring and weighing every box eats into his time.

What to do?
Unfortunately, in many cases there appears to be little retailers can do, other than join MRA’s Shipping Savings program to soften the increases in shipping costs, as both Rose and Rehmann have done.

Some vendors may be willing to work with retailers to adjust shipping procedures to keep shipping costs reasonable. In some cases they may be willing to pack merchandise more densely so that actual weight, not dim weight, becomes the billable weight—more bang for your shipping buck.

For example, apparel retailers might request more flat-pack shipments instead of the hanger packs that are preferred for suits and tailored clothing. Of course, this incurs other expenses, such as steam-pressing at the receiving end.

Rehmann says shipping costs now affect his choice of vendors, just in terms of distance.

“We try not to buy from suppliers in California or the west coast anymore, simply because the distance makes the shipping costs so high,” said Rehmann. “If we have a choice between similar merchandise from North Carolina or California, we’ll choose North Carolina every time.”

If you can receive larger shipments, you have other options. For multiple-box shipments delivered to the same destination at the same time, the carriers offer discounts depending on the total combined weight of the boxes.

UPS has a discounted shipping category called “Hundredweight,” available on multiple-box shipments with a total weight of 100 lbs or more. FedEx Ground’s similar service, called “Multiweight,” is available for shipments with a total weight of 150 lbs. or more.

If the weight and volume of a single shipment are even larger, involving 250 lbs. or more, or pallet-sized deliveries, it is most cost-effective to use a “less-than-truckload” (LTL) freight carrier such as Yellow Transportation or UPS Freight. MRA’s Shipping Savings program offers substantial discounts on LTL freight shipments.

Most distributors (and retailers) use standard size boxes for shipping, and it is unlikely they will change their shipping procedures to accommodate the needs of a few clients. However, calling the issue to their attention is appropriate and could bring about changes in the long term.

Understanding about dim-weight shipping rates will make such discussions more successful. It will also help retailers order new merchandise more carefully.

For example, shoes are typically shipped in sets of six or 12 pairs, each with a standard shipping box. Ordering eight new pairs of shoes typically means paying the same shipping as if you ordered 12, so it makes sense to fill out that larger box with a larger order.

MRA can help lighten the load
PartnerShip and MRA started the Shipping Savings program in 2005 to help MRA members save on all their shipping expenses. So far program discounts have helped members save more than $200,000 on their small package, express and LTL shipping, both inbound and outbound. The program is free for MRA members, and there are no shipping minimums or obligations.

Under the new dim- weight system, many ground packages that weigh less than 30 lbs. will now ship at weights greater than 30 lbs. MRA members enrolled in the shipping program will save 25 percent on every package shipped weighing greater than 30 lbs.

These discounts help counter the annual carrier rate increases, allowing members to recoup at least a portion of their shipping dollar that would otherwise be lost.

MRA members also enjoy the specialized service provided by PartnerShip in helping explain the complexity of shipping rates and accessorial charges, and will consult with members to help them get the most for their shipping dollar.

Additional information about MRA’s Shipping Savings program is available by contacting PartnerShip at 800.599.2902 or visit www.PartnerShip.com/41MRA.

This article was written by Amy Buttery, Michigan Retailer staff writer, and Harry Centa of PartnerShip.