UPS joins FedEx in shift to density pricing for ground packages

| Jun 17, 2014 2:16PM EDT

The shift toward greater use of dimensional pricing in U.S. transportation is gaining momentum. UPS plans to start using dimensional weight to price ground shipments starting Dec. 29, a few days before FedEx Ground makes the shift Jan. 1.

The shift toward dimensional pricing comes as e-commerce shipping volumes ramp up, with many small products shipped in larger packages at low prices, driving costs up for carriers.

The use of dimensional pricing in ground shipments is projected to boost package shipping costs 5 to 25 percent, unless shippers make adjustments to reduce package size to match the size or “cube” of the products they ship.

“The customers who will be most affected are those that ship bulky lightweight packages, either to businesses or homes,” said Satish Jindel, president of SJ Consulting Group and package shipping technology company ShipMatrix.

The way to avoid added cost is through more careful packaging that keeps the cubic space used to a minimum.

“Those shippers won’t be able to get a free ride on the larger cube,” Jindel said. “Companies that had six standard box sizes and filled boxes with bubble wrap and peanuts may have to have eight or 10 or 12 box sizes,” he said.

UPS and FedEx already use dimensional pricing for air express packages. The two largest U.S. transportation companies are extending dim-weight pricing into their ground networks, and where they go, others are likely to follow, particularly less-than-truckload carriers.

Many LTL carriers are experimenting with dimensional or density pricing as an alternative to the rating system based on product classifications, and UPS’s decision is likely to spur them on. UPS Freight, the industrial trucking arm of the package giant, already offers an optional density-based pricing program as an alternative to commodity-based class rates.

“UPS has been researching the potential expansion of dimensional-weight pricing for a number of years because it enables us to more appropriately align rates with costs which are influenced by both the size and weight of packages,” Alan Gershenhorn, UPS executive vice president and chief commercial officer, said in a statement.

The CEOs of two leading LTL carriers, Bill Logue of FedEx Freight and James Welch of YRC Worldwide, both have urged the adoption of density-based pricing. Over the course of the year, YRC Freight will install 38 automated “dimensioners” to measure and weigh shipments at distribution centers in its terminal network. “We sell space on a trailer,” Darren Hawkins, YRC Freight president, said in an interview. “If we don’t appropriately charge for the space that shipment takes up it certainly doesn’t contribute to our yield improvement plan.”

Even LTL carriers that don’t adopt dimensional pricing will see an indirect impact “because there are many more shippers that ship parcel than LTL,” Jindel said.

The improvements shippers make in parcel packaging will eventually be used to reduce the cube of LTL and truckload shipments, allowing shippers to pack more on a pallet or in a trailer, Jindel said. “LTL carriers will see cube shrinking and density going up, and they should be happy.”

Contact William B. Cassidy at wcassidy@joc.com and follow him on Twitter: @wbcassidy_joc.