Two years ago, the parcel services shook up industry pricing models by implementing dimensional (DIM) weight pricing. For those within e-e-commerce, it was difficult, and sometimes expensive, working around this new pricing model. Now, the parcel services are changing their algorithms by decreasing their DIM factors and making some shipments more expensive.
We are also seeing companies like FedEx and UPS increase their base shipping rates alongside decreasing DIM, making the formulas confusing and difficult for customers to navigate. The new DIM factors also vary between parcel companies, making it difficult to figure out how and where to ship cheapest and most efficiently.
To understand how these new changes might affect your shipments and bottom line, you have to understand just how DIM pricing works.
A package’s dimensional weight is calculated by multiplying a package’s length, height, and width, and then dividing it by the parcel company’s DIM factor. It looks like this:
(Length x Height x Width)/DIM Factor = dimensional weight.
Why implement DIM pricing? For the parcel companies, it is about the precious space available on their transport airplanes, trucks and vans. As the e-commerce industry has continued to boom and take over a large part of the retail economy, the parcel companies have grown alongside with it. Parcel companies understand that their “real estate” is more valuable, and they want to calculate not only the weight of the package and how far it’s going, but how much space it takes up in their vehicles. DIM pricing, therefore, means that packages can be priced based on their cubic volume, and thus how much room they will take up.
A common misconception is that DIM pricing doesn’t affect small and light products, but that is only to an extent. Say you’re shipping a new, ultra-light carbon fiber motorcycle helmet in a 12” x 12”x 12” box. Between the helmet, box, and packing filler, the total actual weight of the parcel is 5 pounds.
But with DIM pricing, that doesn’t mean that your parcel will actually be billed at 5 pounds, as they will also take into account cubic volume. So, let’s say the DIM Factor is 166:
DIM Weight: (12 x 12 x 12)/166 = 10 pounds
Actual Weight: 5 pounds
In this example, your shipping costs would be calculated at 10 pounds, rather than the actual 5 pounds of contents.
Another important thing to understand about DIM pricing is that they will always use the heavier weight to base pricing off of. For example, say you’re shipping a 50-pound kettlebell. The kettlebell is relatively small, fitting into a nice 12” x 12” x 14” box. However, the DIM weight will be lighter than the actual weight of the package.
DIM Weight: (12 x 12 x 14) / 166 = 12 pounds
Actual Weight: 50 pounds
New DIM Pricing for 2017
Dimensional weight has been used for the past two years, and in that time the parcel companies have figured out how to increase their margins. This means that the old calculations or websites that you used to help figure out your package’s DIM weight are obsolete, leaving many unsure of how to calculate pricing.
Tapped into the e-commerce blog-o-sphere, Red Stag Fulfilment understood the frustration for e-commerce businesses and decided to create an easy-to-use and fully updated DIM weight pricing calculator. Along with this helpful tool, it also explains the new changes and how they’ll affect pricing this year.
FedEx DIM Pricing
FedEx has changed its DIM factor from 166 to 139. This means that DIM weights are actually going to be heavier than before.
For example, in 2016, if you shipped a 10” x 10” x 10” package that weighed 5 pounds, your old DIM weight calculation would be: (10 x 10 x 10)/166 = 7 pounds dimensional weight. You would be charged for shipping a 7-pound package, since the DIM weight is greater than the actual weight.
With the new DIM factor at FedEx, the dimensional weight of that same package is now 8 pounds: (10 x 10 x 10)/139 = 8 pounds. And in this case, your FedEx shipping charges would be based on the DIM weight of 8 pounds, since it’s greater than the actual weight.
FedEx has also changed its base billing rates, giving UPS a small price advantage in Zones 2 through 4.
UPS DIM Pricing
On the other hand, UPS has kept its DIM factor the same at 166, but only for packages under 1,728 cubic inches—a standard 12” x 12” x 12” box. Parcels bigger than that will use a DIM factor of 139.
For example, if you shipped a 10” x 10” x 10” package that weighed 7 pounds, your UPS DIM weight calculation would be (10 x 10 x 10)/166 = 7 pounds dimensional weight. You would be charged for shipping a 7-pound package, since the DIM weight is the same as the actual weight. This is the same shipping charge as last year. For this package, UPS has a DIM weight 1 pound less than FedEx.
However, a package carrying that same 7-pound item in a less-optimal 12″ x 12″ x 14″ box would see the UPS DIM factor drop to 139, causing the billed weight to increase to 15 (e.g., (12 x 12 x 14)/139 = 15 pounds).
UPS has also changed its base billing rates, in turn giving FedEx a small advantage over them in Zones 5-8.
Make DIM Pricing Work for Your Business
E-commerce isn’t slowing down anytime soon, so we can’t expect these to be the final changes to DIM pricing by the parcel companies. In the meantime, some of the best things you can do are to stay on top of the updates, use the right tools, and stay educated on the formulas so you can make the best decision for your business.
You can also take some proactive steps to make the new DIM factors work to your own advantage:
- Reduce parcel size. This is not an option for everyone, but by reevaluating your box sizes and packing methods, you may be able to fit more product in smaller boxes.
- Negotiate your DIM factor. That’s right, you can negotiate DIM pricing. If your business is putting out a large volume of parcels per day, you can negotiate your DIM factor with FedEx and UPS, the same way you’ve likely negotiated shipping rates. Always be sure to remember your lessons from high school algebra, though. The larger the denominator, the smaller the solution. That means you should try to get that DIM factor back up closer to the original factor of 166, where it was back in 2015.
Partner with a 3PL
A strong fulfillment partner is likely going to have negotiated a much better DIM factor than a single small- or medium-sized company could do on their own. Depending on the negotiated DIM factor, a strong 3PL can eliminate the negative effects of DIM pricing for your business altogether.
Editor’s note: RedStag Fulfillment is a high-technology 3PL we have found to offer excellent customer service and robust platform integrations. No compensation was offered or received by either party in return for this informative post.