Two of the biggest shippers in the US — UPS and FedEx — plan to start charging based on the dimensions of a parcel rather than using the traditional weight/distance formula that has been an industry standard for more than 80 years. The change is forcing companies such as e-retailers, to find new, more efficient and less costly ways to get their packages into the hands of their customers.
The new dimensional pricing model — or “dim pricing” — comes in response to the the rise of online retailing. The new pricing will apply to packages smaller to three cubic feet, which up to now have been priced by weight. That accounts for about 32% of all packages currently being handled by ground carriers.
Now it will no longer be cost-efficient for retailers to ship smaller items in larger packages. Instead, they will have to figure out how to eliminate as much “air” or non-product space, from their packages while still making sure the products get where they are going in one piece.
Bags vs. Boxes
For some products, the solution may be poly bags. Lightweight, efficient and form-fitting, they offer the least amount of extra packaging. But the nation’s shipping system was built to handle packages with flat sides, straight edges and hard surfaces.
The winners in this scenario are companies that ship dense, heavy packages, but companies that ship large, lighter boxes will have to come up with a new strategy that includes less air if they hope to remain competitive, according to Hanko Kiessner, CEO of Packsize. He estimates that right now about 40% of the volume of the average package is extraneous. Finding ways to eliminate that space can result in a 66% improvement in transportation efficiency.
“Especially, small-and medium-sized businesses will potentially be squeezed by this move,” Kiessner told Modern Materials Handling. “Margins are often very narrow in some industries, so to add a significant freight charge could as much as eat up the entire profit margin of some businesses.”
Changing the Way Products Are Tracked
The way products are tracked as they flow through the delivery system is also expected to change. Packages with cubical packages with flat, squared edges are easy to read by scanners and other devices. But to get the best value from dim pricing, shippers are expected to pack their products in all sorts of shapes and sizes, according to Tim Kraus, product management supervisor for Intelligrated.
“If a football-shaped bag comes along, depending on the placement of the photo eye, you have a three or four inch difference,” Kraus said. “If a conveyor system is trying to set a gap and establish length for accurate positioning on a belt, tray or what have you, everything becomes exponentially more complicated.”
Poly bags are already replacing cardboard boxes in many cases. But the supply chain hasn’t completely caught up to these changes, causing new complications.
“As opposed to keeping everything singulated throughout the system, this leads to a rethinking of what the entire materials handling system looks like,” said Kraus. “And that’s good for the whole industry.”