SUPPLY CHAIN MANAGEMENT
COMPANY NEWS
2014, 3 DEC
Dimensional Weight Pricing Doesn't Just Lead to Higher Shipping Costs, It Leads To Higher Costs In The Warehouse
Bobby Miller, the Global Chief Consumer Goods Strategist at ORTEC, wrote an excellent article about dimensional weight pricing in Logistics Viewpoints. I recognized that for many shippers, dimensional pricing would lead to increased parcel shipping costs. What I didn’t recognize, prior to reading this article, was that it could also drive substantially higher warehousing costs for shippers.

First of all, what is dimensional pricing? Dimensional pricing is a practice that sets the shipping price based on package volume — the width times the length times the height of a package. This has been in the news because both FedEx and UPS, the leading parcel services in North America, have greatly expanded the number of packages that dimensional pricing will apply to starting in the New Year. Actually, their pricing is not just based on a package’s dimensions – if the package is small they will use traditional weight-based pricing, but most packages, perhaps 70 percent or so, will end up being dimensional. This is why they call it “dimensional weight pricing.” 

The math is a bit onerous, here is UPS’s explanation. FedEx makes it easier, they explain the math but they also have a calculator where you put in a package’s dimensions and weight, and it spits out what it will cost you. Why does dimensional pricing matter? Because, as Mr. Miller notes in his article, it is expected that parcel shipping costs will increase 20 to 30 percent based on this new pricing scheme. So how does this affect the warehouse? Because for high volume parcel shippers, getting more goods into the same box will save a significant amount money. Some shippers have a limited number of preset box sizes, these shippers will clearly be shipping a good amount of air, which they will be charged for. But some manufacturers ship thousands of parcels on a daily basis and as a consequence do try and save money by having many different size boxes. One shipper Mr. Miller referenced has 200 plus prefabricated boxes. But, “the complexity becomes overwhelming for the pickers given the choices and the various sizes of the products placed in the boxes.” The warehouse worker either has to slow down to figure out the optimal box size, or they grab one that looks about right and in all likelihood the shipper loses money from higher shipping fees. So what is the solution? Cartonization Optimization Technology - This technology evaluates the contents of an order, determines the number and size of each shipping carton required for the order, and in this way minimizes the shipping cost while improving warehouse efficiencies. 
“Shippers are asking themselves: 

• How do I estimate the actual delivery cost for my customer? 
• What is the exact dimensional weight price? 
• What box do I use?
• Should we use prefabricated, on demand corrugate, or carrier provided boxes?
• How many pieces can I fit in this box?” 

Mr. Miller asserts that “using box optimization technology has demonstrated up to 15 percent improvement in box utilization, 40 percent cost avoidance, 20-30 percent improvement in pick/pack labor efficiencies, and a reduction in carbon footprint by using less corrugate” for manufacturers like L’Oreal in Europe.

Source: The Forbes