Tuesday, February 22, 2011

2011 Small Parcel Rate Increases

By Tom Blanck, CPP, CSCP- Chainalytics

You’ve probably heard about the recent rate increases from FedEx and UPS. According to the Logistics Management’s January webcast, 2011 Logistics Rate Outlook – Going UP, the good news is that the economy is recovering – yet offset somewhat by expectations of escalating transportation costs including probable diesel fuel price increases.

FedEx package and freight rates are up an average of 5.9% (2011 FedEx Rates) and UPS rates increased an average of 4.9% (2011 UPS rates). However, what hasn’t made top news is the change to dimensional freight pricing methods. Depending on package weight and size, both services may assess higher charges based on dimensional weight.

Dimensional weight is calculated by multiplying the length by width by height of each package in inches and dividing the total by a specific factor. Coincidentally, both services have reduced the factor used for calculating shipping prices from 194 to 166 for domestic services and from 166 to 134 for most export services.

What this means is that some packages will now be charged based on DIM measures, resulting in increased rates – substantially greater than the average 4.9%. This might have serious implications on small parcel shippers who have large, lightweight or fragile products that require cushioning.

Supply chain and packaging leaders are continually looking for ways to decrease costs and improve operating income. For some companies, this may provide financial motivation for finding creative ways to deal with increased shipping costs by leveraging packaging design. Now more than ever, optimizing packaging can provide a positive impact on the bottom line. The packaging engineers at Chainalytics specialize in evaluating packaging’s affect on shipping rates and have helped many companies find the most effective cost solution.

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