Almost a year ago the major couriers announced a major change for the pricing of packages. They allowed a long time for implementation to permit their customers time to adapt. By now some of the costs of the new policy should start to show and customers should take steps to counteract these added costs, if they have not already adapted.
Couriers implemented dimensional pricing to counteract the effects of more business-to-consumer shipments—thanks to e-commerce—which are inefficient compared to the more traditional business-to-business shipments.
The vast majority of freight shipments are traditionally subject to density pricing. The exception was smaller-sized courier shipments, although oversized cube and weight shipments were always subject to surcharges. With more e-commerce couriers were forced to correct this oversight and subjected all shipments to density-based pricing.
Without getting into detailed calculations and tariff rules, simply put, the new rules subject all packages to a volume and density charge structure. These are often based on the largest dimension, which while fair for shippers using rectangular boxes, have a tendency to overstate cubic volumes for irregular shaped packages.
The freight charge is based on the greater of the calculated dimensional weight or the actual weight of the package. Thus, if the package is light but large, then its actual weight will be disregarded and its volumetric weight will be used for pricing.
Since the rules have changed, the question is what to do about it? For warehouses performing an omnichannel fulfillment function you have to rethink your small-item picking and packaging functions.
First, do not forget to undertake the non-warehousing corrective actions. What are these?
If your company has many product types, re-examine product pricing, particularly of lightweight bulky products such as deep-dish aluminum containers. It’s possible these were previously subsidized by denser product types, but this may no longer apply.
Check your courier suppliers carefully, as each has somewhat different rules and in particular cases the differences can be important.
Examine the potential for shipment consolidation to distant points so you can use zone skipping (also called zone hopping) to reduce costs.
Use a combination of national and regional couriers to get the best solution. One-size-fits-all may not be the best solution.
Re-examine freight charges levied to customers as they may have to be increased.
Of the solutions suggested, zone skipping may not be familiar to all people. Canada is a big country and to recognize the long distances from any shipping point in the country, couriers have divided the various destinations into geographic zones to reflect added costs of long-distance shipping. Thus, a courier shipment from Toronto to Calgary has higher costs than a local shipment from Toronto to Oshawa.
Zone skipping uses the concept of grouping shipments together to an intermediate point so they can take advantage of a cheaper local rate. Using an extreme case for large-volume shippers, you could consolidate all shipments to Alberta into a truckload to take advantage of lower truckload shipping costs for the majority of the line haul transportation costs. They are shipped to a local Calgary courier and from there they are forwarded onto the end customer. This way they take advantage of cheaper local courier rates within (southern) Alberta.
The best strategy requires analysis of the volumes for each geographic area and is an analysis of the tradeoff of service versus costs. (To get sufficient volume you may have to hold some shipments temporarily.) The same principle can work for large LTL shipments. Warehouse shipping has to be organized by zones and often waves to facilitate this strategy.
To combat the higher costs a closer look at the added freight costs is needed. Using logistics analysis to develop an integrated freight and warehousing strategy will identify the most promising solutions. Customers should also be advised if shipments will be held temporarily to enable consolidation.
Next we will look at which changes are advisable within the warehouse to facilitate these strategies and other methods to reduce costs.