Inside Logistics

Materials Handling: Dimensional pricing, part three

The new dimensional pricing changes can be tackled with several instruments from your logistics toolkit.


September 14, 2015
by Dave Luton

Dave Luton

Dave Luton is a consultant in the Greater Toronto Area

The new dimensional pricing changes can be tackled with several instruments from your logistics toolkit. While many people have looked at this from a packaging optimization perspective, there are other ways to deal with the issue.

As a precursor, apply normal transportation negotiation strategies. However, these, at best, will delay the cost impact. In time, you will be paying the full cost, even if you are a large shipper with multi-year contract pricing.

A few obvious options to negotiate with your carrier include:
• Delay the implementation timing for the longest possible period.
• Get a phased-in time period for the new density rules.
• Review existing packaging and ensure that any round-up factors are minimized, because shipping weight is normally rounded up to the next full pound.

One thing you must have is a weight and cube file that provides the accurate dimensions, cube and weight of each product. This is a necessary database that will allow you to achieve the lowest possible shipment costs.

From a warehousing perspective, the need for several material handling systems to handle different fulfillment needs of the omni-channel and multichannel markets has recently become an issue. This has been spurred by the current and continuing forecast growth of e-commerce in recent years.

In a multichannel warehouse, the emphasis has been on order picking because that is where the highest labour cost occurs. Many traditional order selection operations are not set up to efficiently accommodate a wide range of order types with varying units and lines-per-order characteristics.

From a packing and shipping perspective, many of these have been set up so they interface exclusively with small package couriers. For rapid response this makes sense, but faced with a major cost increase, particularly in a country that is geographically larger than the US but with only ten percent of the population, higher freight costs may force a re-think.

First, it is important to classify your shipments into two geographic areas; local and farther away. For local you will probably want to do nothing except review the time of shipment. Remember, courier terminals in major centres have two main sortation windows; evening sort and morning sort.

The morning sort is traditionally used to sort incoming shipments for local delivery. Ask yourself this question: Have you ever looked at delaying shipping to local customers so you catch the morning sort and get on delivery with the maximum number of orders and the shortest leadtimes?

For longer distance shipments I am talking about one of the most traditional transportation cost-saving strategies: shipment consolidation.

Ask yourself how you can can minimize the distance traveled by your courier shipments. As a general rule of thumb you are trying to reduce your costs by shipping the largest consolidated shipment volume the greatest distance by combining as many of your shipments as possible in the same transportation vehicle. In an ideal world, only the shortest distance final leg has the small shipment higher (proportionate) transportation costs.

Let us take an example of a shipper in Toronto and a customer (i.e. receiver) in Vancouver to illustrate this seemingly impossible task. The ideal is taking advantage of a linehaul truckload rate to Vancouver, and then local (Vancouver) courier distribution costs for the final leg of the deliver(ies).

Most companies periodically send a range of shipment sizes to major destinations. It is pretty easy at the end of your packing line to palletize each courier shipment by destination. Combining these with your LTL shipments, you can ship them together.

Tail loading the courier shipment pallets means you can drop them off at a local Vancouver courier for final destination. Even shipments to Vancouver island can be combined the same way, and of course, courier costs from Vancouver to Nanaimo are much less than from Toronto to Nanaimo.

There are almost endless variants of this if you are well organized. Even enroute shipments can be included. For example, to travel to Vancouver a truck has to pass through Winnipeg, Regina, and Calgary, to identify a few of the major stopping points. For moves to lower volume locales it maybe best to consolidate shipments to traditional consolidation points for final delivery. In the Maritimes see if Moncton makes sense. Larger volume shippers may be able to use more than one point (Moncton or Halifax).

Freight rates increases are not new. To cope with them all we have to do is rediscover old cost savings ideas. Of course if there are major increases it gives us more of incentive to organize ourselves to lower costs. Strategies like freight consolidation have existed forever. Maybe it’s time a new generation discovered their potential.