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WARNING: Lighten-up Your Parcels Before New Year Rate Shocks

jerryhempstead

Our very own “Mr. Parcel” also is involved in another service industry. One with benefits out of this world! Since retiring from DHL, Jerry Hempstead (left)  went on to receive a Masters Degree in Theology from St. Leo University and was ordained a Deacon in 2012. Jerry recently had the privilege of participating on the altar at Mass with Pope Francis in St. Peter’s Square.

Parcel Rules: Round Up and Round Down

By Jerry Hempstead, President, Hempstead Consulting

In the parcel arena there are different rubrics for the rounding of pounds and the rounding of inches.

These rules can have a compounding effect on what you might pay to ship an item.
Let us start with the rounding up of weights.

Say you have a six-ounce CD to ship. If you send it express or ground, you will have to pay the one-pound rate. So from 1 ounce to 16 ounces you pay for one pound. Now if you go to one pound, six ounces, then you round up to the next pound and pay for two pounds.

Traditionally there tends to be more one pound shipments than 2, more two than three, more three than four. So most shippers have the majority of their shipments under 10 pounds. I point this out because I want to just point out what the difference in price is.

The benchmark rule is to look at the 5-pound rate cell for zone 5. I looked up Fedex and UPS proposed base rates for 2017 to see what a Standard Overnight package would cost. Fedex will be $73.82 and UPS will be $74.53. (Note that UPS and Fedex have the same price this year, but once again the two carriers base tariffs will diverge and for the first time in memory the UPS base will be higher in most cases than FedEx for air services. In the example UPS is $.71 more on the base or about 1%).

Now that same package, if it weighs 5 pounds, 1 ounce, will be rated as 6 pounds. The Fedex rate increases to $78.69 and UPS to $79.45. That one ounce just cost you or your employer $4.92. or 7% more than if it had been rated as 5 pounds. So it’s important to discipline packaging and fill, and perhaps consider printing those add ins on lighter weight paper so as to reduce or avoid these costs. Even if you enjoy a big discount, it’s still a big jump in price for that next ounce.

I want to move to rounding of inches. Both Fedex and UPS have recently made changes in either Oversize or Dimensional weight calculation. If you are not familiar with dimensional weight, it’s a rule carriers use to have shippers pay for the greater of the weight of a transaction or a dimensional weight, which is determined by multiplying the length by the with and then by the height, in inches, and then dividing that result by a dimensional factor, solely set by the carriers for domestic transactions.

FedEx just announced that it was changing the divisor from 166 to 139. This yields a higher dimensional weight result. Packages that are not eligible for dimensional weight pricing will now be faced with this additional increase in cost next year and shipments that are currently being dimmed today, may find a jump in the resulting weight moving forward. Remember what that one-pound increase meant in the example above?

The rounding rule for dimensionalization is nuanced. If a dimension is a half (.5) an inch over, it rounds up to the next inch. If a package is below ½ an inch it rounds down. Keep in mind that since you use three dimensions to calculate the dimensional weight the issue can compound itself if all three sides are a half inch.

Let’s take an example. A box that is 9 7/16ths inches by 9 7.16ths inches by 9 7/16ths inches. All three sides round down to 9x9x9. 729 cubic inches. That result divided by the current rule of 166 yields 4.39 pounds – and pounds round up- so you are billed for at least 5 pounds. The new rule of 139 will yield 5.24 pounds so you will pay for at least 6 pounds.

A similar box but with dimensions of 9 8/16ths inches by 9 8/16ths inches by 9 8/16ths inches will be calculated as 10x10x10, or 1000 cubic inches. That size divided by 166 results in 6.02 pounds and will be rated at least for 7 pounds and if divided by the new rule of 139 yields 7.19 pounds so you will be charged for at least 8 pounds.

You can see now how the rules changes can be as impactful to your budget as the announcement of how much the base tariff rate is going to go up “on average”.

It would be prudent if you take a careful look at your packaging now, before the start of the new year, so you can perhaps source boxes that can save in your freight costs.

(Jerry can be reached at gmhempstead@aol.com.)