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Dim Weight - Do They Take Us For Dimwits?

By Art van Bodegraven | 10/27/2014 | 8:14 AM

"Sure is getting hot out here!"

Ste. Jeanne d'Arc

Translated from the French by Whitney Massengill

I don't recall this much furor in the shipping universe since the deregulation of the '80s (of course, I don't recall as much as I used to, in general).  But, the rate moves - pricing based on an assumed weight of specific package dimensions - announced by UPS and FedEx have got, it seems, everyone's underwear in a tangle. 

At best, service providers and commentaters are scaring the bejeepers out of shippers with projections of cataclysmic cost impacts.  Shippers are, at worst, pronouncing the changes as "evil", with the parcel carriers involved forever bearing the mark of Cain as they wander the planet, pillaging and making off with the family silver.  The parcel carriers may not be helping, getting a touch defensive and borderline disingenuous in smoothing over the rough edges of the message.

To be clear, I have no business ties to, nor own shares in, any carrier.  Further, I decry the faux consulting that some employ, as vassals beholden to the commercial interests of parent business lines.

That said, my message to the shipping community is simple: Get over it.  This is a straightforward and logical shift.  It is, of course, profitability motivated in large measure; these are commercial enterprises with margin and buiness continuity imperatives.  It is also about asset utilization within  the business and a rational set of cost factors in end-to-end supply chains.

On one hand, despite an ugly heritage of shipping rates based on factors of distance, freight class, and weight, carriers of all sorts are, and always have been, selling space in containers of various sizes.  It doesn't matter  that a package contains pillows or dishware; a box twice as big takes up twice the space.  Weight does matter when the box contains anvils or bricks.  If a trailer weights out, rather than cubes out, the number of boxes that can be carried  diminishes, and space in the shipping asset goes unused.

It is, therefore, eminently sane to price by dimension, with a penalty for heavier weights.  And, shippers own the responsibility for bearing the relative costs involved.

In a spectacular example of sub-optimization, over time, shippers have learned to use as few box sizes as they can get away with, routinely filling unused box space with dunnage of several types.  (This has spawned a sub-industry of packaging "experts" who will argue into the night over the relative advantages of one wasted space filler versus another.  And, one major B2C shipper uses only one box size.)  The practice creates procurement leverage in quantities of "standard" sizes, and enables a smoother, faster facility throughput flow of outbound shipments.  Shippers who have reaped these benefits for decades, not surprisingly, have begun to consider them entitlements.

But, making the parcel carrier somehow live with the downside of these practices is ultimately out of balance, and had to be corrected at some point.  Perhaps that point is now.

On the plus side of this dramatic shift, shippers will be forced to use a greater range of box sizes, more aligned with the characteristics (size, weight, fragility, etc.) of specific products.  Dunnage use will plummet.  Transport assets will be better utilized.  Carbon footprints will be reduced.  Costs will be more appropriately positioned within the end-to-end supply chain.  Colleague in chaos, Jack Ampuja, may have to answer some of the deeper questions in this corner of the arena.

On the down side, shippers (perhaps aided by their parcel carriers) will have to redesign boxes, rethink filler systems, and re-engineer (maybe) some work flows.  Shipping costs (including so-called "free' shipping) will need to be rethought and realigned.  Shippers may incur cost surprises during the transition, and customers may not understand (although individual customers  have been paying parcel rates based on box size for a long time).

It is fair to wonder if the move to commercial dim weight pricing will be sustainable in the marketplace.  A couple of principles come into play.  One is that, if the shift results in unconscionable profits for Fedex and UPS, a new competitor might be tempted to enter the space with a more attractive rate structure that is still very profitable, and take some market share away from the global leaders.  Another is that the USPS rate structure might be perceived to be compellingly attractive, also taking business away from the Big Two.

Are either of those likely?  If FedEx and UPS lose low-end share, do they really care?  My friend, Rob Martinez, might have more insight into the answers to those questions.  Whatever the end game  turns out to be, keep these in mind: The changes are logical in the greater supply chain equation; the concepts underlying the shift are more fair than present practices when it comes to where costs are incurred and savings are enjoyed; and, the marketplace will find the ultimate answer, sorting out mis-steps and opportunities.

As for where the USPS falls out in the melee, I'll have more to say about that in the next week or two.  Meanwhile, Bishop Cauchon has asked me send out for more fire wood, lest St. Joan get stuck at medium-rare.

 

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About Art van Bodegraven

Art van Bodegraven

Art van Bodegraven (1939 - 2017) was Managing Principal of the van Bodegraven Associates consultancy and Founding Principal of Discovery Executive Services, which develops and delivers supply chain educational programs. He was formerly Chair of the Supply Chain Group AG, Partner at The Progress Group LLC, Development Executive at CSCMP, Practice Leader with S4 Consulting, and a Managing Director in Coopers & Lybrand's consulting practice. Concentrating in supply chain management and logistics for over 20 years in his 50+ year business career, he has led ground-breaking strategic, operational, and educational projects for leading US and global clients. Art was principal co-author of DC Velocity's Basic Training monthly column for a decade, and was the principal co-author, with Ken Ackerman, of Fundamentals of Supply Chain Management, the definitive primer in the field. His popular blog, The Art of Art, has been a staple of DC Velocity's web site since its inception.



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