By Darren Jorgenson | Packaging Optimization Leader
In the boldest move in parcel shipping rates since 1995, both FedEx and UPS will be implementing new pricing schemes for parcel shipments by the beginning of next year that place greater importance on dimensional weight.
This is going to be a major change for many online retailers and companies that utilize single parcel for moving goods intra-company or business to business. Precisely how much this affects shipping rates depends on the weight and size of each parcel, but increases could be as high as 30% for some shippers based on early estimates.
What Can Be Done to Minimize the New Dimensional Weight Pricing Impact?
One of the best ways to keep shipping rates under control is to right size packaging, keeping in mind the trade-off between packaging costs and product protection to reduce damage.
As more shippers push to get the excess air out to reduce the volume of parcels, damage rates can increase unless the transportation packaging is designed effectively to protect contents en route. Finding an equilibrium between packaging costs and damage rates is key to an optimal packaging system.
The idea of trade-offs permeates supply chain strategy as a whole. Of course, shipping costs can be reduced by right sizing packaging for every item in your product portfolio. Some vendors are now offering “On-Demand Packaging” but that’s not a realistic approach when you are manufacturing or selling thousands of SKUs.
How Many Box Sizes are Optimal for Your Organization?
Traditionally, companies have erred on the side of operation efficiency and reduced the number of boxes to inventory for their single parcel packing lines. Depending on the diversity of size and weight of the items that you ship, much like the boxes themselves, there is no one size fits all answer to this question. But, it’s likely more than you have now.
Starting Jan 1, 2015 shipments like this will be costly for online retailers
The cost of adding another box size to choose from is probably less than what it would cost to continue shipping that over-sized option you may have now. Before, all this extra space would have cost only a few extra dimes in material costs and air pillows, but in light of the dim weight changes the extra costs will add up for that extra air.
Have You Considered Alternative Packaging Options?
Corrugated boxes are not the only option you have to choose from when shipping parcel. Padded envelopes can reduce parcel cubic dimensions. As dimensional weight rates take effect we expect to see an increase in their popularity.
Of course, the trade-off of switching up your packaging options should be calculated diligently before making any large scale decisions. An alternative transport package could result in increased damages during transit, effectively minimizing any costs savings gained.
What if You Don’t Optimize Your Parcel Packaging?
There is no one forcing you to optimize your packaging. However, if you want to maintain your current margins, an alternative to optimizing your packaging is to pass the increased shipping costs directly back to your customers.
Retailers that pass the increased cost of shipping to their customers reduce the appeal of direct-to-consumer fulfillment, which could result in a corresponding drop in online business. As the consumer looks for a better value, they are likely to find it at a brick and mortar store or perhaps even at a competing retailer that isn’t passing the increased shipping costs back onto the customer.
What’s the Right Solution for Your Company?
Companies who will handle these rate changes best will be those who consider this change as a treat, rather than a trick.
This is an unprecedented opportunity to holistically improve your packaging systems, generate lasting outside-of-the-box sustainability benefits, and turn this dimensional rate increase into a profit rather than a loss. The ideal solution will minimize both shipping costs and damage rates.
Rationalizing all of the strategic trade-offs can get complex quickly. Use available data and analytics to provide your company with the insights necessary to make the best, informed decision on a path forward.
If you need help balancing the trade-offs, or determining the optimal packaging strategy for your products, contact the packaging experts at Chainalytics for help, or feel free to reach out to me directly on LinkedIn.
Darren Jorgenson, Practice Leader for Chainalytics’ Packaging Optimization Practice, manages the delivery of supply chain packaging optimization, and complex packaging engineering services that enable clients to achieve breakthroughs in reduced logistics and freight costs to improve sustainability by better leveraging packaging design.
Still in the Dark?
> This upcoming webinar, “Shedding a Light on Dim Weight Changes for Parcel” will take a deeper dive into additional factors to consider for reducing small parcel costs. Save your spot to learn optimization techniques that can save money and improve productivity.
> Meet up with Chainalytics’ team of Packaging Consultants at ISTA’s Booth N-4539 during PackExpo International to discuss your options
> Calculate your exposure using our interactive calculator, below, to gain a clear picture of what your impact will look like