Earlier this month, global freight carrier FedEx announced a series of pricing changes related to both its FedEx Ground and FedEx Freight service units which are scheduled to take effect at the beginning of 2015. The announced pricing change is rather significant since it’s introduces expanded dimensional weight pricing to ground shipments. For readers who are not familiar with dimensional pricing in transportation, the price of moving the package is pegged to the overall volume vs. primarily the weight of that package. Currently, dimensional pricing for FedEx is applied to packages that measure three cubic feet or greater. The proposed rate hike will apply to all ground shipped packages.
This is not the first time major small package ground carriers have attempted to implement broader dimensional focused pricing. The argument has been that higher cubed packages require added handling, logistics and transportation expense. However, in this new world of online commerce, where carriers such as FedEx and UPS have enormously benefitted, the implications of this proposed change are far reaching.
Frankly, we have purposely held-off in a specific Supply Chain Matters commentary related to the announcement since we were anticipating a significant outcry from industry supply chain and media circles. For B2C or B2B customers, think for a moment about those single item online shipments that might involve a bulky, but relatively lower cost item such as a mop, broom, shovel or a bulk package of toilet paper. The price to ship that item could rise significantly with the proposed change, tipping the balance of free shipping and potentially deterring the online buying decision. An article appearing in Logistics Management provides an example noted from parcel consultant. It indicates an example that 5 pounds in a box that is 3 cubic feet in dimension is today charged for the 5 pound weight. Under the proposed change, the package would be charged for 32 pounds. The Wall Street Journal reported (paid subscription required) on the proposed change earlier this month and provided specific examples indicating that the price to ship a 32 pack of toilet paper could rise by 32 percent, while the price to ship a 40 piece plastic food storage assortment could rise by 30 percent.
For manufacturers and retailers, the implications are significant. Such a change can have a major impact on online shopping habits and could well derail current momentum. We have consistently observed survey data related to online consumers which continually indicate that online shopping carts are often abandoned when shipping costs are deemed too expensive.
The change further implies a major revisit of packaging and transportation practices for bulky items as well as policies related to free shipping. Those bulky items may well be collapsed as much as possible into components, that is, if they can be. Online retailers would more than likely be compelled to consolidate items as much as possible into a single shipment. The concepts of online replenishment of household or other day-to-day consumption items could well take on a far different market dynamic.
Thus far, rival transportation and parcel ship provider UPS has not announced a similar change in pricing strategy, perhaps waiting to assess the market reaction and response. Major online retailers such as Amazon or Wal-Mart have considerable transportation buyer influence and no-doubt, conversations may well be dynamic at this point. Other retail or manufacturing stakeholders,, especially those that lack buying influence, stand to bear the bulk of the implications for ground dimensional rate changes. Think for a moment if dimensional pricing is also applied across the board in ocean container shipping.
Obviously, the time is now for consumer and industry supply chain voices to be heard.