In early May, global package delivery provider FedEx announced a series of dimensional weight pricing changes related to both its FedEx Ground and FedEx Freight service units that are scheduled to take effect at the beginning of 2015. This week, UPS has also announced its intent to implement dimensional pricing as well. effective December 29, 2014. The UPS pricing will be applicable to all UPS Ground and UPS Standard to Canada package shipments.
In its announcement, UPS indicates that current e-commerce shipping trends have resulted in a decrease of package density, causing cargo space to be less efficiently utilized in its network. However, UPS neglects to mention the further implication of this trend, namely increased package volumes that result in increased revenues. Once more, both carriers have implemented advanced technology that can optimize cube volume on any transport asset. With the shift toward dimensional pricing, both FedEx and UPS stand to gain considerable boosts in product margins since no substantial changes are required to handle today’s day-to-day volumes.
As noted in our prior commentary, the price to ship a bulky, but relatively low-cost item could rise significantly under these proposed changes, tipping the balance of free shipping and potentially deterring an online buying decision. 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 B2C online buying momentum. Supply Chain Matters recently viewed E-commerce retail sales data from IHS which indicates that in 2011, the top category of online merchandise sales was clothing and accessories, followed by other merchandise and electronics. Clothing certainly can be a candidate for dimensional pricing.
The proposed dimensional pricing 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. Brick and mortar discount retailers such as Wal-Mart and warehouse goods retailers such as Costco, in-turn, have been handed a new opportunity in the area of shopping for low-cost but high bulk goods.
Again, major online retailers have considerable negotiating clout and no doubt, negotiations for 2015 package shipping contracts will be lively. However, smaller online and other B2B and B2C providers will bear the brunt of the implications of dimensional pricing.
For our consumer focused readers, the implication is that online free shipping may well become a practice of the past.