Marketers Need to Address UPS, FedEx Rate Changes

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A leading shipping industry expert warns that size-based rates will affect marketing and pricing decisions when the rates take effect next year.

UPS and FedEx confront shippers with a weighty issue.
UPS and FedEx confront shippers with a weighty issue.

Internet retailers and catalogers whose pricing decisions are influenced by shipping rates need to reassess their shipping strategies in light of UPS's decision to follow FedEx and base U.S. ground rates on the size of packages, according to a shipping industry expert.

“Under UPS's new rules, if you look at a box that's one cubic foot, you could ship up to 11 pounds inside it using the industry dimensional factor. But if a merchant needs a box that size to ship six pounds, it could cost double what it used to,” says Ursa Major Associates Executive Director Mike Comstock, a 30-year shipping industry veteran who served as SVP of corporate strategy and e-commerce at DHL. “If you're shipping dumbbells, the new pricing system works fine. But things like boots and diapers will be much more expensive to ship.”

The shipping industry has long used a standard dimensional factor of 166 to determine how much weight could be safely stuffed inside various box volumes. For instance, the 11-pound maximum for the cubic foot box was determined by multiplying 12x12x12 and dividing by 166. The package size pricing soon to be embraced by FedEx and UPS favor shippers of small, heavy merchandise over those of large, light products.

The U.S. Postal Service may serve as a better option for the latter group, since it continues to charge by weight for ground shipping in most postal zones. New rates take effect at UPS on Dec. 29 and at FedEx on Jan. 1, 2015, so shippers won't have to factor the new rate structure into their Holiday 2014 plans. But Comstock urges e-commerce companies and catalogers to immediately begin strategizing about their shipping plans for next year.

“Look at the Postal Service alternative, do an analysis, and then reassess what your policy is going to be,” Comstock says. “This holiday season companies should take a sampling of orders and run a simulation of what they would cost using the Postal Service rate.”

Marketers need to bust out of their silos and collaborate with operations people to get this done, since shipping costs weigh heavily on important marketing decisions. “Free shipping—which, of course, isn't free—could get a lot more expensive,” Comstock says. “Marketing people need to understand that they may have to adjust their pricing to a significant degree.”


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