For every retailer and manufacturer, small parcel shipping can account for a large expense. And shipping services won’t be getting any cheaper. Last month, FedEx announced its GRI effective January 2, 2017, which includes a 3.9% increase in shipping rates for U.S. domestic, export, and import services. In addition, the dimensional weight divisor is decreasing from 166 (which has been in effect since 2011) to 139. FedEx uses this divisor to determine a base rate by multiplying the length, width, and height by inches and then dividing by the factor.
This new divisor factor (DIM) can have a big impact on small businesses, as many shipments will now see a weight difference of about 20%. Under the current DIM, a 10x10x10 box’s billable weight is about 6lbs. With the new lower DIM, the same parcel is now calculated as 7lbs. Because shippers pay the higher of either the parcel’s dimensional or actual weight, this seemingly small difference in billable weight is in reality, a big hit to the bottom line for millions of shippers.
FedEx also announced that beginning in February, 2017 fuel surcharges will be adjusted weekly, instead of monthly. This will most likely result in more variable fuel rates. The DIM factor decrease, coupled with the higher shipping rates and surcharges, could lead to an overall rate increase of 25% or higher.
Unfortunately, these increases will hit smaller companies the hardest, as they do not have the shipment volume to negotiate lower rates. Many smaller shippers may not understand the dynamics of dim-weight pricing, which means that they will not know to ask for the best rate. Shippers who are not familiar with this pricing structure might now be affected by it as the lower divisor applies to more parcels, especially those that weigh less than 7lbs.
When carriers changed their rates from 194 down to the current 166 five years ago, small businesses took the brunt of the increase and big companies got a pass, even though many of them send oversized packages often. It is expected that larger companies who are in the middle of their multiyear contracts will get waivers at the expense of the smaller ones this time as well.
If UPS, who has not yet announced its 2017 GRI pricing, follows FedEx’s lead, these increases will only put that much more pressure on small merchants, especially those who offer free shipping as part of a promotion or as their marketing hook.
However, there are some other options for businesses that do not do a large volume with either of these big carriers. The U.S Postal Service or regional carriers may end up being able to give rates that are considerably more competitive than the larger, national carriers. All businesses should evaluate their shipments, box sizes, and which carrier will offer the most cost-effective shipping services.
Concerned about how the upcoming shipping rate increases will affect your business? Contact us today at www.kablefulfillment.com to find out how we can help.