Companies looking to maximize their shipping budget will need to take a strategic approach to fulfillment in 2011. This year FedEx is the first out of the gate with its 2011 rate increases, and to the untrained eye their 3.9% average increase doesn’t sound like such a bad deal. It’s even a little better than last year’s 4.9% average increase.
A second look at FedEx’s 2011 published Rates — this time by a team of BirdDog logistics experts —reveals a much more complex budgeting challenge. A number of factors impact the shipper’s actual Costs. Here’s a closer look at three key factors and a brief discussion of the role they play in FedEx’s 2011 Rates:
- Fuel surcharges fluctuate. The 3.9% increase is the difference between a 5.9% increase in freight and a 2.0% decrease in fuel. Since fuel surcharges vary from month to month, the 2.0% savings on fuel may not be realized.
- We can’t all be average. The average rate increase is just an average, and most shippers and their freight are not average. Actual rate increases will vary by weight, zone (i.e., the distance between origin and destination addresses), and service (e.g., Ground, Priority Overnight, 2 Day Air).
- Dimensional weight matters. FedEx’s new rate card also includes a significant change to how dimensional weight (DIM) is calculated. The company is changing the domestic DIM factor to 166 from 194 and the international factor to 139 from 166. This lowered DIM factor will result in even higher Rates for certain types of companies, such as retailers and other businesses that ship lower density Packages.
FedEx DIM: 2010 vs. 2011
The best way to understand the full impact of the new DIM factor is to crunch some numbers. Here’s the equation for calculating DIM:
Dimensional Weight = (Length x Width x Height)/Dimensional Factor.
Now let’s pretend we’re sending an 18- by 14- by 8-inch Package as a Zone 5 Priority Overnight shipment. If the Package goes out before the rate change on January 3, 2011, the DIM weight adjustment would be 11.7 pounds. Send it out on or after January 3, and you’re looking at an adjustment of 13.7 pounds. Here’s how to calculate the 2010 and 2011 DIM:
2010 DIM: (18 x 14 x 8)/194 = 11.7 pounds
2011 DIM: (18 x 14 x 8)/166 = 13.7 pounds
FedEx, and the other carriers, round DIM weight to the nearest whole pound. Therefore, the 2010 DIM in our example is actually 12 pounds and the 2011 DIM is 14 pounds.
In this example, the weight adjustment raises the rate by an additional 9.0% over the announced rate increase. The table below shows the 2010 base rate and the 2011 rate with 2010 and 2011 DIM adjustments, as well as the large increase in cost to ship this particular Package.
| 2010 Charge |
2011 Charge |
2011 Charge |
Total 2011 Increase |
|---|---|---|---|
|
$ 84.50 |
$ 90.60 |
$ 98.75 |
16.9% |
The DIM factor change Packs another Hidden cost for companies that adjust Packaging to maximize their shipping dollar. To minimize – and in some cases avoid – dimensional weight charges, companies will need to adjust their Packaging based on the new 166 dimensional factor. Packaging designed for the 194 dimensional factor will add unnecessary dimensional bulk and bump up shipping Costs.
While this article highlights some of the factors that will impact shipping Costs in 2011, it does not offer solutions or strategies on how companies can best manage their 2011 shipping budgets. Your specific strategy hinges on the realities of your current situation as well as your future. That’s where an objective third-party, such as BirdDog Solutions, comes into play. BirdDog has the expertise and technology to accurately analyze your Costs and pinpoint your greatest opportunities for savings. We’ll look at your current environment as well as your long-term objectives to come up with the best possible plan.
To learn how BirdDog can help you maximize your parcel shipping dollar, visit www.birddog.com.