Bobby Miller, the Global Chief Consumer Goods Strategist at ORTEC, wrote an excellent article about dimensional weight pricing in Logistics Viewpoints. I recognized that for many shippers, dimensional pricing would lead to increased parcel shipping costs. What I didnt recognize, prior to reading this article, was that it could also drive substantially higher warehousing costs for shippers. First of all, what is dimensional pricing? Dimensional pricing is a practice that sets the shipping price based on package volume the width times the length times the height of a package. This has been in the news because both FedEx and UPS, the leading parcel services in North America, have greatly expanded the number of packages that dimensional pricing will apply to starting in the New Year.
Actually, their pricing is not just based on a packages dimensions if the package is small they will use traditional weight-based pricing, but most packages, perhaps 70 percent or so, will end up being dimensional. This is why they call it dimensional weight pricing. The math is a bit onerous, here is UPSs explanation. FedEx makes it easier, they explain the math but they also have a calculator where you put in a packages dimensions and weight, and it spits out what it will cost you.
Why does dimensional pricing matter? Because, as Mr. Miller notes in his article, it is expected that parcel shipping costs will increase 20 to 30 percent based on this new pricing scheme. So how does this affect the warehouse?