Many organizations are preparing their 2020 budget plans. Although there are several operational aspects to consider, small package freight is often on the back burner. Hidden charges often go unnoticed with small package freight. A customer’s shipping costs derive from service selection, distance and billable weight. All three elements are critical to small package freight costs, but billable weight often tends to be overlooked.
Understanding the Dimensional Weight Divisor
A common misconception regarding small package freight shipping costs is the influence of billable weight. Billable weight (calculated by the package volume, divided by the set divisor) can exceed the actual weight of the package, depending on its dimensions (length x width x height). Also, the dimensional weight divisor is used to determine the total pricing requirements. For instance, the current standard dimension weight divisor is 139. An Overnight 3lb package with volume measurements of 16x8x6, then divided by 139, will have a total published rate of $86.89.
Hidden Price Increases
The $86.89 charge, using the current dimensional weight divisor, may not seem like anything to question on the surface. However, the divisor has decreased twice (from 194 to 166 in 2016 and 166 to 139 in 2019) within the last nine years. As a result, published shipping rates for this package have increased by over 88%. The dimensional weight divisor has a direct impact on your company’s shipping charges. Although there aren’t any foreseeable changes to the dimensional weight divisor amount again soon, companies should be mindful of the trend towards the increase in shipping charges.
Knowing Your Agreement Specifics
Your organization’s shipping contract terms may not explicitly outline dimensional weight specifics. For this reason, you should look beyond standard shipping discounts before renewing terms or finding a new shipper. Understand your company’s detailed shipping profiles to ensure your company is getting the best rate possible. Your organization may be able to substantially increase profitability by simply re-evaluating how shipping services are selected and packaging redesign.
Shipping costs are a necessary component of an organization’s routine functions. Although the cost itself can’t be escaped, everyone should at least have proper knowledge of total rate calculations. Now is the perfect time to ensure your company is getting the best shipping rates possible for your shipping profile, before budgets are set for the upcoming year.
About the Author:
Greg Pollard is a thought and implementation leader with more than 25 years of experience in management, operations and consulting for businesses interested in reducing cost while improving or maintaining current service quality. Greg is a Senior Principal Consultant with Expense Reduction Analysts (ERA), largely focusing on small package freight and waste cost management for companies located throughout the U.S.
He has assisted more than 150 companies throughout various industries and reviewing more than $180M in annual spends. With a degree in mechanical engineering from Texas Tech coupled with his vast executive and operational experience, Pollard is equipped with a unique perspective.