The latest industry-pricing trend, dimensional weight pricing, or often referred as “DIM Pricing,” calls for LTL freight cost calculations using pounds per cubic foot of space occupied on the truck. Both UPS and FedEx recently announced dimension-weight pricing plans for parcel/small packages effective Dec. 29 and Jan. 1, respectively. Shippers using LTL freight options will want to prepare their 2015 budgets with DIM pricing in mind.
The process, of shipping and managing your freight expenses, is becoming more dependent on the size of your freight and the space it occupies than ever before. Many carriers are, in essence, selling space on their vehicles. All air freight and most ground freight on larger carriers now require declared dimensions for correct manifesting.
Without a declaration, you are subject to carrier audits and accessorial back-charges.
These back charges can hurt margins if you apply “Flat Rate” charges to customer shipments, and they can cost you (the vendor/shipper) money if you are billing customers for reimbursement of actual freight costs.
Either way, if you are not declaring dimensions you are probably headed for disputes with your carrier over carrier-imposed DIM pricing charges that will be costly and difficult to resolve.
What is Dimensional Weight Pricing in the Less-Than-Truckload or LTL Mode?
We explained how to calculate dimensional weight covering the parcel examples and the impact on shipping costs, in general. However, it appears in the LTL shipping mode, we must also combine it with the freight class system we’ve all grown accustomed to in the LTL freight shipping world. Significant amounts of LTL reclassifications are occurring based on carriers’ improved ability to accurately assess space requirements for unusually-shaped freight. Equipped with the latest imaging software, some carriers are already reclassifying upwards of 50 percent of some LTL shipments. This means more efficient use of space for the carrier and increased cost for shippers based on more accurate classifications.
Under this new pricing model, LTL freight classes will be determined by weight and space occupied on the truck. The following equation—length x width x height/pounds = density—serves as a guide for shippers. For example, 50 pounds per cubic foot or greater will receive class 50 designation. 35 pounds per cubic foot, but less than 50 pounds per cubic foot, register as class 55 and so forth.
DIM pricing of LTL shipments is the near future for many carriers in the LTL industry. At Cerasis we’re preparing our clients now for ways to deal with the impacts of this new pricing strategy in 2015 as our newest transportation management system, which we call the Cerasis Rater, release will now support DIM pricing in LTL.
How Will DIM Pricing Affect Shippers who use the Less-Than-Truckload or LTL Mode?
DIM pricing is going to have a significant impact on those shippers who ship LTL either frequently or infrequently. In the old system, which is still used to a considerable extent, LTL freight rates are determined by class, weight, pick up and destination zip codes and any other additional services required. Now the volume of the package is going to play a greater role. Since a larger volume means a greater dimensional weight, you should aim to package as many goods into a gaylord or in shrink wrap on a pallet as possible so that it does not exceed the actual weight.
However, even with volume minimization, the cost of shipping still has the potential to be higher than when using the old method of purely freight class. For this reason, LTL shippers should take measure to minimize the impact of the dimensional shipping mechanism.
Tips, Best Practices, and Considerations to Lower the Impact and Costs of DIM Pricing on LTL Shipments
LTL companies can minimize the impact of the DIM pricing mechanism by implementing one or all of the following methods:
Get Accurate DIM Pricing by using a Large Freight Cubing System
Large-freight cubing systems (typically called pallet-dimensioning systems) are usually combined with a floor scale or forklift scales. We’ve seen many clients use the CubiScan model, and we highly recommend checking it out if you are a higher volume shipper. These systems are used to measure full pallet loads, but you can also utilize them for single and multi-piece shipments. Most are designed to work with “non-cuboidal” freight (since most pallet loads are anything but perfect). Nearly all pallet dimensioning systems use multiple sensors to reduce or eliminate “shadowing” (i.e., the inability to conclusively see a load’s length and width dimensions). Additionally, they are usually designed to allow pallet dimensions and weight to be “tared off.” Throughput rates range from 50 to over 120 shipments per hour. Most systems are static in nature, but conveyorized pallet dimensioners are also available.
Since a larger package means a greater dimensional weight, you should aim to minimize the volume of your packages. Make sure that there is as little empty space in your package as possible. Try using lightweight but strong packing materials that do not bulge or expand. Here are some best practices to master volume optimization:
- Find out the minimum box size you will need to pack the goods safely. Measure volume of the actual space, you will need and compare it with the volume of the boxes you are using. If the boxes are large, try and replace them with smaller boxes.
- Use cartonization logic software to evaluate order contents and to choose the correct number and size of shipping cartons for each order. This software uses the dimensions and weight of each item to calculate the smallest box/container size that can safely hold the products.
- Use lighter but stronger packaging materials that will not bulge or expand to ensure that the dimensional weight will remain exactly as you have calculated at the time of packing.
- Use air bags, bubble pack and pouches to provide a cushion to the goods.
- Consider using custom box manufacturing equipment to build boxes that fit the order correctly. You can also get help from your carrier to optimize your packaging.
Cube & Weigh each SKU to Build Orders
Knowing the size and weight of every item in your inventory allows orders to be designed for specific carton sizes. Using this technology requires that every SKU be databased in your host software system.
As new items are added to inventory, an operator places one sample of the piece into the system. The system will automatically measure, weigh and upload the information to a software system. Now every time this SKU is ordered, the software knows the physical sizes of each piece and dunnage requirements and automatically selects an optimized carton size.
Likewise, intelligence can be built into this system that says if there is going to be more than 30% wasted space, route to a special pack station for handling. At this station, custom cartonization or more standard sizes might be available to reduce the wasted space.
Renegotiate your Contract for a Higher DIM Factor & Other Elements
As has been discussed above and in the post yesterday, the higher the DIM factor, the smaller the dimensional weight of your package. Most commonly used DIM factor for domestic shipping is 166. Ask your carrier to give you a higher DIM factor or find another carrier that has a higher DIM factor. If you are good at negotiating, your carrier may agree to give you a figure higher than their standard figure. If you need help in carrier relations, often a 3PL can negotiate this higher DIM factor on your behalf. The are other factors you can negotiate as well with a carrier for your contract:
- Request a higher cubic threshold. This increases the space you can use without increasing the dimensional weight.
- Ask for incentives to offset the high shipping rate.
Refuse to Ship By Air
Customers usually like to have their packages shipped by air because they believe it is faster. But shipping by air is also more expensive. So, refuse to ship by air whenever possible.
Refuse to Ship Low-weight, High-volume Goods
Shipping low-weight goods that take up a lot of space is a loss-making proposition because the dimensional weight of the package will be much higher than its actual weight.
Pass the Costs on to your Customers
Change your shipping policies to pass the costs to your customers and explain to them why. Once they understand how dimensional weight shipping works, most of them will not mind paying extra as long as their belongings reach their destination in time and in one piece.
Don’t be a One Carrier Company, Use a 3PL and Their TMS
Too many organizations get comfortable and rely on one carrier for the vast majority of their business. The carriers offer free software and often training and implementation help that certainly makes things easier, but locks you in.
Investigate using more than one carrier, including regional, final mile and specialized transportation companies. Find the sweet spot that each organization can provide you and your customers. Exploit it for your bottom line advantage. This strategy will not only improve your negotiation position but should increase your customer’s satisfaction and your bottom line. You need to balance the lure of free software with the benefits of negotiating and optimizing different carriers.
Don’t have time to work with multiple carriers, manage those contracts & negotiations, or to research the various rates for every shipment? Then it may be time for you to look towards a 3PL who has expertise in transportation management through intimate and vast experience with carriers. Further, a 3PL will offer a TMS, which has several benefits, including the ability to rate multiple carriers at once. All you have to do is choose, the TMS automatically creates your bill-of-lading, and notifies all parties that the shipment is ready to go.
A 3PL, like Cerasis, can help you evaluate the following:
- Density-derived pricing compared to current class-based model analysis
- Predictive analysis to create efficiencies from best-practices for freight-all-kinds
- Strategies to increase density to provide better ROI on packaging dollars
- Plans for low-density shippers to deal with potentially dramatic price increases
- Ideas for high-density shippers to achieve potential for cost reductions
- Options, such as truckload pooling, sku-based density increases, pallet-pricing
How are you preparing for this shift towards DIM pricing in the LTL industry? Let me know in the comments below!
Steve Norall. http://cerasis.com