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Jerry M. Hempstead is a 32 year air express industry veteran and consultant. He is President of Hempstead Consulting based in Orlando, FL. Jerry is a contributing author to freightdawg.com and may be contacted by email at gmhempstead@aol.com
Parcel carriers change rating practices on oversize shipments
In January 2007, all three major parcel carriers announced revisions in how they treated over sized shipments. New FedEx, DHL, and UPS "dimensional weight" rules are noted in the links below.
- FedEx Dimensional Weight Rules
- DHL Dimensional Weight Rules (Viewed as PDF)
- UPS Dimensional Weight Rules
Whether you are negatively impacted by these amendments is contingent on the package size of your shipments. If a shipper’s items are less than 3 cubic feet in size then these announcements are actually good and could result in lower shipment costs. However, studies have shown that if your shipments currently move under previous Oversize Rule(s) the migration to dimensional weight could result in your company paying between 15 and 17% more than you pay today for these shipments.
"What can I do about it?"
First, Understand your Book of Business
With respect to managing your parcel costs, a shipper first must understand what they have and how the rule may affect them. The first step in this process is to create a profile of your parcel shipments that details the types of parcel shipments that occur, where they are shipped and the volume of packages tendered to each carrier. If this profile discloses a significant number of oversize shipments, or there are other warning signs that indicate that your company may be adversely affected, then you likely have some thinking to do.
"Then consider your options"
You have several options, some of which can be used in combination. These first address internal inefficiencies, then leverage the politics of your carrier relationships, the competitive marketplace and your specific situation. Each case may be different.
Consider Changing Packaging - Based on what the profile discloses, it may be worthwhile to look at the packaging sizes used. There are some nuances between various box sizes where one size may dim one-way and another not at all. The information may be in your shipper invoice file or on your weekly flat file billing from your carrier. A review of the bills can provide some beneficial insight.
Ask for higher discount to offset Dim rule changes - You can always try the traditional method of demanding a higher discount off of the base tariff rate to mitigate some of the impact of the rule change. One toy company noted that after they sat down with their current parcel carrier and went over their analysis of the impact of this change, (which showed an increase of 14%), the carrier volunteered to increase their discount to partially offset the impact of this increase.
“Breach of Contract” - Call in the incumbent and tell them it is your expectation that the oversize rule that was in effect at the time the contract was signed must be the rule moving forward for the duration of the contract. If they refuse, then advise them that you consider that carrier in breach of the contract and are therefore canceling the contract on 30 or 60 days notice per the contract. No parcel carrier wants to lose market share or lose customers over this new rule.
Put the business out to bid - Call in the competition and put the book of business in play and TELL the bidders they can only have the business if they grandfather the old OS rule and or waive Oversize entirely for the duration of the contract award. The key here is convincing the incumbent parcel carrier that his business is at risk. Right now, there is a battle going on amongst the Big Three (UPS, Fed Ex and DHL) and they have been very aggressive in protecting their turf and trying to get new customers.
Suggest a Phased approach - If you want to adopt a less adversarial stance, you can request that the incumbent carrier phase in this new rule by applying a more liberal dimensional factor such as 300 or 600 for the next year and then gradually reduce the divisor until the 194 is reached some time in the future. The increase in the dimensional factor can reduce the weight against which the package is compared (a.k.a. the package is billed at the greater of the weight of the package or the weight calculated under the dimensional freight rule).
Consider adding regional parcel carriers - If the Big Three are not willing to budge, then consider using use regional parcel carriers that don't apply an oversize or dimensional rule (such as Eastern Connection or California Overnight or WPX) wherever possible. Our experience has proven that the Big Three are very adept at noticing (what we refer to as) diverted freight. This is freight that once was moving in their system and is no longer there.
While some of these steps may seem pretty basic, we have surveyed some shippers and have been somewhat surprised at how few of them are being proactive in negotiating with their carrier (right now) to address these issues. Additionally, we have been a bit surprised to learn that very few of these shippers have a complete profile that details their parcel transactions.
If you would like additional information, or have any questions, don’t hesitate to contact me at gmhempstead@aol.com.
Jerry
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