Small Parcel Shippers: Reduce DIM Costs with Efficient Packaging
Over the five years since UPS and FedEx first introduced DIM weight pricing for freight and ground shipping, the cost of this method of rating shipments has increased each year, and it’s something shippers can no longer afford to ignore. Compounding the problem is that it’s also increasingly difficult to pass off the extra cost onto customers, who now expect free or low-cost fast delivery by default.
Given that the annual rate increases of the two carrier giants have just gone into effect, this is a good time to look at how to mitigate the impact DIM has on your shipping costs. Below, we explain how packaging efficiencies help to reduce your DIM costs.
First, let’s clarify what exactly DIM weight is and look at an example of its potential to exponentially increase your shipping costs.
How to calculate DIM weight
Dimensional weight (also referred to as DIM weight, volumetric weight, or cubed weight) is the relationship of shipping box size to the actual weight of the total package.
UPS and FedEx apply DIM weight pricing to ALL packages. To calculate the dimensional weight, both carriers divide the cubic size of the package by 139 (the divisor).
Here’s how to calculate the billable weight of a package that is to be shipped via FedEx or UPS.
1. Determine the actual weight
This is the package weight (on the scales) rounded up to the next whole pound.
2. Determine the dimensional weight
a) Determine the package dimensions in inches. For each dimension, measure at the longest point, rounding each measurement to the nearest whole number (for example, 1.00 to 1.49 will be considered 1, and 1.50 to 1.99 will be considered 2).
b) Multiply the package length (longest side of the package) by the width by the height. The sum is the cubic size in inches.
c) Divide the cubic size in inches by the divisor to calculate the dimensional weight in pounds. Increase any fraction to the next whole pound.
Dimensional Weight = (L x W x H) ÷ Divisor (139)
3. Determine the billable weight
Compare the package’s actual weight to its dimensional weight. The greater of the two is the billable weight and should be used to calculate the rate. For multiple-package shipments, total the billable weight of all packages in the shipment.
A package measuring L 53 x W 12 x H 26 = cubic size 16,536 in. ÷ 139 (divisor) = DIM weight 119 lbs.
Actual weight of package = 53 lbs.
DIM weight of package = 119 lbs.
Billable weight of package = 119 lbs.
As you can see, unnecessarily over-sized or wasteful packaging can have costly consequences. So let’s take a look at how you can use efficient packaging to minimize the DIM weight of your shipments.
How to use efficient packaging to reduce DIM weight
Efficient packaging directly correlates to lower transportation costs.
The efficiency of packaging is related to how much filler and air is contained in the shipping case. One survey of leading fulfillment companies found that the average e-commerce shipping carton contains over 50% empty space, and that the potential for cost savings with efficient packaging could be in the range of 20% – 40%.
Here are some ways to increase the efficiency of your packaging.
Use appropriately sized boxes
Aim always to use the smallest box possible. Because DIM weight is cubic, trimming even fractions of an inch in each dimension can multiply to notable savings. Also take into account the protective materials. Could the item(s) be shipped without protection in the box, thus reducing both weight and package dimensions?
Optimize package contents
Ship as many items as possible in one box. With DIM pricing, it is not cost-effective to ship a small item in an oversized box, or multiple items going to the same destination in separate boxes. The more items per box, the greater the cost efficiencies.
Evaluate the type of packaging
Is it necessary to use a box, or could the item(s) be sent in a padded envelope or Tyvek® or polybag? These lightweight, low-volume options can reduce shipping costs.
Automate the optimization
Consider using an automated system that fits the box to the contents. These systems virtually eliminate any unused space and could pay for themselves in the long run. When combined with high-performance packaging or paper to fill small voids, custom boxes can also reduce the likelihood of damage in transit.
Automate the decision making
Automation can help by saving custom packaging dimensions along with the DIM weight information for faster matching of the right box with the right shipment.
Also available is software that allows you to save combinations of carrier services and packaging. These presets can then be applied when a shipment meets the criteria.
Consider using a third party
There are two ways a third-party packaging expert could help you.
1. A packaging expert can evaluate the packaging line and analyze parcels to determine if there’s wasted interior space. In addition, they can review your shipping data and give you the info you need to optimize box sizes to fit your most commonly shipped items while providing the necessary protection to prevent damage.
2. For the ultimate in automation and optimization, some packagers offer an on-demand service that links with your internal order system for automatic calculation and production of the optimal box size. With this system, every shipment receives a custom packaging solution.
Don’t penalize yourself: Give the carrier the DIM info
All the packaging optimization will not pay off if you get hit with a penalty for not providing the package dimensions to the carrier. Provision of package dimensions is now mandatory, and missing out this step could result in a 20% – 100% penalty, depending upon the actual dimensions of the package.
Long-run benefits for all
As we noted in an earlier blog post, reducing the packaging you use brings with it benefits even beyond reducing shipping costs by reducing DIM weight. It also reduces your packaging costs and the environmental impact of both the packaging and the shipping.
Over the long run, it benefits everyone.
Ecommerce shopping has permanently changed consumer buying habits. With that shift, huge competitors (like Amazon) have introduced faster delivery and free shipping in an attempt to create better customer experiences and grow their own market share.
Those conveniences have made it easier for buyers to stay home, purchase and save — which of course is the goal. At the same time, online retailers not offering those perks are experiencing climbing rates of cart abandonment and lost sales by providing longer delivery times and charging shipping fees.
Should online retailers charge for shipping?
Like it or not, what to charge for shipping has become a contentious internal discussion for today’s ecommerce businesses, particularly for logistics and finance decision-makers. Many online sellers view shipping costs as a business expense that must be passed along to the buyer. The consumer, however, often sees paying for shipping as a customer-unfriendly requirement. One that’s often significant enough to be a deal-breaker when it comes to finalizing a purchase.
In many ways this is a simple matter of perception. There are obviously ALWAYS shipping costs to deliver an order. Justifiably or not, consumers want to think it’s the seller’s responsibility to eat that expense. From the retailer’s perspective, how and what to charge for shipping is therefore a complex and important strategic decision. Most e-tailers have countless competitors selling many of the same products and not charging shipping fees — at least overtly.
Does that mean all sellers must follow suit and drop their shipping fees to save the sale? Or, should retailers ignore the current trend and the perceived benefits the competition are offering, and still charge for shipping to help protect their margins?
Not a black and white decision
Due to many factors, the answer to that question isn’t an easy yes or no. It depends on several things, such as the types of products you sell and your customers.
Unfortunately, this is not the easy answer most sellers want to hear. But, given its importance it deserves a very close look. It begins with thinking about your specific markets and the demographics and psychographics of your customer profiles, as well as the demand for your product and necessary profit margin. What and how your competitors charge for shipping matters, too. It doesn’t mean you need to follow suit, because every company is unique, but there is a lot to be learned from observing other sellers’ approach to shipping.
Where to start
Here are some ideas. The quickest way to uncover what large ecommerce sites offer is to study the top 50 ecommerce companies as well as your main competitors. Research their online catalogs, offerings, and shopping carts. Make note of what they charge and the delivery service they offer for that price. Examine whether or not a consumer can type in a promo code or offer codeword to receive a discount on their purchase or free shipping at checkout.
The next step is to note whether other e-tailers are offering monthly ecommerce subscriptions or continuity programs. If they do, is free or reduced shipping fees one of the benefits provided? If it is, note which product categories are covered and which are not included.
Another in-depth step to consider is to order a product from each leader’s ecommerce website. Keep track of each order, from purchase to delivery. What was the buying experience like? Were you offered other items to purchase before checkout? How many days did it take for the product to arrive? Any delays? Any backorders?
Time for a test
The goal with any test should be to measure the specific impact on sales and other indicators, such as cart abandonment. Here are three scenarios you can use in which the observed change in those areas can be meaningful.
- Offer a flat rate for shipping based on the average shipping cost paid for all orders.
- Develop a process to calculate the actual shipping cost for each order and charge this amount.
- Offer a version of Amazon’s “Prime” and charge a flat annual amount to provide free two-day shipping for all the customer’s orders.
Looking at what other online retailers are doing will help you come up with other ideas as well.
It’s clear that finding the right answer for your business will take work and some trial and error. Which is why it’s important to always keep in mind your goal: to maximize your profit margin by charging as much as possible to cover your expenses — shipping included.
As you start offering different shipping options for customers, patterns will emerge in the data. Dedicate a period of time, as much as necessary, to A/B test different costs and options and measure the impact on your sales.
What did the data reveal after the testing phase? What has changed in your specific market over the past 12 months that may have impacted results? What did the data uncover that will give the business a competitive advantage moving forward? Testing and understanding these types of questions is the only way to quantify the impact of shipping fees on your bottom line.
Now go do it
Based on the data gathered in steps 1 and 2, you now have a blueprint of where your ecommerce site needs to be and how much you should charge for shipping. When you find the right answer, you’ll be a step ahead of the competition because you can be sure few of them have put the same amount of thought into their own strategy for pricing shipping. It’ll become a key differentiator that your customers will appreciate.