Small
U.S. firms may struggle with new UPS, FedEx dimensional
prices
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[December 30, 2014]
By Nick Carey
CHICAGO (Reuters) - United Parcel Service
Inc and FedEx Corp are rolling out new pricing systems to curb online
retailers' large package sizes, but industry experts warn many small
firms are unprepared and could pay up to 50 percent more for shipping.
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Starting Monday, UPS will no longer charge for U.S. ground packages
under 3 cubic feet by weight but by their "dimensional weight."
Memphis-based FedEx will roll out the same change on Jan 5.
Instead of simply weighing a box, retailers must multiply its length
by its height and width, and then divide that by 166 to reach its
dimensional weight.
"We believe this (dimensional weight pricing) will encourage
customers to reduce their package sizes," Bill Smith, UPS vice
president of marketing, told Reuters.
UPS and FedEx announced the change in May and have worked to help
customers adjust. But some small firms lack the resources to change
packaging and may switch to the U.S. Postal Service (USPS), said
Amine Khechfe, general manager of Endicia, which offers shipping
solutions for e-commerce vendors.
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Under the new systems, according to Endicia, a woman's shoulder bag
weighing 2 pounds – shipped in a box measuring 19 by 15 by 5 inches
- will have a dimensional weight of 9 pounds and cost 45 percent
more to ship.
Atlanta-based UPS says retailers are shipping lighter goods, but
have not shrunk the size of their packaging materials.
"We need to charge a fair value for use of our asset, which in this
case is space," FedEx spokesman Jess Bunn told Reuters.
Online retailers such as Amazon are expected to be prepared. But
smaller firms like Oregon-based Natura Health Products would
struggle: It expects to pay 36 percent more for shipping many
packages.
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Natura sells nutritional supplement products, many for cancer
patients, and spends about $180,000 a year on shipping through FedEx
and USPS, said logistics manager Chris Thorsen. To avoid such
increases, the company will shift more shipping business in 2015 to
USPS. The share shipped by USPS will rise to about 50 percent from
40 percent in 2014.
The USPS still charges by weight. In July, it announced some price
cuts to target e-commerce.
Research firm Morningstar estimates e-commerce will grow at least 10
percent annually over the next five years. Analyst Keith Schoonmaker
said such growth and the new pricing model will allow UPS and FedEx
to let some of this low-yield business to USPS.
(Reporting By Nick Carey in Chicago. Editing by P.J. Huffstutter and
Cynthia Osterman)
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