Imagine you need to use a carrier’s LTL shipping services. Your package is approximately about one cubic foot. Next to you, another shipper is sending a package that is more than double this size. Now, you would think the other larger package is going to incur the higher shipping cost. However, your current package weighs 600 pounds, and your counterpart’s package weighs 230 pounds. If both packages were assigned purely on weight, you could end up paying more, even though your package is technically smaller. So how does this change with LTL dimensional pricing?
This just does not make common sense, and carriers are moving towards a dimensional pricing model (DIM pricing) to help level the playing field when shipping products of different weight and density. Essentially, smaller packages should have lower shipping costs than larger packages in LTL shipping, and DIM pricing enables this ideal.
Myths of LTL Dimensional Pricing
“It’s a way to get more money.”
LTL dimensional pricing, often called DIM Pricing, is not a means of getting more revenue for carriers. DIM pricing allows carriers to make the most effective use of LTL shipping space, reports Rich Luhrs of CarrierDirect, while still maintaining lower rates and equality across the playing field.
“It’s only for frequent shippers.”
Some shippers may argue LTL DIM pricing is only beneficial to shippers who frequently ship products. In reality, LTL dimensional pricing is beneficial to all the shippers as it implies the need to be more efficient in packaging processes.
For example, a shipper may feel adding extra volume to a package increases security, but bulky, oversized packages are more likely to fall, be destroyed, or become otherwise damaged from heavier items. Furthermore, bigger packages imply a higher packaging cost for the shipper, and as a result, shippers who turn towards a more efficient packaging standard would actually save money.
“It’s going to anger customers.”
Most major retailers offer some form of free shipping if a purchase is above a certain amount. In reality, the annual growth of e-commerce at 15 percent would lead retailers and shippers to assume customers are willing to pay shipping costs as necessary. Basically, customers do not care how the shipping is calculated, so long as shipping is calculated reasonably.
LTL dimensional pricing is logical, and it takes advantage of basic math principles. Bigger products will have a higher density, and smaller products will have a smaller DIM weight.
Big 2 Carriers Switch to DIM Pricing
In 2014, FedEx and UPS announced plans to switch to a dim pricing model, explains Mark P. D’Amico of SJ Consulting Group. Yet, some shippers may actually have benefited more if LTL dimensional pricing was in full effect, not laden with waivers and extraordinarily high DIM Factor Rates (250+). In fact, the increase in shipping cost for a 1-pound package would have increased 243 percent in 2015 if DIM pricing models were off the table. Meanwhile, DIM pricing would have simply resulted in an increase of 41 percent, reflecting increasing surcharges throughout the shipping industry.
The Big 2 carriers have seen an increase in revenue for the first time in years, proving DIM pricing is the only way to help grow the industry. Essentially, keeping the Big 2 carriers alive is critical to maintaining competition and keeping shipping rates low and accessible. If one company ran all shipping processes exclusively, rates would go through the roof, and shippers would be forced to return to in-house fleets and self-service shipping.
Key Factors in LTL Dimensional Pricing Models
Shippers need to understand a few terms in DIM pricing, such as dimensioners and the DIM Factor Rate.
- Dimensioners – Electronic, laser-precision devices that automatically measure the dimensions of a shipment, which include height, width, and depth.
- DIM Factor Rate – This rate, often 166, is used to calculate DIM weight, not the actual weight, of a shipment.
- Volume – Shippers determine volume with this formula:
Volume = Height x Width x Depth.
The volume is then divided by the DIM Factor Rate to derive the DIM weight.
Volume / DIM Factor Rate = DIM Weight
The key to understanding this concept is in what weight is used by default to determine shipping weight. The higher value, which may be the actual weight or the DIM weight, is used, asserts Jeff Berman of Logistics Management magazine. As a result, shippers have an incentive to make the product shipment as tightly packed as possible. If you fail to understand and meet DIM pricing requirements, such as determining the DIM weight prior to shipping a package, the carrier may assess a penalty, as explained in a previous blog post.
Putting It All Together
As shipping surcharges, accessorials, regulations, and concerns continue to grow, the issues of LTL dimensional pricing will become more prevalent. Today, shippers have managed to avoid most of the impact from DIM pricing, but the inevitability of full-scale implementation of DIM pricing, without waivers and exceptions, will come to light, and shippers need to understand how DIM pricing will impact shipping rates in LTL shipments.
Ultimately, LTL dimensional pricing goes back to maintaining competition in business, improving sustainability, and encouraging fair business practices in the shipping industry.