Carrier Rates are Now Based on Parcel Size

Carriers determine shipping costs according to the size and weight of packages being shipped, which can make budgeting more difficult. Merchants who use dimensioning products may find it easier to predict, control or audit their shipping costs. 

Growing Interest in Shipping Efficiencies

The rapid growth of the e-commerce industry has squeezed margins, made warehouse space more valuable, shortened fulfillment windows and increased the need to find efficiencies wherever possible.

New technologies make dimensioning doable

Dimensioning technology is undergoing a rapid evolution; a new generation of hardware and software solutions make it simpler to dimension your entire warehouse or parcel stream. It’s worth noting that volume, not weight, has always been the limiting resource in storage and distribution, but – because scales are cheap and fast – weight has been used as an inexact stand-in. Now that dimensioning equipment is reaching new levels of efficiency, volume can be managed directly and accurately, bringing savings to warehouses, DCs, and logistics operators.

Let’s count the ways!

1. Receiving and slotting

A loaded truck backs up to your dock. Where is all of this stuff going to fit? Without dimensioning, you can’t know for sure. In fact, many warehouses and DCs run at less than 80% capacity because – without dimensional data – they have no way of accurately predicting space requirements. That translates into lots of unused space that could be earning revenue.

With dimensioning on board, it’s a different story. Incoming freight is efficiently measured and shelved – 20%+ more efficiently on average. That’s like getting a bigger warehouse.

And a quicker system means you can easily scan inbound shipments to keep your WMS up to date without impacting throughput. It’s hard to put a price on the savings that comes from avoiding operational problems due to new packaging, suppliers, or SKUs – some warehouse managers would say it’s priceless.

Your WMS’s new best friend
Companies that have paired dimensioning systems with a WMS have reduced unloading times from four hours to 30 minutes, reducing labor costs by about $100 per employee, per truck. Assuming two workers offload three trucks per week, slotting efficiencies gained from pairing dimensioning equipment with a WMS can result in $30,000 annual savings

2. Order creation

The benefits of premanifesting are well known – but they include more than warehouse floor efficiencies. Pre-manifesting allows you to mark the order shipped, thereby improving your performance metrics. You can also collect payment immediately, which alerts you to credit cards that are declined before picking even begins. Pre-manifesting can’t happen without accurate dimensional data in your Order Management Software (OMS).

The right money for the right package
One difficulty for e-commerce businesses is correctly estimating shipping costs for orders placed online. It was hard enough with weight alone; dimension-based rates have upped the challenge. In most cases there is no opportunity to recoup misestimated charges. Integrating dimensioning data in your system means you can predict final shipping costs with much greater accuracy, and collect the right money for the right package – before it’s too late.

3. Pick and pack

Joe Customer places an order. His tolerance for slow delivery: zero. And dropping. Thanks to high-performing e-tailers like Amazon, on-time fulfillment is tied to customer retention, with 78% of Americans expecting their orders to be shipped within 24 hours. How can you compete?

Direct-to-box picking
Dimensioning is the key. A well-chosen dimensioning solution will provide the data your system needs to enable direct-to-box picking. Research estimates that pick-tobox methods reduce pick time by as much as 10%. Imagine the bottom-line impact of a 10% increase in your outbound package stream without any additional labor cost. For a company that ships 100 packages a day with an average COGS of $15/parcel, that would increase revenues by $150/day, or roughly $37,500/year. Not bad. And of course, increasing pick rate at the expense of accuracy is not an option. More errors result in re-packing costs, returns, and worst of all, unhappy customers. Once again, dimensioning comes to the rescue. Choose a system that records a photo of each scanned item, and your pick lists can include an image of each item, so your pickers can verify their selections. Warehouses using images on pick lists reported an error reduction from 4% to less than 1%.

Research shows that customers are more inclined to buy from companies that reduce excess packaging and void fill. A recent poll revealed that fully 47% of Americans think extra packaging is wasteful. One in five said it’s an indication they paid too much for their order – not good for loyalty. Dimensioning makes it possible to satisfy customers, cut pick times, reduce material costs, reduce returns, and shrink your shipping bill all at once.

Return reduction
Reverse logistics for returns average at about 8% of sales – a big bite. On top of that are labor costs: opening packages, restocking, completing administrative paperwork, and following up with customers.

4. Shipping

Three things you can be certain of: Death, taxes, and rising shipping rates. And lately, increased rates are even more of a sure thing as major carriers switch to dimension-based pricing, and use the surrounding confusion as an opportunity for significant hikes. The trickle that began in 2007, when UPS and FedEx went to dimensional pricing for packages over three cubic feet, has become a torrent. Now the two leading carriers use dimensional pricing for every package over one cubic foot, periodically raising prices by lowering the dim divisor – a trend that will surely continue. And the USPS is following in their footsteps.
Shippers who aren’t dimensioning have no way to predict – let alone control – their shipping costs. Many reports that they can only “guesstimate” their spending until the carrier invoices them, a disaster for managing margins. What do to?

Multicarrier in real-time
With dimensioning on your outbound line, you’ll know the size of every parcel, as well as its exact cost. Even better, by integrating a multicarrier shipping solution, you’ll be able to instantly compare national and regional carrier rates in real-time. That equals significant cost savings.

5. Billing

Equally important is the ability to – in the words of one prominent DC manager – “keep your carriers honest” by auditing invoices. Honest errors do occur, and they can be costly. ClearView reports that one freight company recovers between 3% and 7% of small parcel spend simply by identifying errors in their billing. On average, a company that is spending $100,000 per year will lose about $5,000 to errors. A company that is spending $1 million per year loses $50,000. Using a system certified for accuracy is essential; your manual measurements – or those of an uncertified system – won’t hold water when you contact your carrier for a refund.

Knowledge is power
Dimensional data gives you another edge, as well: leverage when it’s time to renegotiate carrier contracts. You’ll know exactly how carrier rates compare on your specific parcel stream. Just negotiating for a slightly higher dimweight divisor, for example, can have a significant impact on annual spending.

6. Next steps

Any one of these benefits would justify the modest investment dimensioning represents. Put them together, though, and it’s a slam-dunk. It’s no mystery why the industry is quickly migrating to dimension-based management. There is just too much opportunity to leave on the table.