It’s been reported that the beginning of the year dimensional pricing changes implemented by UPS and FedEx are significantly impacting profits in a positive way for shareholders on about 30% of packages. That’s great news for a lot of my friends who work for those companies and have a lot of their pensions invested in company stock. However, it’s horrible news for shippers and their bottom lines.
I’ve been looking under the hood at several companies who ship via small parcel since the beginning of 2015 and I can tell you that their balance sheets are going to be painful to review at the end of this year. In fact, most companies I’ve been speaking with were either ill-prepared for how these dimensional pricing changes would affect their businesses or they didn’t even know this had happened. The latter is probably better because at least ignorance is bliss.
So basically what just happened with those pricing changes is UPS and FedEx made a significant change in the way they billed for services and the whole world just said, “Thank you sir, may I have another.” Again, great for those investing in UPS and FedEx, but very bad for everyone else. The big problem is not the locomotive that just ran everyone over, it’s the fact that the eventual caboose that is inevitably is also going to finish the job.
The Ripple Affect of the Dimensional Changes
Don’t think for a second that every other motor company didn’t just notice what just happened with UPS and FedEx’s dimensional changes. Do you know who perked up the most? The less-than-truckload sector.
Last year, Saia Motor Lines implemented a computer system that was able to accurately assess dimensions of freight traveling within their network. This allowed them to precisely price less profitable freight which allowed them to increase their profits by 11%. This is a standard that all LTL carriers are adopting or are going to adopt in the very near term.
Pricing Changes Sure to Come
Once the freight carriers can more poignantly price shipments using dimensions, the next step is sure to be a change in the way they charge for freight. And make no bones about it, the motor carriers will not be waiting for shipper’s approval. Just like UPS and FedEx did when they were ready to make a pricing change, they'll just announce a date they will do it and start billing shippers for it.
What Can Shippers Do?
I believe there are going to be a lot of shippers who are going to have a rude awakening at the end of this year when they see their parcel spend way out of control. However, shippers do not have to be a doormat to the carriers. They can and should adapt. I believe in a short time adapting will not be an option, it will be a must.
Specifically, shippers can leverage technology and 3rd party relationships to counter anything the carriers throw their way. The tools and systems exist today to help shippers have visibility to dimensions and freight characteristics that allow for a lot better planning.
My advice to all shippers is don't wait for freight companies to act first. Go see what is out there on the market that will help your supply chain.
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