Shippers increasingly burdened by unexpected “air taxes” levied by carriers
Everyone has had the experience of opening up a box and finding it mostly filled with bubble wrap and other packing material. Carriers hate this because eCommerce volumes are straining their capacity and having to ship air in containers wastes space and cost them money. Over the last few years, carriers have fought back with dimensional (“dim”) weight rating. This method of rating charges more for shipments that are light, relative to their size. Increasingly shippers are noticing unexpected dim fees on their carrier invoices that they didn’t expect and are looking for ways to reduce or avoid these costs. They are turning to a new generation of cartonization software technology that takes costs and other factors into account when determining how to cost-effectively pack orders.
Dim weight rating 101.
Dim weight rating calculates shipping costs by multiplying the length, width, and height of a package, and then divides that result by a special number, called a “dim weight divisor” or “dim factor”. Shipping cost is priced according to the higher of either the dim weight or the actual weight charge. FedEx and UPS have been steadily reducing their dim factors, in 2017 from 166 to 139. The result is that it is more likely than ever that more shipments will incur an unexpected charge… unless shippers start controlling how they pack.
Traditional cartonization methods don’t take shipping costs into account
Cartonization software is widely used in warehouse management software (WMS). Most WMS systems try to determine what will fit in a container, but they don’t factor in transportation costs impact. And there is no support for determining total shipping costs in order entry or purchasing. The impact of this is that shippers are forced “guess-timate” the cost of shipping in order entry because they don’t know how many boxes will be used to fulfill an order. If they guess too high, they can lose a customer. Guessing too low reduces margins. No control of cost effective packing means no control over the costs of “free shipping”, which is now the new normal.
New cartonization software technologies use algorithms to optimize cost savings
Instead of calculating “what will fit?”, new cartonization engines use algorithms to determine how SKUs will fit together in virtual space, and consider other cost factors including carrier dim rate shopping, available container sizes, zone picking labor costs, % fill, and other flexible rule sets. By including carrier dim rate shopping in the calculations, shippers can save money by using USPS or regional parcel carriers like LSO who have narrower dim rate factors.
With these capabilities, new cartonization can be applied across the enterprise to instantly calculate more cost-effective packing methods. Fulfillment can ensure cartons are packed in a way that supports shipping quotations in order entry.
Today, eCommerce businesses (isn’t it fair to say ALL businesses are eCommerce businesses) are waging a war of my supply chain against your supply chain. They are looking for ways to drive out costs. Only by applying smart cartonization algorithms in a systematic way can transportation costs be controlled. Rules of thumb and guesswork won’t work anymore.