Effective January 1, 2007, Oversize charges for large packages shipped via UPS Ground services will be replaced with a simpler rate calculation based on dimensional weight.Dimensional weight rates are applicable only to UPS Ground packages that are three cubic feet (5,184 cubic inches) or larger. Billable weight will be based on actual package weight or the dimensional weight, whichever is greater. Packages smaller than three cubic feet will be billed based on actual weight."

 Although UPS states that this will be "simpler", it will be a triple whammy for many shippers: much more complicated billing, higher shipping charges and higher fuel charges based on this new rule, and all this on top of an annual rate increase that will in all probability go into effect on the same day. For shippers with larger packages, this could be huge, amounting to substantial cost increases. Although dimensional weight has been common for air shipments for many years, this will be the first time in history that any carrier (UPS, FedEx, DHL or the Postal Service) has applied dimensional weight to ground packages. It's likely that FedEx and DHL will follow UPS' lead.

For ground packages, UPS currently has "Oversize 1" (length + girth >84"); "Oversize 2" (length + Girth >108"); and "Oversize 3" (length + girth > 130"), which will be replaced by the new rules. Many customers have specifically designed their corrugated packaging to be just under these dimensional thresholds. For instance, a 36 X 18 X 18 box has a length + girth of 108", so it is currently charged at the 30 LB rate or the actual weight, whichever is greater. As an example, take that same 36 X 18 X 18 box, with a scale weight of 25 LBS, going from Portland to Los Angeles (zone 5). Currently, this would be subject to the 30 LB rate of $11.86 for shipping, plus $0.56 for fuel, for a total of $12.42. Under the new calculation, the length X height X width=11,664 cubic inches, divided by 194=60.12 LBS, which will be rounded up under the UPS rule to 61 LBS. That $12.42 package now becomes a $21.78 package, an increase of over 75%!

There are some other issues with this that are certain to raise shippers ire. Most customers do not tender dimensions to UPS, just the weight of the package. However, UPS (along with FedEx and DHL) use laser dimensionializing equipment on every package while in transit, so customers will receive a "supplemental" bill based on this automated equipment, typically a week or two after the package was shipped.

Shippers don't like supplemental bills, because they often charge their customers at the time of shipping, so they could end up eating the additional charges. In addition, the carriers automated dimensionalizing equipment sometimes introduces small (but potentially costly) errors. For instance, if that package above is measured just one inch bigger in each dimension, the rate will go up substantially. With that same package, if the UPS equipment (which is measuring the package from a distance while the package is moving on the belt at a rapid clip) measures that package at 37 X 19 X 19, that package now gets billed at the 69 LB package. It's very difficult or impossible for shippers to reconcile the add-on charges based on dimension, particularly if they have many different box sizes.

Another problem is with the fuel surcharge, which is based on the billed weight, not the actual weight, so the new rule raises the fuel surcharge as well. Fuel surcharges are at historically high rates-4.75% on ground packages. Up until recently UPS returned undeliverable ground packages at no additional charge, but they now charge double for an undeliverable (outbound + inbound), and the new rule will also apply to the return portion as well.

UPS should expect heavy duty pushback on this one. UPS is currently calling on their largest customers, to put a good face on the changes. I know of one shipper (with a high proportion of larger packages)who got the news yesterday, and told UPS that there is no way he will pay the new charges, while escorting them out the door.

One more issue: many larger shippers have concessions from UPS on their larger packages, but this new rule will override those concessions. And the bigger shippers tend to be the most vocal. It will be interesting to see how FedEx and DHL respond to this one � I'm sure they are looking at it right now. We should know the 2007 rate increases, probably sometime in October. This is certain to be a big topic at Parcel Forum in Chicago!

Here�s the link to the UPS announcement: http://www.ups.com/content/us/en/resources/prepare/dimweight2007.html