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Online Shippers Hit by UPS Dim Weight Pricing

Online merchants who use UPS to ship packages paid lower fuel surcharges this year, but dim-weight pricing raised the cost of shipping. That’s the news gleaned from first-quarter financial results from UPS.

Both UPS and FedEx instituted what’s called dimensional weight rates at the beginning of the year. The rates impact large but light-weight merchandise.

According to UPS, total revenue per package was up 1.3% in the first quarter primarily due to UPS Ground yield increasing 3.1%. “Base rate improvements more than offset an approximately 200 basis point drag from lower fuel surcharges. The expansion of dim-weight pricing, implemented last December 29, also contributed to higher yields.”

However, UPS Chief Financial Officer Kurt Kuehn told analysts the company expected customers to adjust their packaging. “Certainly the initial impact of dim weight has been primarily on the revenue side. But ultimately, we are working with a large number of customers to adjust their packaging, that’s the real intent to this.”

Product returns are also helping UPS. In addressing a question about the business-to-business side, Kuehn said UPS is very focused on industry-specific solutions it is building for sectors such as high tech, healthcare, and automotive, but he said ecommerce was also driving a significant amount of its B2B growth through returns – as well as manufacturers that ship B2B going more into the ecommerce realm.

“We are pretty excited about the fact that ecommerce is beginning to generate some significant B2B business,” he said.

The company also reiterated that it was standing firm in its strategy to further align the revenue with the cost throughout the year including peak season.

UPS increased total shipments 2.8% to 1.1 billion packages in the first quarter, led by European export growth of 9.4%.

US Domestic first quarter revenue increased 3.8% to $8.8 billion. Daily package volume improved 2.4%, lifted by growth in Deferred Air, up 12% and UPS SurePost, up 7.0%.

Shipment growth rates slowed, as UPS chose not to pursue some lower-yielding contract renewals, it said.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.