FedEx Ground and UPS recently announced dimensional weight-based pricing changes for shipments measuring less than 3 cubic feet beginning in 2015. Dimensional weight is the theoretical weight of a package calculated at a density chosen by the parcel carrier. This method allows the parcel carrier to better equate the volume of space consumed on a delivery truck to the price it charges for that shipment. Prior to this change, items smaller than 3 cubic feet were priced based on actual weight and larger items based on actual size.
Figure 1 - Dimensional weight calculation
So what does this mean for e-commerce?
Currently, e-commerce consumers are not penalized with extra shipping costs for well-packaged small, lightweight or non-dense items smaller than 3 cubic feet such as apparel, electronics and cosmetics. Imagine ordering a small and fragile electronic device online. If that product ships to you packaged inefficiently in a 17” x 17” x 17” carton today, the shipping charge should be the same as if it were to ship in a small bag. This will not be true in 2015 because new, dimensional weight shipping calculations mean that the cost will be lower for an efficiently-packaged small bag.
Under new pricing rules, the cost to ship a 5-pound package with a volume of less than 3 cubic feet can increase by 42 percent for a delivery less than 250 miles. Densely packed shipments won’t see a change and will continue to be priced based on their actual weight if it exceeds nominal density threshold. A Wall Street Journal report cited ShipMatrix’s data analysis of the industry, which found that 32 percent of all ground packages will be affected by this change, a majority of which weigh less than 5 pounds.
The transportation pricing policy change will significantly affect the efficiency of e-commerce fulfillment operations. Standard carton sizes just below 3 cubic feet were most economical to ship and moved efficiently through material handling systems. These systems have been optimized for medium to large size cartons with flat bottoms and square corners. Now DC operators will likely see a decrease in overall package dimensions to accommodate new dimensional weight pricing and an increased range of smaller package sizes.
Figure 2 - FedEx Ground and UPS Ground pricing
What is the impact on material handling system design and equipment?
A UPS e-commerce study revealed that more than half of online shoppers have abandoned a cart due to estimated delivery date and 61 percent cited shipping costs as the top reason for cart abandonment. In order to keep shipping costs down and avoid cart abandonment, e-commerce operations will turn to more economical packaging. Material handling systems have seen a dramatic increase in automated polybag handling in recent years, and as the e-commerce industry works to meet customer’s service expectations with cost-effective shipping options, that trend will only accelerate.
Furthermore, as e-commerce shipments grow, so do return volumes. Industry experts say that consumers return 25-50 percent of all goods purchased online. As these pricing changes take effect, returned goods are sure to follow the same trend as outbound orders, with increased use of polybags.
When preparing for increased small items and polybags, operations must consider unique package handling challenges and expected material handling system applications. See below:
When a polybag is not a polybag:
- Thin poly shipping envelopes - lack structural integrity
- Bubble packs - provide improved structural integrity but make the item less dense and more costly to ship
- Consumer packaged bundled goods - bundle tightness can significantly affect conveyability
Polybags present special conveying and sorting challenges
- Non-flat sides - complicate skewing and alignment
- Non-flat fronts and backs - make accumulation difficult
- Round surfaces - create difficulty keeping labels on top
- Cylindrical shapes - make it difficult to maintain consistent position on a moving surface
- Small items in big bags - create more catch points
- Light-weight items - risk taking flight due to high-speed conveyance or large cooling fans
Material handling system operations with polybags:
- Bulk conveyance - common in the parcel industry
- Automated singulation - requires significant capital investment and occupies significant floor space
- Manual singulation - more flexible practice can scale to match business volume
- Singulated flow with accumulation capability -difficult due to packaging surface challenges mentioned above
- Gapping and tracking for sortation - traditional sensors struggle to detect the true beginning and end points of polybags
- Frictional diverting (wheel or roller sorters) - accuracy varies widely by technology and product mix
- Positive sortation (sliding shoe sorter) - the right slat and pusher shape can reliably handle polybags
- Dedicated tray sorting (tilt tray or cross belt) - item is captured and easier to track through the sortation process
Where do we go from here?
Contact your solutions provider to discuss the effects of polybags on material handling systems and develop a plan to ensure high-throughput, uninterrupted e-commerce fulfillment.
For more information, read the Intelligrated white paper, Sorting out your sortation options, or view videos of tilt-tray and cross-belt sorters, conveyor solutions and sliding shoe sorters in action.
Now that the holiday shipping rush has passed, is your operation ready to receive and respond to the flood of returns and exchanges that will inevitably arrive? Here are a few tips to help you prepare:
Check your customer service staffing levels
Unhappy gift recipients will want to know how to return or exchange an item. Check your staffing levels to make sure you are ready to handle the influx of calls and emails that will be coming your way.
Document the inbound process
Make sure you have a well-documented process for receiving returns. This will ensure that you can easily add labor to the returns area and produce efficient and accurate results.
The end of December is a good time to have a quality assurance team complete a review of these processes. You should also review and communicate guidelines for actions to take on returned items. If the merchandise is sellable, does it go back to inventory stock in a prime location to eliminate additional touches? Will a slower moving item be returned to reserve storage?
This will ensure that you can easily add labor to the returns area and produce efficient and accurate results. You should also review and communicate guidelines for actions to take on returned items. If the merchandise is sellable, does it go back to inventory stock in a prime location to eliminate additional touches? Will a slower moving item be returned to reserve storage?
Review supplier return guidelines
In addition to reviewing your own processes, it is important to make sure that supplier return guidelines are well established and documented. What is the cut-off date for returns? What does the quality of the merchandise need to be to qualify for a return?
Unfortunately, handling returns is a costly necessity of doing business. The key is to make sure that they are handled in a way that keeps customers coming back.
If you’re in the material handling or supply chain industry, you’ve probably had something similar to the following conversation:
“So, Jerry, what do you do?”
“I’m in the material handling and logistics business.”
“Ah, I see.” (pause) “…What’s that mean?”
The material handling industry has always been “behind the scenes” (or rather, “within the four walls”). However, for the first time in recent memory, the material handling industry is getting some time in the spotlight with companies using their distribution and logistics capabilities as a differentiator. In new commercials from heavyweights like UPS, Zappos.com, Overstock.com and 1-800-Contacts, the supply chain is playing the hero in consumer-aimed campaigns.
UPS We ♥ Logistics Commercial
And readers get a sneak peek into a DC with Overstock’s catchy holiday ad:
Overstock.com Holiday Employee Commercial
Now imagine the drama if that overly dramatic actor from 1-800-Contacts had opened his box only to find that it wasn’t HIS BRAND! in the package. Or if that Zappos caller wasn’t complaining that her order was too early – but was too late.
These commercials exemplify what the material handling industry has worked so diligently to achieve: the right product, delivered on time and conveniently. We make sure that stock levels are accurately kept, pickers are directed to pull the right product from the shelves, items make it into the right carton and cartons are destined for the right shipping door.
With all the “publicity” the supply chain has seen recently (and as more and more consumers become customers of logistics, following the progress of their online orders like they follow the news), you might have an easier time explaining exactly what you do for a living.