The price of your parcel just got even more expensive

It’s become sort of a tradition with the New Year – general rate increases from FedEx and UPS – and 2015 is no exception. Effective December 29, rates will go up 4.9% for UPS Ground, Air, International, and UPS Freight. Effective January 5, FedEx will follow suit by increasing its rates also by 4.9% for FedEx Ground, FedEx Express, FedEx Freight, US import and US export services.

In addition, there are more changes from these two integrators that will affect your pocketbook. First, effective February 2, FedEx will change its tables used to calculate fuel surcharge for FedEx Express, FedEx Ground and Freight. According to Rob Martinez, Chief Executive Officer of Shipware, an express consultancy company, this adjustment will result in an additional rate hike. Based on Martinez’s analysis, FedEx Express and International services could see rates increase by as much as 4.0% while Ground could go up as much as 3.5%.

Also effective at the beginning of 2015, FedEx and UPS will change the way they price for parcels. Instead of relying on just weight alone, both companies announced in mid-2014 that they would implement dimensional weight pricing (dim weight). Dim weight is determined by using a calculation of Length x Width x Height of the box divided by the applicable dimensional factor.

According to FedEx and UPS, the primary reason for the change is to better align rates with costs, which are influenced by both the size and weight of packages. As such, the companies expect that shippers will re-evaluate packaging.

Dim weight pricing is really nothing new. FedEx and UPS use it for packages carried in their air network as well as for larger pieces shipped by ground. However, by expanding this pricing scheme, price increases are estimated to apply to about two-thirds of UPS domestic ground. In fact, an analyst with Sanford C. Bernstein & Co. estimates the cost to ship a box of paper towels weighing three pounds and measuring 17 x 17 x 17 inches could jump to more than $20 from $8 under the new pricing rule.

Suffice it to say, shipping costs will increase. In fact, the increases, particularly those pertaining to dim weight pricing, could have a serious impact on e-retailers and jeopardize ‘free shipping’.

‘Free shipping’ has become expected year-round. In fact, ComScore notes that the number of online purchases in the US with free delivery was 68% during third quarter 2014, up from 44% in 2013. However, offering ‘free shipping’ has become detrimental to many e-retailers’ financials. With these latest shipping rate increases ‘free shipping’ may become a thing of the past as e-retailers look to focus on financial margin improvements.