What should determine how much it costs to ship a box? Clearly the weight of the package matters as does the distance it travels. But what about its physical dimensions? Does it matter whether a one-pound object takes up a cubic foot of space or two cubic feet?
Apparently, FedEx thinks it matters and has announced that it will be tweaking its pricing policies accordingly (Web Shoppers Beware: FedEx to Charge by Package Size, Wall Street Journal, May 7).
Instead of charging by weight alone, all ground packages will now be priced according to size. In effect, that will mean a price increase on more than a third of its U.S. ground shipments. …
[The change] would likely greatly affect bulky but lighter weight items like toilet paper and diapers, which many people have delivered on a regular basis, as well as Zappos.com shoes, which ship for free, including free returns. Indeed, shoe shoppers are encouraged to buy multiple pairs, keep what fits and return the rest. Avid Web shoppers do the same with sweaters, dresses, and jackets at retailers like J. Crew, Banana Republic, and Macy’s.
This graphic gives an idea of the kind of price increases that are in play. Clearly items that are not very dense are going to be seeing a stiff price hike.
OK, first we have to acknowledge that this scheme is neither completely new nor totally unreasonable. FedEx’s air service has always had a volume component and even FedEx ground has imposed additional charges on packages over three cubic feet. As for the proposal’s reasonableness, having lots of bulky packages could impact the efficiency of delivery.
For the delivery companies, it comes down to efficiency. Lightweight e-commerce orders take up a lot of room in the truck, and Amazon and other shippers don’t always match the box size to what is inside.For the delivery companies, it comes down to efficiency. Lightweight e-commerce orders take up a lot of room in the truck, and Amazon and other shippers don’t always match the box size to what is inside.
Stated another way, for those that resent pricing that is unrelated to cost, you can check your ire at the door. If trucks are operating near capacity (which is how FedEx would like to operate), physically large packages will adversely impact operations and force FedEx to use more trucks and hire more drivers.
There are several questions that follow from this story regarding who ultimately will foot the bill. Assuming that FedEx sticks to its guns on this and UPS goes along, it’s hard to imagine that this doesn’t ultimately get passed on to customers. Amazon is a dominant player in e-commerce but it doesn’t exactly have super fat margins. As we noted a week or so ago, Amazon’s fulfillment costs have been climbing as fraction of sales. It could be hard pressed to eat these increases (even if it can negotiate lower rates than smaller players) and if doesn’t eat them, you have to expect that no one else will.
To my mind, a more interesting question is how this will impact how e-commerce sites actually pack boxes. Or, as Wall Street Journal blog post put it, Will New FedEx Pricing Inspire Change Among the ‘Stupid Shipping Gang’?
Amazon can’t really do much about the density of toilet paper but it clearly has some discretion in the box size used for a smaller items. I would guess that it would face a trade off between internal efficiency (it’s easier and faster to throw items in an oversized box) and shipping costs. If FedEx’s new pricing structure forces greater care in packaging, then the actual cost hike seen by customers might not be that bad.
Except for toilet paper; there really is no good answer there.