FedEx Freight is testing dimension-based pricing for select LTL customers, taking into account the space a shipment takes up in the back of a truck in quotes in addition to weight and shipping speed, the company announced Tuesday.
The pilot, which FedEx calls “space and pace” pricing, simplifies the FedEx Freight pricing structure by removing the need for complex freight classifications under the National Motor Freight Classification pricing system, which is based on factors including density and stowability, according to FedEx.
“With the simplicity of space and pace pricing, we aim to build confidence with our customers by ensuring they receive accurate pricing on the front end in order to reduce the frequency of price adjustments and disputes on the back end,” Mike Lyons, vice president of LTL revenue quality, said in a statement.
Dimension-based pricing can reduce shipping costs for customers who prioritize spacial efficiency in packaging their shipments, according to a FedEx FAQ. The company bases the price on the dimensional weight or actual weight of the package, whichever is greater.
“Imagine how often people ship using packaging that’s too big,” the FAQ says. “To stabilize the contents, these oversized boxes must be packed with extra cushioning. These over-packed boxes fill shipping trucks with cubic feet of unneeded corrugated fiberboard, air pillows, and air cushioning. In some cases, people are literally paying to ship air.”
In the dimension-based pricing pilot, customers provide their shipments’ weight, dimensions, and origin and destination ZIP codes. FedEx Freight’s Dimension in Motion technology then verifies the shipments’ weight and dimensions, and the carrier provides the shipper with a simplified invoice.
To calculate a shipment’s dimensional weight, multiply its width, length and height in inches, rounding each measurement to the nearest whole inch. Then divide the result — the package’s cubic size — by 139 for U.S., Puerto Rico and international shipments. (For shippers who prefer not to do their own math, FedEx offers a dimensional weight calculator.)
Beyond potentially rewarding shippers who pack more efficiently, the new pricing system provides a key advantage for FedEx, too. “By increasing the shipment density, we can often pack more products on our trucks and planes,” the company said in the FAQ.
The pricing pilot follows FedEx CEO Raj Subramaniam’s strategy of improving revenue quality and boosting operating margins at each of the logistics behemoth’s four operating companies. FedEx is preparing for moderate peak-season demand and seeks to use excess capacity to onboard new customers during the holidays.
Following the pilot phase limited to a select number of customers, the LTL carrier plans to offer dimension-based pricing to the rest of its customers in the future, although it provided no timeline.