Dim Weight: One Year Later

DIM WEIGHT: ONE YEAR LATER

• What is Dimensional Weight and why is it here now?

• What have we seen so far?

• What are we seeing as trends?

• What is likely to happen in the future?

• How can you prepare for the rest of 2015 and beyond?

• Q & A

What is Dimensional Weight?

L" x W" x H" (parcel’s cubic volume) DIM = weight volumetric divisor (parcel’s density) 166

It was inevitable… – Price Increase Based on Package Sizes – Common Sense • Shipping Companies = Cube (Vehicles + Fuel + Facilities) + Labor

Up to 2011 Dimensional L x W x H Weight (lbs.) DIM Weight 194

L x W x H 2011 - 2014 Dimensional Weight (lbs.) 166 DIM Weight 3 cubic feet +

2015 - ? Dimensional L x W x H Weight (lbs.) 166 DIM Weight >1 lb.

1. DIM Weight used to use a 194 divisor; it is now 166 2. DIM Weight used to be in place only for packages 3 cubic feet+; it now applies to all parcels 3. DIM Weight used to only apply to all weights with air services; they now apply to both air and ground

*Dimensional weight calculations based on publicly available carrier rate information

 Actual Weight  Dimensional Weight  Billable Weight

‒ Measuring Dimensions: Round Up or Down (depends on carrier) • UPS rounds up or down • FedEx uses actual for calculating the package measurement

‒ Calculating the finaL DIM Weight—ALWAYS Round UP!

• Calculating the Dimensions ‒ Box Measurement L" x W" x H" (parcel’s cubic volume) • 11.6” = 12’’ (UPS) • 11.6” = 11.6” (FedEx) volumetric divisor (parcel’s density) 166

• Calculating DIM WEIGHT ‒ 13.66” x 13” x 13.3 = 14.23” (always round to dim weight of 15”)

• A shipper is billed the greater of actual weight or dimensional weight ‒ Based on outside box dimensions ‒ It’s the dimensions of the box WITH PRODUCT INSIDE that matters

• The calculation is L X W X H/166” inches for US domestic ground and air packages ‒ Fractions of inches are rounded up or down

• US Export International Ground and Air packages utilize a divisor of 139”

With international fees, surcharges, duties & taxes and DIM as a factor, managing costs becomes more important for international shipping than ever before

Packages subject to DIM Weight Calculation used (domestic services)

FedEx Express® and FedEx Ground® Services Length X Width X Height, divided by 166

UPS Air® and UPS Ground® Services Length X Width X Height, divided by 166

USPS® parcel services (excludes USPS Parcel Length X Width X Height, divided by 194 (packages traveling 1000 miles Select®) or greater) & if package exceeds 1 cubic foot in size) UPS SurePost® Length X Width X Height, divided by 166

FedEx SmartPost® Does not currently charge for DIM (as of June 2015)

OnTrac (regional parcel carrier) Length X Width X Height, divided by 194

Spee-Dee Delivery© (regional parcel carrier) DIM only applies for packages with combined length and girth over 130”. Packages 130”-170” < 100lbs = flat dimensional fee; > 100lbs + flat fee Lone Star Overnight® (regional parcel carrier) DIM applies for to all parcels greater than 1,728 cubic feet with a divisor of 166, for both its ground and express services. Any package smaller than 1,728 cubic inches will be billed at actual weight. Eastern Connection™ (regional carrier) Length X Width X Height, divided by 194

PITT OHIO (regional carrier) DIM applies for parcels 3 cubic feet (5184) or greater at a divisor of 194

Prestige Delivery Systems © (regional carrier) DIM applies for parcels 3 cubic feet (5184) or greater at a divisor of 194

LaserShip® (regional carrier) DIM applies for parcels 3 cubic feet (5184) or greater at a divisor of 194

* All information in the chart above is based on publicly available sources as of June 2015 or direct contact with the carrier and their policies. Neopost USA strongly recommends contacting individual carriers to understand their latest policies on dimensional weight rating. Note that carrier policies can be subject to change.

Effects of DIM Weight Pricing

Men’s Kid’s Product Toy truck Toaster sneakers backpack

Price by $8.05 $7.17 $7.17 $7.17 Weight*

Price by $9.11 $9.11 $9.47 $9.66 Dimension

Percentage UP 13% UP 27% UP 32% UP 35% change in price*

Note: Percentages rounded. Rates calculated using zone 5 shipping rates for one carrier

 Changing Packaging & Operations

 Utilizing Different Services

 Rate Shopping Carriers

• Limiting box sizes (procurement)

• “Right sizing” packaging to product ‒ Reducing unused space per carton (cube utilization) ‒ Corrugated boxes

• Consolidation ‒ Less overboxing ‒ Palletizing/LTL

• Alternative packaging options ‒ Padded envelopes ‒ Airbags/pouches ‒ “Fold down” on mailers ‒ Packaging built on-demand

• Package testing/labs

• Technology & measurement tools ‒ Dimensional scanners ‒ Accurately weighing packages ‒ Accurately measuring box dimensions

• Carriers use scanning technology measuring all angles

• Scanning technology creates a “virtual box” when measuring mailers measurement purposes

• Folding down unnecessary space can reduce DIM for mailers

• Switching to a mailer can qualify you for mail injection or last mile services (final mile delivery by the USPS)

*Image and content information on this slide courtesy of Sealed Air Corporation

What consumers believe when it comes to packaging

 Tells how much a retailer cares about them (66%)

 Relationship with a retailer would be impacted if order received was damaged/ broken (58%)

 Reflects the value of the shipment – the better the packaging, the better the product inside (48%)

*Sealed Air & Harris Poll White Paper: Dimensional Weight—Don’t Let It Weigh You Down (2015)

 Mandating employees to weigh & measure EVERY package w/technology tools

 Getting rid of manual air waybills

 Billing back shipping charges

 Auditing invoices

 Returns: what packaging is used?

• Returns ‒ 1 in 5 packages is a return

‒ Largest inhibitor of B2C e-commerce

‒ Common scenario: return one item of a multi-piece purchase in the original packaging

‒ Many customers return items in packaging that is not optimal (i.e. shoebox)

1. Negotiating a tiered DIM structure ‒ Below a certain threshold (e.g. 3 lbs), a certain divisor is used

2. A reprieve for one to two years from the DIM change

3. Negotiating the actual billed weight  Don’t forget about returns or inbound shipments as part of dimensional weight calculations!

The three scenarios described above are highly unlikely to be accepted by a carrier and generally only reserved for larger shippers.

• Work-share products (final mile)

• Postal Injection products ‒ Overall price point is considerably lower

• Going back to using air/overnight services ‒ Better negotiating; reduce overall spend

• LTL/consolidation • Density-based pricing is being discussed

• Multiweight/Hundredweight services

• Regional parcel carriers

• USPS®

• Flat rate shipping options

• Package consolidation, palletized LTL freight, hundredweight/multi-weight or zone skipping services

‒ What are hundredweight or multi-weight services? • Discounted rates, on a per lb basis, on multiple parcels going to same Ineligible for hundredweight services address (or zip code, depending on carrier)

‒ What is a zone skip? • Shipper consolidates orders/packages and sent en masse to a sorting facility in a closer zone • Not recommended for time-critical shipments

Eligible for hundredweight services

The value of your divisor matters—but it’s not everything ‒ Current DIM Divisor is 166 Customer Example 1* 2015 Dimensional Weight Impact: 173 Divisor

DIM Logic Used Affected 4-Week Cost Annualized Cost Cost Increase over Volume 2014 2014 DIM Logic 268,653 $1,183,808 $15,389,504

173 Divisor (Dim Logic) 268,653 $1,355,019 $17,615,247 +$2,225,743

Customer Example 2*

2015 Dimensional Weight Impact: 300 Divisor

DIM Logic Used Affected 4-Week Cost Annualized Cost Cost Increase over Volume 2014 2014 DIM Logic 140,848 $600,629 $7,808177

300 Divisor (Dim Logic) 127,805 $596,744 $7,757672 +$176,345

Key Takeaway: It’s not just the divisor that impacts managing the cost of DIM Weight changes

• Among fastest growing national retail brands

• Ranked as one of the most engaged brands on Facebook & social media

• Omni-channel sales & marketing leader

• Unprecedented levels of profitability—but profitability could have been affected by DIM changes

• Rise in shipping costs by 13% after DIM announced

• $8.95 flat rate shipping expected by customers

• Shipping changes had high risk of affecting customer experience

• Saved 6% by researching shipping practices and switching to bags for shipments 1lb or less.

• Now eligible for postal injection product (Mail Innovations)—expectation of 67% decrease

• Revamped retail fulfillment and utilized hundredweight service for larger shipments

 Evaluate your current process to see where DIM changes fit in  Are you measuring OUTSIDE packaging or the product?

 Audit your invoices to see the impact

 Implement technology, packaging and hardware tools to manage the changes

 Educate others in your organization about DIM & set up business rules

 Evaluate the impact of returns

 Shop around carriers and within your current carriers for options

 Attend Parcel Forum 2015 (October 19-21) in Chicago to hear more from speakers and exhibitors on the best ways to manage DIM Weight