I have received many questions about Parcel pricing from my readers. Most of us ship items either for personal reasons or at our businesses for work reasons. What I would like to explain are some of the basic pricing practices that are used in the parcel industry. In this article I am using FedEx in the United States as the example country because of its well-developed parcel industry and its geographical size with several types of shipping options by air and ground. One thing to note is the US is the only major country that does not use the metric system, so the example below uses pounds (lb, or lbs for plural) instead of kilograms (kgs). As a reference 2.2046 lbs equals one kilogram.
First, there is package-based pricing and shipment-based pricing. This is very important to understand. You may have also read my article titled Volumetric Weight and Density where I mentioned it is very important to ask your shipping company the Dimensional Divisor they use in their volumetric weight calculations. Well, it is equally important to know whether you are being charged by package-based pricing or shipment-based pricing. Let me first defined these terms.
1. Package-based pricing means you pay for each package shipped. If you ship a 10lb box and a 15lb box to the same recipient, then you pay for one 10lb box and one 15lb box according to the price list (US Domestic Zone 5 example below).
2. Shipment-based pricing means you pay for the total weight of a shipment. A shipment with 1 package is the same as package-based pricing, however “multiple piece shipments” (MPS) are priced based on the total weight of the shipment which includes all of the packages to the same recipient shipped under the same shipping number (Note: with MPS each shipment has a “parent” shipping number but each “child” package has a sub-tracking number.) So, in the example above, if you have a 10lb package and a 15lb package being shipped to the same recipient you will pay for one 25lb shipment rather than paying the price of the two individual packages. Shipment-based pricing is cheaper than package-based pricing due to the regressive nature of the pricing slopes. See the Price list table below.
Calculating those two packages using package-based pricing you will pay:
10 lbs = $129.81
15 lbs = 178.68
Total = $308.49
However, using shipment-based pricing you will pay for one 25lb shipment:
25 lbs = $238.58
The difference between the two methods shows shipment-based pricing is $69.91 less expensive in this hypothetical comparison between package-based and shipment-based pricing.
To further complicate things some companies that use package-based pricing also offer shipment-based pricing for heavier weight shipments under certain circumstances, also known as multi-weight pricing.
3. Multi-weight pricing is a form of shipment-based pricing with some important differences. Multi-weight pricing with FedEx Express is for a combined MPS shipment of 100 chargeable pounds or more (200 pounds or more for FedEx Express Saver) and with a 15-pound average minimum package weight. For FedEx Ground it is for a combined MPS shipment of 200 chargeable pounds or more. However, FedEx Ground multi-weight pricing is subject to contract negotiations only and is not automatically available as part of the published Service Guide.
If a company ships, say, 10 packages each weighing 12 pounds to the same recipient, then there are three calculations that are performed by FedEx’s pricing systems:
Scenario 1 is the standard package-based pricing.
Scenario 2 is multi-weight pricing with the 15-lb average package weight check, which it does not meet.
Scenario 3 is where the pricing systems will “gross-up” the average weight per package to 15 pounds to compare with scenario 1.
The cheapest result will be scenario 3 so the customer will be charged $1,071.00 for a shipment with 150 chargeable pounds.
Generally, in most countries package-based pricing is used for domestic shipping and shipment-based pricing is used for international shipments. However, exceptions do apply. For example, in China parcel companies tend to use shipment-based pricing for domestic shipments. And in other countries some parcel companies use package-based pricing for international. So, again, it is always important to understand which method your parcel company is using to allow you to make more informed decisions about the total price you will pay.
Three Tree Solutions 