the shipping module does not have a place to enter package dimensions.
the way that shipping works is to look at the dimensions that are passed first, it will determine the cost for the minimum dimensional weight for that package size.
It will then look at the weight that is passed and determine the cost for shipping that weight.
whichever is greater, is the shipping rate that will be used.
if you are going to be shipping larger packages, rather than entering the actual weight of the item in the admin panel, enter the dimensional weight for the package size.
if you know the package size will be 12 inches x 12 inches x 12 inches, you calculate the dimensional weight as:
cubic size / 166
12 x 12 x 12 = 1,728 (cubic size)
1,728 / 166 = 10.40
so the dimensional weight for the package is 10.40
enter this as the weight for the item.
see the following page on UPS for details about dimensional weight