Do you find yourself frustrated with rising parcel billing statements, new accessorial fee introductions, or shrinking dimensional factors? Does it seem like your carrier representative is never coming to you with good news? Or even worse, you never hear about these changes and must find them out yourself when auditing your parcel bills? If any of this sounds familiar, then it is probably time to reevaluate your current parcel contract. Here are five helpful tips to ensure you have successful negotiations which will lower your cost structure and risk-level.
First, there is never a bad time to open up your contract. It doesn’t matter if you signed a 3-year agreement six months ago. You have the right at any time to ask for a reevaluation of your current parcel contract. The carriers sure don’t hesitate to roll out new fees or change fuel surcharge tables now do they?
Personally, we are big fans of continuously trying to modify and improve our shipping partner’s contracts. That is why it is important as a shipper you are paying attention to things that are being added/edited that were outside of your original contract language. A few years ago, FedEx changed their fuel table calculation three times in a year. And you guessed it, none of these changes were to the benefit of shippers. If you can keep track of these changes and fully calculate the impact to your business, you can negotiate it down or in some cases mitigate it completely. The pricing teams at the main carriers respect customers that know their business.
If you do decide to wait until your contract expires vs. negotiating mid-contract, then you should start preparing months in advance, sometimes as much as a year. You’ll need time to line up your competitor set (other carriers), define your strategy and goals, and most importantly ensure you have a full understanding of your data. Being prepared while entering any type of negotiation is essential.
You’ll need time to analyze and breakdown your carrier contract to a line-item level. If you do this on an ongoing basis you are an outlier, but ahead of the game. If you do not have internal systems that capture all of the needed elements just ask your carrier rep. That individual should be able to provide you zone distribution, accessorial by count and charges, fuel surcharges (pre- and post-discount), and really any other itemized information you need. The incumbent carrier is going to know your shipping profile inside and out so you should, as well. The more prepared you are in this arena the better the results you can expect. It is a decent undertaking of work, but it will be worth it in the end!
By analyzing your data you will quickly start to hone in on your strategy needed for negotiation. At Lessgistics, we like to look at the strategy in four buckets: rates, fuel, other accessorials, and rebates/other terms. If you analyze your spend in all of these buckets to the granular level it will become obvious which areas you need to focus on to get the ‘biggest bang for your buck.’
3) Competitive Environment
The best way to create leverage for yourself is ensuring you have other competition in your Request for Quote (RFQ). You have so much more ground to stand on when you have a secondary carrier that offers you better pricing. With the increase of Amazon taking more of their parcel deliveries in-house and soon taking non-Amazon shipments, the national carriers are scared to death. This creates some leverage for you as they will have to continuously offer better pricing to stay as attractive. Amazon has demonstrated multiple times they are fine being a loss leader for years or decades to gain market share. This is why the current environment is so exciting and opportunistic.
Your competitors should include national carriers such as FedEx, UPS, USPS, and DHL. A lot of other companies have started introducing regional carriers such as LaserShip and OnTrac into their mix, as well. Others include postal consolidators such as Newgistics and OSM Worldwide. As you do look at more regional carriers and postal consolidators your savings will be higher, but in most cases your service will have some degradation. In parcel shipping you truly get what you pay for. Every businesses’ goals are different so identify and rank your company’s desires to help influence your strategy.
4) Allocated Time
Your parcel contract is one of the biggest cost centers for the company. It should receive the time and attention it needs. When you are prepping for your negotiations you will have to carve out a significant amount of time in your schedule. Your day-to-day priorities need to be delegated for a period of time. Other projects will need to be de-prioritized as there are not many other actions you can take that will have such an impact to your bottom line. There needs to be a central leader in your organization that will drive this process.
Simply put, there is no substitution for expertise. Experts that specialize in parcel negotiation and contract analysis can be instrumental to your strategy. A lot of Transportation Managers across America have a myriad of daily responsibilities and their expertise lies elsewhere within the Supply Chain. Partnering with someone that has read and negotiated hundreds of contracts of course is going to provide dividends. Also, these parcel gurus are going to know the latest trends and sensitivity points of the carriers. A Transportation Manager may take a blanket approach while a Parcel Contract Expert is more strategic in the negotiation approach, maximizing the overall strategy.
Lessgistics has parcel contract experts ready to help you. We provide a free contract analysis with no strings attached. With 20+ years’ experience and life-time contracts negotiated over $500M we know exactly how to help you get to where you need to be!