3 Big Misconceptions About Small Package Negotiation

 In Industry News

Love it or hate it, everyone understands the necessity of an effective small package contract negotiation strategy in today’s hypercompetitive economy. Less clear, however, are the ingredients necessary to concoct a winning strategy.

Shipping costs can be the driving force behind a start-up’s meteoric rise, or the last straw before legacy retailers are forced to shutter their windows and doors.

E-commerce has ushered in an unprecedented wave of competition, leaving companies with fewer ways to trim operating costs to gain an edge. Merchandise has got to get where it’s going, whether to the store it’s sold in, or to the front door of the customer who bought it.

For several reasons, though, companies often hesitate to assert control when comparing shipping prices, and they ultimately fall victim to baseless misconceptions that erode what little margin remains.

Sometimes the reluctance is rooted in misunderstanding your “rights” as a customer. Shippers that take a stand against rising shipping costs — rather than simply accept the rates their carrier gives them — end up with the best shipping rates.

It’s that simple.

But in many ways, the carriers (primarily FedEx and UPS) hold all the cards, and it can be tough even for seasoned small package executives to get the best rates for their company.

Here are the three most common reasons decision-makers say they can’t negotiate a better small package agreement than the one they have:

I can’t lower my shipping costs because my small package agreement hasn’t expired yet.

They key word here is agreement. An agreement, not a contract, is exactly what you have with your small package carrier. Understanding the difference between a contract and an agreement is paramount when you compare shipping costs to see if you have the best shipping rates. Most carrier agreements lack essential verbiage needed to form a legally binding contract.

It’s surprising how few executives realize that their agreement can be revisited at any time. Most small package agreements contain language allowing either party to terminate the agreement.

Markets and costs change fast in the logistics industry — this means your “great” rates can quickly become above market. Optimizing your shipping costs means keeping your rates and contracts current with where the market is today.

The truth is, you can negotiate anytime. The average company does so every 13 months. This is not surprising when you consider that both carriers increase their list rates every 12.

My small package carrier says I can’t use a third party to help me compare shipping costs.

Make no mistake, small package carriers are expert negotiators out of necessity. The profits they deliver to shareholders depend on winning business at the highest possible margin. You can be sure that behind your smiling sales rep there is a team of pricing engineers and analysts who understand your small package spend better than you do.

Of course, both major small package carriers have accountants and lawyers that understand their taxes and legal issues better than they probably do, too. That’s why they hire outside help. If a carrier threatens to move you to published rates or refuses to negotiate more favorable shipping costs if you decide to hire an expert, then you may want to ask yourself how strong your partnership really is.

You can’t negotiate the best shipping rates when the chips are stacked against you. The right third party understands how to be fair to both sides and still make money. They will maintain carrier profitability while protecting your best interests.

I can’t share my small package data with someone who can tell me if I have the best shipping rates.

This is another strong-arm tactic used by the carriers. A legal expert will tell you that you own your small package data. Carriers know that shipping data is vital to obtaining the best shipping rates, but they can hang their hats on the fact that most companies don’t have the tools or experience to leverage their data effectively. That is, of course, unless you hire someone who has the right resources.

Preparation is the key to negotiating small package agreements, and the prep work can’t begin without gathering data about your business. Don’t be shy about insisting that your carriers provide complete reporting on your shipping patterns and volumes. Remember, that data belongs to you.

You would be hard pressed to find anyone, from either carrier, that is purposely out to hurt your business. FedEx and UPS are two of the most revered businesses in the world, and for good reason. They are great companies and have great people working for them.

But they have jobs to do and interests to protect, just like you do. When it comes to obtaining the best shipping rates for your company, it boils down to resources, information, and intelligence. And most shippers have less of all three relative to the carriers’ understanding of how your small package shipping costs compare to what’s available in the market.

In the end, however, you know your business better than anyone. Don’t close the door on teaming up with a partner to help you compare your business to others in a way that will help you thrive.

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