4 Tips for Renegotiating Your Small Parcel Shipping
Smart shippers, from small businesses to ecommerce giants, know that the best way to manage the bottom-line impact of their small parcel service agreements is to renegotiate whenever their shipping landscape changes. Heightened customer expectations of fast delivery mean that shippers are needing to renegotiate more frequently to make sure that shipping costs don’t get out of hand.
But smart shippers are not satisfied to simply settle for what the carriers offer in terms of pricing and the many other details (like fees and surcharges) that are part of these agreements. They also know that carriers are expert negotiators, and the best way to level the playing field is to be well informed, which sometimes means calling on an expert third party for advice or help.
Here are four pieces of advice an expert third party would give to a shipper client.
It’s your shipping, so you have the right to choose
A common misunderstanding among shippers is that they are locked into their service agreement until it expires. But this is not true. Agreements can be renegotiated any time. In fact, it’s in your best interests to renegotiate each time there is a significant change in your shipping patterns.
Another common belief among shippers is that they are obliged to award the bulk of their business to the incumbent carrier or to only one single carrier. This also is not true. If you run the numbers, you may find that using different carriers for different types of shipments or using a regional carrier instead of a national one will reduce your shipping costs.
A good TMS (transportation management system) will enable you to determine the best overall strategy optimizing cost and service for each individual shipment as well as for your shipping as a whole. Better carrier selection, as well as choosing the shipping mode on a shipment-by-shipment basis, can result in serious savings.
Get multiple bids for your shipping business
A good way to learn what the current market rates are and how you could improve your existing rates is to send out an RFP (request for proposal).
Because this is one of those cases where the quality of the output depends on the quality of the input, an RFP should include the following information:
- Background on the company and the types of products sold
- Shipping methods, customer locations, and service types
- Expected terms
- Special delivery requirements for all origins and consignees
- Shipping history, with as much detail as possible
The proposals received from the carriers need to be read line by line because each carrier has its own system of organizing the information so it’s near impossible to make apples-to-apples comparisons.
If you are having a hard time making sense of the proposals or are not confident in your ability to do an accurate cost analysis, a negotiation consultant like First Flight Solutions can help you sift through the mounds of data and determine the best deal.
More is better . . . but creativity is good too
The more packages you ship, the stronger your negotiating power. This is a simple fact of the logistics industry.
If your volumes are low, there are still ways for you to negotiate better rates. Some carriers look to fill capacity in specific lanes and regions. If your historical and projected volumes (a TMS can give you this) match the carrier’s needs, you could negotiate a better rate for those specific lanes or regions. This is a win-win for both your company and the carrier.
But remember that the onus is on you. The carrier is not going to come to you and make the offer, so you have to ask.
Another thing to ask about is base incentive discounts, which are usually a flat percentage discount per package and vary by specified weight ranges and service levels. Base discounts are not automatically included in an agreement, but you should expect to get them if you want a competitive rate.
Don’t stop at the base rates
Base rates are not the only aspect of your carrier agreement that can be negotiated. Fuel surcharges, GRI caps, accessorial charges, and other fees are all up for negotiation. As for the actual freight rates, don’t accept the first discount that the carrier comes back with.
And remember, the moment the agreement is signed it’s already becoming out of date. Make it a point to analyze the data from your TMS monthly or quarterly, and when there’s a significant change in the pattern, this is an opportunity to renegotiate. When a carrier agreement no longer works to serve the way your company is doing business, it is time to renegotiate.