Every year, parcel and LTL carriers announce pricing changes that increase your costs. These GRIs (General Rate Increases) are a part of every contract, usually buried deep within the small print, full of hidden details that may cost you more than you know.
At the same time, you get the annual cost savings goal passed down from management. It is up to you to find those savings. You must reduce costs, even as your business evolves.
Negotiate your parcel and freight contracts, their terms and rates. Some contracts seem simple. Other contracts have caveats, fine print, and confusing terminology. Getting this right for your business, though, will help you balance both issues. But how? How do you know what to focus your attention on and how do you use the information available to your benefit?
Part 1 – Preparation: Know, Don’t Assume
The Four Facets of Rate Negotiation Preparation
1. Your Data
Your first area of preparation should be to know your data. The goal is a thorough knowledge of what you ship. More than volumes or costs, you need to understand the trends and profiles of your shipments, for all carriers and seasons.
Typical Shipping Profile Data Items:
- Volume by each service
- The size of cartons/pallets for each volume for each service
- Weight per carton/pallet (actual) for each service
- Monthly volume of cartons/pallets per service over year
- Anticipated changes due to new business or business changes
- Special services required
Know the details, the actual specifications, and the summary of your shipments. This data set must be on a level of detail that matches what your carriers track and bill. Most companies track data on the order or shipment, having limited data on the carton or pallet level. Ensuring your own data is sufficiently detailed enough for proper analysis may take some work, but the payoff is worth it.
The other major objective with gathering your own data is dependent on your shipping terms with your customers. Some customers ship with their own carrier accounts. Other customers dictate different carriers based on delivery address. Some may use their own fleets for a portion of their shipping. Knowing the volume of parcel or LTL shipping from your network actually billed to you will be key on understanding your spending patterns.
You also want to know how you use your mix of carriers, especially when you switch carriers for a shipment. These transition shipments can have significant costs depending on the carrier. Do you efficiently use your parcel and LTL carriers?
2. Their Data
All parcel carriers track every carton. Even when charges are grouped, the data is kept at the carton level. The data is provided to you via the carrier’s own reporting system, both at the carton level and in many summary reports. Do you know how you are truly using their services? This is the best source to consult.
For LTL carriers, the data often only tracks shipments. Even with the lack of carrier data, you can learn much about how you are using the carriers, and their true costs, by analyzing the aggregate bills.
The goal is to understand how your costs are structured. How was the pricing applied to your shipments versus what you expected? Did the parcel carriers use minimums, dimensional weight, or surcharges? Did your LTL carrier consider your pallets non-stackable or use unexpected surcharges? Each carrier knows the exact cost and the exact cause. You need to see the gap between your data and theirs. While you may dispute charges actively, understanding the trends is important for your preparations.
3. Accessorial Charges
The third major area of concern is the “extra” fees, the accessorial surcharges. While you can tabulate them by looking at the carrier data, they need special analysis. The extra scrutiny is to understand which surcharges you incur and, more importantly, why. Some of the surcharges can be a major contributor to your shipping costs.
For example, fuel is a significant surcharge applied to every shipment. And it changes weekly, depending on the carrier. Indexed by the EIA’s (Energy Information Agency) U.S. Retail Motor Gasoline and On-Highway Diesel Fuel Price report, the actual charge is dictated by each carrier. It can vary from 5-15% of the shipment cost for parcel carriers and as high as 35% for LTL carriers.
There are other data elements just as important. Many charges, such as address corrections, handling, delivery area, even delivery changes, can add up. Know where you spend your budget. It is worth negotiating the surcharges that are the bulk of your accessorial spending.
A quick bit of advice on surcharges. Before you negotiate the costs of surcharges, prevention can help. Incorrect address data, bad carton sizing, and even unnecessary special handling should be prevented where possible. Not having to pay an accessorial surcharge is better than paying less.
4. Carrier Changes and News
Every day, carriers produce news. Some is intentional, like services changes or facility openings. Others are less planned, like labor issues or trade disputes. Knowing the current news of your carrier and the items that affect you is a key preparation. Waiting for your carrier representative or agent to inform you lets them “spin” that news to you. Instead, do your own research. It is not hard to find current news on their carrier websites and on other reputable industry sites. And if you really want to know what your true options are, review the service or routing guides for the carrier. It may be dry and hard to understand, but it may reveal new services or options you were unaware of.
A great example is the use of parcel shipping for returns from customers. Each carrier has several options available for shipping packages to your facilities as a return. Some have lower costs, others have more tracking capabilities, and others can be easily managed. Knowing which options exist before you start parcel rate negotiations can allow you to press for the best one for your needs.
Part 2 – Negotiations: Aim for Complete, Not Easy
Here is where the preparation produces benefits:
- You know what you ship.
- You know how your shipping needs will change in the future.
- You know how the incumbent carriers charged you.
- You know how surcharges are affecting you.
- You have information on alternative service options with the carriers.
Yes, but how you negotiate is key here.
The best process is to consider contract offers in total, objectively and repeatedly. What does that mean?
1. Don’t focus on line items. Focus on the total impact on costs for all charges you will be experiencing. The carrier will present pricing based on total margin they want to maintain. Some costs will increase, others decrease, and some terms may change. What matters is the bottom line.
2. Remember that your carrier is out to make a profit. Each carrier issues their annual General Rate Increase regardless of your tenure or history with them. Your loyalty does not negate the GRI or change the intent of the carriers during negotiation. It’s just business.
3. Each contract offer can be different than the previous one made. You must focus on the costs that matter, not the ones that are different. Getting a large discount on a service you do not use is not a benefit to you. Make sure the discounts or fee reductions meet your needs, both current and future.
4. A good rule of thumb is that the longer the contract size in length, the better the deal is for you. If it is a simple contract, you probably missed savings.
DIY or Hire a Professional?
Of course, you can do this yourself. It will take time, require accurate data, and needs experience with your carriers and their contracts to work. And probably, in the end, you will walk away with a better deal than if you just signed.
However, if you need more, there is a better alternative. It is one that utilizes better resources for better results. You get your own expert.
You can hire Shipware, a professional parcel rate negotiation firm. On their staff, we have parcel rate negotiation experts who know the strategies your carriers use, and how you can respond. We know how to look at your data and tell which strategies to pursue. Shipware has used these methods and our exclusive tools to save up to 30% of parcel spending for our customers over previous contracts. And more importantly, we can do this while not disrupting service with your current parcel carriers.
Contact us today for a consultation to see where they can help you find those savings to offset that GRI and satisfy your management’s budget savings expectations.