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Lower Shipping Cost

9 Ways You Can Lower your Shipping Costs

By | Contract Negotiation, Invoice Auditing, Shipping Knowledge | No Comments

The freight transportation system moves over 17.7 billion tons of goods valued at more than $18.1 trillion, or an average of 54.7 tons of freight annually in the United States. About 62.6% of this cargo and about 61.9% of the value is carried by trucks, which remains the primary mode of transport for distances less than 750 miles.

Goods move using a network of truck routes, railroads, waterways, and airports. The distance from origin-to-destination and the cost to ship play an important role in determining which mode(s) of transport are used in this multimodal journey.

Within road transport, there are two main types of shipping options – LTL or Less-than-Truck-Load and FTL or Full Truck Load. LTL is a type of transportation (shipping) service that is used for shipping small loads by shippers who do not have enough cargo to ship it as a Full Truck Load (FTL) whereas a Full Truck Load is just that – a truck full of your goods.

LTL shipments are usually between 151 and 20,000 lbs and shipping carriers apply “weight break” discounts on freight as the shipments increase in weight.

There is a lot of demand in the market for LTL carriers as businesses are starting to realize the cost savings LTL shipping offers. But LTL shipping rates could be quite high due to demand, and all shippers need to know what affects those rates, how they can leverage this knowledge, and reduce shipping costs effectively.

There is a multitude of factors that can influence the pricing of LTL shipping such as:

Freight Classification

The Standard for Freight Identification and Classification is a standard set by The National Motor Freight Classification® (NMFC®) to provide a comparison of commodities moving in interstate, intrastate, and foreign commerce. This standard provides a basis on which freight negotiations may be carried out between the carrier and shipper. NMFC has classified cargoes under 18 different classes from a low 50 to a high of 500 – based on the cargo’s density, handling, stowability, and liability.

Lower classes of cargo are generally heavier and dense and do not damage easily, therefore lower in freight whereas higher classes of cargo are more volumetric and lighter–thus higher in freight.

Cargo Weight, Dimensions, Density

These are critical determinants of the freight class based on which the LTL rates are calculated. The freight rate increases in proportion to the weight of the shipment, the dimensions and the density of the cargo.

Zones and Transit Time

This is another critical determinant of the freight rates charged by carriers. The longer the haul, the higher the rate.

Seasonality

Seasonality influences LTL rates because of the supply and demand metrics attached to the season. Black Friday, Thanksgiving, Christmas are all heavy demand periods and shipping rates spike around the periods of deliveries for these days.

Rates

Even when there are rate negotiations with carriers, rates are not just rates. There are Tariff rates, Flat Rate, FAK, Named Account, Contracted Rates and there are several combinations of these.

Technological Advances

Incredible progressions in the transportation industry (and its many benefits) are fast catching on, but so is the cost. A carrier with the ability to provide real-time data of your cargo using IoT, Big Data, Blockchain, etc., can command a higher rate than those who are not technologically fit.

Volume-based Discounts

Along with rates, volume-based discounts are probably one of the biggest influencers of how LTL pricing is set.

Surcharges/Accessorials  

Usually termed as surprise items in freight pricing, these charges could influence the profit or loss of business quite heavily.

Due to complexities involved in understanding all the above factors, most shippers end up overpaying for the shipment of their goods. Many shippers end up overpaying because their service provider contracts disguise the actual costs and charge many fees and surcharges which are unnecessary.

Since there is no standard, it may be impossible for shippers to know the best-in-class standard costs across various transportation services. It is important for shippers, especially small businesses, to understand the freight transportation market, how it has evolved over the years, and to look for ways to lower shipping costs.

The main thing to understand here is that lowering shipping costs does not automatically mean negotiating the lowest LTL rates. You may be able to get these rates at times, but in the long run, using only this method will not be sustainable.

You’ve been shipping via less-than-truckload (LTL) carriers for years. Yes, they’re expensive, schedules are unpredictable. If you’ve thought, “I don’t have a choice”, then think again because there are definitely opportunities for you to lower your shipping costs and achieve better margins.

But, before that, it’s important to know some of the factors in freight shipping that carrier representatives don’t want you to know, such as:

  • If not handled properly, LTL shipping could cost you much more than other modes of transport or shipping
  • There could be a mid-year rate increase without notice
  • Freight rates increase every year due to capacity crunch, fuel price increase, fuel surcharge or just plain old supply and demand metrics
  • LTL costs depend on various factors and each carrier charges based on the best formula for them, making it difficult for you to forecast the costs for your shipment accurately
  • Due to rehandling, LTL cargo may take longer than expected to reach the destination and this means you need to have buffer stock to cover for any delays or may even be forced to air freight your cargo to maintain your commitment to your clients
  • Rehandling also increases the change of cargo damage which could also increase your insurance rates

But for every challenge there are solutions. Here, we give you 9 tips and strategies on how to effectively lower your shipping costs.

1. Plan your Shipments…Better

Planning is crucial when it comes to transportation because each mistake can be costly and erode the profits of not just the current shipment, but many others. One sure-fire method of reducing shipping costs is effective planning of your inventory cycle which means you only ship when you have to.

With effective inventory planning, you can avoid rush orders and express replenishment orders which will cost you much more than standard deliveries. Planning your deliveries allows you to negotiate effectively with your LTL carrier and work out a consistent schedule within the standard rates on offer.

The carrier will be happy to have a base load from you regularly. This also helps you reduce storage costs in your warehouse for excess inventory.

2. Know your Market Inside and Out

It is important to know who your competitors in the market are, not just from the standpoint of your own business, but also from the perspective of the LTL carrier you may be using. You need to know which carrier your competition may be using, and the areas where they may be better than you in terms of rates and services.

Contracting with those service providers will assist not just in reducing your shipping costs, but also in staying ahead of the competition and increasing your client base.

3. Get to Know Your Service Provider

In a lot of the cases, you as the shipper may be paying more because you did not vet the service provider and their capabilities thoroughly.

In the current freight market, it’s essential to have a service provider that can offer cost reductions on the back of their administrative capabilities and service such as:

  • A sound financial background
  • Technologically fit and capable of providing network and market analysis
  • Business intelligence which can also enhance your business acumen
  • The flexibility of service which allows you to choose the best options for your clients

Leverage the strengths of your preferred carrier and through analysis of historical freight shipping data, invoice audits, freight analysis, and contract optimization to negotiate the best possible contract rates for your shipments.

4. Make the LTL Carrier an Extension of You

By this, we mean once you have identified the best carrier for your shipments, use their strengths and resources to track, monitor and report the progress of the shipments instead of spending your resources which costs you time and money. Such tracking activity can include proof of delivery, cross-docking information where applicable, estimated shipment periods, etc.

5. Go for Speed

Time is of the essence in trade and in shipping; transit time is crucial, not just for your customers, but also you because the quicker your products reach their destination, the faster you get paid, reducing your cash outlay period and finance costs.

Negotiate early delivery discounts with your customers where possible and consider offering your LTL carrier(s) incentives for such deliveries while keeping your margins intact.

6. Negotiate Correctly

Many shippers lose out on significant savings because they don’t understand what types of rates should be negotiated. Carriers offer different kinds of rates – Tariff rate, Flat Rate, FAK, Named Account, Contracted Rate and there are several combinations of these.

As a shipper, you need to negotiate using the characteristics of your business in terms of volume, seasonality, weight, dimensions, density, routes etc and decide which type suits you best. For example, if you are a freight broker, you would definitely have a contracted rate along with a FAK angle so you can base your sell rates on those rates to your regular customers. As a broker, for certain customers with the regular volume, you may also negotiate with a carrier based on a Named Business or Named Account basis.

7. Consolidate, then Collaborate

In this huge market, you don’t need to do it alone. LTL carriers offer discounted rates based on consolidation of cargo with other shippers and this could result in huge costs savings for you.

You could also collaborate with known shippers on specific routes to combine the shipments in order to save on shipping costs. Or, if you have multiple shipments for different clients in the same area, consolidate it.

If you are a small to medium size shipper, it may be an excellent strategy to consolidate your shipments through a freight broker who may be able to help you reduce your shipping costs based on their FAK or volume-based rates that they enjoy with certain LTL carriers.

The use of FAK rates could be a game changer. FAK stands for Freight All Kinds which provides high shipping volume customers with the means to ship multiple items under a lower freight class, which in turn lowers the shipping costs.

8. Distance

While consolidating your orders, it’s wise to choose an LTL carrier that operates in most or all of the zip codes. This is important because when it comes to road freight transportation, the longer the distance, the higher the cost in general; when it comes to LTL carriers in particular if they don’t operate in certain areas, the goods may need to be transferred to other carriers which will increase your shipping costs.

This could also cause extra handling while transferring the cargo which not only leads to additional costs but could also lead to associated costs such as insurance for any damages that may happen during the rehandling of cargo.

9. Optimize Space

Pallets are designed to optimize space and dimension utilization. Select carriers that have the latest technologies for your LTL shipments. Using this, you can calculate the dimensional pricing of your palletized shipments. Palletized cargo is also cheaper to transport as the carrier can optimize the space on the truck due to the standard dimensions of the pallets.

Final Thoughts on Shipping Cost Reduction

Shipping costs are the single largest logistics cost component in a supply chain. Therefore, for any shipper, controlling and lowering shipping costs should be a priority.

In summary, there are several ways in which you can effectively lower your shipping cost. Forget the “this is how it’s always been done” and follow the above tips to reduce shipping costs and make your business profitable.

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Mastering the Art of Parcel Contract Negotiation

By | Contract Negotiation, News, Parcel Market Trends

For anyone operating in the rapidly expanding world of e-commerce, shipping and transportation play a vital role in the overall scheme of your business and can, to a large degree, determine success or failure. You need your products shipped from the manufacturer to your warehouse or distribution center and you need to be able to deliver those products to your customers and expect them to arrive in a timely manner. This co-dependent relationship is significant, especially when you consider the fact that shipping accounts for up to 45% of a retailer’s operational budget.

Because of this, accepting the status quo relative to carrier mix simply because it’s easier than considering a change or because they have the lowest rate might end up hurting your bottom line in the long run. If you own a business or are in position where you’re responsible for shipping and logistics, then it may behoove you to re-examine your current parcel pricing and carrier selection criteria to ensure that it is what’s best for your company

Parcel contract optimization and negotiation can be a tricky subject to efficiently handle. Doing your due diligence in order to better understand parcel carriers and the language they use in their pricing agreements will help you come to the negotiating table with more leverage and a more robust set of bargaining tools at your disposal. Below, we will discuss at length how you can master the art of parcel contract negotiation.

Tips for Renegotiating A Parcel Contract

Perhaps you are satisfied with your parcel carrier, the service they provide to you and the agreed upon pricing terms.   But, then again, maybe you’re not. Whether you are or not, it is crucial that you are fully aware of what was agreed to when you signed your current agreement. Unless you have language in your parcel agreement or in a subsequent addendum to that agreement that locks you into an agreed upon set of terms for a period of time and prohibits you from terminating the agreement prematurely, you can re-negotiate with your carrier at any time. Remember, everything in that prior agreement is negotiable.

Delving Into The Parcel Contract

Assuming that you already have an existing parcel contract and desire to re-negotiate, the first step should be to go through every aspect of your agreement with a fine-toothed comb. If you do not understand the language, enlist the help of someone who does. Get feedback or opinions from contacts in the industry with whom you feel comfortable to discuss such details. When delving into the contract, create a checklist so that you can see whether your carrier is complying with the terms of the agreement and is living up to their end of the bargain.

Do your best to understand carrier fees that are often hidden within the invoice. Referred to as Value Added Services, Optional-service fees or surcharges, these are simply additional charges that a carrier adds on top of the transportation fee which can be as high as 50% of the agreed upon base rate. These additional charges include residential delivery charges, Delivery Area Surcharges, Additional Handling Charges, and weekly pick up fees as well as a long list of others.   If you see that you are getting hit particularly hard with fees by your carrier, you can renegotiate with the carrier to either provide discounting (or deeper discounting) on some fees or, in some cases, get them to drop the fee altogether.  

Explore Alternative Carriers

Shippers should avoid becoming too reliant on their current carrier or carrier rep. Carrier reps want to earn larger commissions and you want to reduce your company’s shipping costs; these two goals do not generally align. Carrier reps receive compensation for selling to you at the highest possible margin. Depending on your rep to go to bat for you internally during contract renegotiation could be a mistake.

Another mistake many shippers make when negotiating is failing to bring alternative carriers to the table. The idea is similar to that of salary or wage negotiation.  If there is no threat of you taking your skills elsewhere, where is the incentive for your boss to give you a raise? The same concept applies to negotiation shipping contracts. If there is no threat of you moving your volume to another carrier, what is your current carrier’s motivation to lower their costs? As a matter of fact, shippers that regularly utilize multiple carriers often achieve better pricing.

Carriers regularly classify pricing requests into one of three customer categories:

  1. Retention: The current carrier keeps the vast majority of the available business.
  2. Penetration: The carrier already has the majority of the business but has the chance to gain more volume.
  3. Conversion: A new customer where the carrier has little to no presence.

Conversion customers, those who are prepared to move their volume from one carrier to another, are given the largest discounts as means of enticing them to move their business. Often loyalty goes unrewarded or unnoticed, so it behooves you to unsettle your current carrier and make them work to retain your business.

If you do not wish to use one of the big two private parcel companies, FedEx or UPS, or if you wish to gain leverage when negotiating with either, it would be wise to at least consider alternative carriers. The US Postal service is a viable option, primarily if you regularly ship lightweight, non-urgent parcels to residential addresses or if you’re paying dimensional weight pricing with your current carrier. USPS shipping and package services, in fact, saw 4% growth last year with parcel return and select parcel growth nearly hitting 20% YOY.

There are a host of regional carriers like, OnTrac, Spee-Dee Delivery, Pitt-Ohio Ground, LaserShip, Dicom, Lone Star Overnight and others who offer excellent parcel delivery options, often at lower rates and faster transit time than the national carriers. Another option is a parcel consolidator such as DHL e-Commerce, Blue Package, or Newgistics, l. If the majority of your shipping is done within the geographic footprint of a regional carrier or if your package characteristics and product type fit the consolidator mold it may make sense to consider one of these options. Even if you do end up selecting one of the national carriers, using benchmarks and rate quotes from smaller carriers can give you added leverage when pursuing UPS or FedEx for contract renegotiations.

Even if you do end up selecting one of the big guys, using benchmarks and rate quotes from smaller carriers can give you a ton of leverage when pursuing UPS or FedEx contract negotiations. Lowering the cost profile of your business via, pickup consolidation, package tender material improvements, online self-tracking services, automated tender, package optimization and changes to pick up schedules and delivery routes. By doing this, you can save yourself and the carrier money.

Stepping Into The Arena

Once you have exhaustively researched your company’s shipping goals, needs, and current costs, you are now prepared to enter into your carrier contract negotiation. That said, it would also be wise to consider your temperament and how aggressively you intend to approach the discussions.

Many view negotiating as a boxing match of sorts, a contest of wills where each side exchanges blows until one gives in. However, this is not a wise approach to parcel contract negotiations. Remember, this is not a fist fight.  Rather, it should a cordial exchange where two parties meet with the goal of crafting an agreement that can provide mutual benefit.

The way you approach negotiations can have far-reaching impacts on your future working relationship with your carrier. You must be able to deal with uncertainty, especially in such a volatile supply-demand industry where the scales in the balance of power between shipper and carrier are continually tipping one way and then another. Knowing that this pendulum can and likely will swing each way, it is vital that you keep in mind that there is benefit here for both parties.

If you approach the bargaining table with a chip on your shoulder and make unreasonable demands, odds are that the discussion will not result in the desired outcome. While your primary goal should always be what’s in the best interest of your company’s bottom line, negotiation requires a give and take; it necessitates concessions being made by either side. Remember, cost is not the only consideration during contract discussions There are other factors to consider such as the viability of your working relationship with your carrier rep and satisfactory pickup and delivery times.

Value Proposition

While you should approach carrier contract negotiations with an open and flexible attitude, be wary when the carrier attempts to divert your attention from the matter at hand (the agreement) and toward their “value proposition.”. A good carrier sales rep will want you to focus on the things that they can do for you from a service perspective that other carriers can’t.  The goal is to show you how they add “value” beyond the rates.

The carriers absolutely provide a valuable service, one that your business cannot live without. It is absolutely critical to understand the level of customer service you can expect from a given carrier, how their technology may or may not integrate with yours and the degree of collaboration that they may offer relative to efficiency improvements.  But it is important to remember that these things are largely independent of pricing and that if you are willing to do your homework, maintain a firm negotiating position and understand carrier negotiating tactics, you can take steps to land a great parcel contract deal.

Shop Around

Similar to the advice above, after your meeting, it is wise to treat parcel contracts like you would any other purchase. Odds are, you did not walk onto a car lot, select one and buy it on the spot. Rather, you did your research online about what is the best type of car for you, you spoke with friends who had that car or brand and got their input. After doing that, you likely looked at blue book prices, at online vendors and then went around town to either used or new car lots.

The same should go for your parcel contracts. Reach out to any and every carrier who might be able to help you. Do not settle for a carrier just because you are busy, or it would check something off your long list. Prepare an RFP (request for proposal) and share it with other carriers. Compare the prices and services being offered with those received by other businesses similar to yours. Reach out to associates in the business and ask them who they use and why they chose them. Again, being cautious and approaching this process in a calculated manner will aid you and your company.

Make Time For Carrier Meetings

The bond you create with your carrier does not form immediately.  Like any relationship, it takes time and effort to nurture it so that it grows and develops. Make time to meet with your carrier rep and allow them the opportunity to demonstrate additional value. All too often shippers only reach out to reps when there is an issue or when they need something. One-sided relationships such as this do not prosper in the long run, nor does it give your rep any incentive to help you cut costs. There is plenty of value to be found in scheduling routine meetings where they can help you leverage technologies, value-added services, and best practices, to make your operation run even smoother and more efficiently.   

We all want to get the best deal possible on any product or service on which we spend our hard-earned money. When it comes to parcel contract negotiation, the sentiment is the same. To prepare yourself for negotiations or re-negotiations do your research. Come into the negotiations knowing what you ship, when you ship it, and how much you ship. Understand, to the best of your availability, carrier contracts and pricing agreements as well as the impact of hidden fees and surcharges.  Research alternative carriers and be prepared to bring them to the negotiating table. Speak to colleagues and associates in your space prior to beginning carrier conversations and seek their input. Proper preparation can result in a big win for you and your company.

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DHL Contract Negotiations: Tips & Tricks

By | Contract Negotiation, News

Are you a shipper with a large volume of imports or exports?  Or do you have frequent lightweight domestic shipments to residences?  If so, then there is a third option for your shipping needs – DHL.  In this article, we will discuss DHL as a carrier and provide tips when it comes to parcel contract negotiations with DHL.

You’re already aware of how vital shipping and transportation is for the long-term success of your business and what a drain it can be on your operational budget, particularly in the case of a poorly negotiated contract. The shipping contract you negotiate with DHL can significantly impact your bottom line.

It is essential that you prepare thoroughly and sit down with your DHL sales rep to negotiate better rates and terms. When shippers go into their parcel contract negotiationunprepared, they leave feeling like they ended up on the losing side of the deal.

While this may seem like an intimidating and one-sided process, rest assured that it is not. So, if you are negotiating with DHL for the first time, or re-negotiating, remember that your spend is significant to them, you have leverage and can use it to sweeten your deal. Contract negotiations do not happen overnight; they can take weeks, even months of lengthy discussion filled with concessions and give and takes.

About DHL

If you regularly ship internationally, DHL is the most extensive international logistics carrier in the world with a network that reaches throughout all of Europe and into Asia and Africa. Because of this global shipping experience, DHL is well-prepared to help you overcome customs red tape and international logistics.

Also, if you have large quantities of e-commerce orders that are light, then SmartMail, DHL’s partnership with the US Postal Service, can be a cost-effective shipping option.

Know Your Shipping Profile

In order to optimize your contract with DHL, you need to know your shipping profile. This requires a review of shipping data, understanding your volume, where you ship, and weights. It can also be beneficial to know what surcharges occur most frequently. So, you should be able to answer with exact numbers, any of the following questions at your carrier contract negotiationwith DHL. If you can be flexible, quite often you can find leverage points within these questions to use as trading pieces for better rates or terms.

  • How many shipments do you have?
  • How many locations do you have?
  • What is your regular freight?
  • What type of DHL shipping services do you want?
  • Where do you intend to regularly ship?
  • How frequently do you intend to ship?
  • What days do you ship? Are you flexible or on a rigid shipping schedule?
  • Are you a seasonal shipper?
  • When are your peak business/shipment months?
  • Do you expect your business and shipping needs to expand, shrink or remain relatively the same?

Before you meet with DHL, you should be aware of the surcharges DHL levies for exceptional activities. Many of these can be waived or reduced as part of negotiations.

Before you meet with your DHL carrier, you have to be aware of the surcharges DHL levies for exceptional activities. Such surcharges can be removed or changed to the flat rate if negotiated properly.

DHL Surcharges – Import/Export

Remote Area Pick Up or Delivery– These areas include islands, highlands, or zip codes that are difficult to serve, or towns/suburbs that are distant, or infrequently served.

Dangerous Goods– DHL complies with IATA and ADR regulations and is certified to carry certain types of hazardous goods, although not between each and every origin and destination.A surcharge is applied per shipment when the handling and transportation of shipments involve substances and or commodities that are classified as dangerous goods. They must be restricted to one shipment that cannot weigh more than 67lbs.

Dry Ice– A surcharge is applied per shipment for handling and transportation where Dry Ice is used as a freezing agent. Such goods must be approved beforehand.

Lithium Batteries– A surcharge is applied per shipment when the handling and transportation of shipments contain Lithium Ion or Lithium Metal batteries compliant with the appropriate IATA Packing Instructions 966, 967, 969 and 970, Section II. If they do not have those things, or if the batteries are suspected of being damaged or defective, then DHL will not ship such items.

Non-Standard Shipments– A fixed surcharge is added to any piece or pallet heavier than 70kg or larger in dimensions than 120cm. Any shipment pallets, pieces, skids that weigh more than 1000kg, or that are larger than 300cm in dimensions will not be allowed.  If pallets within a shipment cannot be stacked, either due to shipper requests, or the shape of the item, a surcharge will also be applied.

Address Correction– A fixed surcharge is added to any shipment with the wrong delivery address at time of pick up.

Fuel Surcharge – Due to the inherent volatility of fuel costs, DHL applies a variable percentage meant to offset that cost. This surcharge applies to all transportation services.

Elevated Risk – If you are shipping internationally to a country in the midst of a state of war, civil unrest or regular terrorism threats, an elevated risk surcharge will be added. Such countries include Yemen, Syria, Afghanistan, Iraq, Libya, Niger, South Sudan and Mali.

Restricted Destination – If you wish to ship to countries subject to UN Security Council trade restrictions, you will be hit with a surcharge. Countries include; Democratic Republic of Congo, Yemen, Syria, Central African Republic, Iran, Iraq, Libya, Somalia, Sudan, and North Korea.

Exporter Validation – If you desire to ship to countries that are subject to trade restrictions imposed by federal regulatory agencies then you will be given a surcharge. These places include Zimbabwe, Afghanistan, Cuba, Belarus, Lebanon, South Sudan and Myanmar.

DHL also offers customs services to support the clearance process.

DHL Surcharges – SmartMail

Fuel Surcharge – Due to the inherent volatility of fuel costs, DHL applies a variable percentage meant to offset that cost. This surcharge applies to all transportation services.

Signature Confirmation – This is available for a fee if needed.

Delivery Area Surcharges – This is one major difference between SmartMail and the competing offerings from FedEx (SmartPost) and UPS (SurePost).  FedEx and UPS charge anywhere from $1.35 – $1.90 for deliveries to certain zip codes that are outside of their typical delivery area.  DHL does not charge a similar fee. 

Other fees can be applied based on the dimensions of the package.

Contract Negotiation with DHL

By knowing your shipping profile thoroughly, you can see room for contract negotiation, improvement or change in your shipping services. Armed with this information, DHL will have a much clearer understanding of what your logistical needs are and how much that might cost you in the long run. As you might imagine, thorough knowledge of your shipping data is one of the most vital tools you can bring with you to the negotiation table.

Remember that there are minimum charges that apply to any shipment. Those minimums can be negotiated as well.  If you negotiate high discounts but neglect the minimum charges, you will not realize as much savings as you could have.

Therefore, it is critical that you know and understand your shipping data to forecast what the new contract will actually save you. Like any negotiation, you want as much information as possible about your shipping profile and how DHL operates so that you enter the room on an even footing.

When it comes time to work out these details, it is important to remember that your attitude and actions in the meeting can have long-term effects on your business relationship. Entering the room aggressively and treating this time as a battle rather than a discussion will not be beneficial to either party. Negotiations require concessions to be made by either side.

Audit your invoices for cost savings and for targets for renegotiations

Carriers increase their rates annually.  Typically, the announced increase is not what your increase will be. Analyzing your data to determine your true increase will lead to discussion points with the carrier and an opportunity for them to make some adjustments where appropriate.

A full renegotiation can occur every 2 or 3 years.  This way you illustrate your loyalty to DHL and commitment to your long-term deal, while also giving you the opportunity to react to your business or market circumstances. The invoices DHL send you are filled with data you can use to study and re-examine your methods. By paying careful attention to your invoices, you can find a place to improve efficiency, cut cost, and respond to trends.

Although these invoices can often be quite dense, by auditing your invoices, you hold DHL accountable. Errors are not uncommon in this industry, so look for these:

  • Did DHL apply zone charges correctly?
  • Did DHL apply relevant taxes correctly?
  • Did DHL add inapplicable surcharges?
  • Did DHL charge you multiple times for the same shipment?
  • Did DHL make a calculation error which leads to overcharges?
  • Were your agreed upon discounts adequately applied?

By auditing your invoices, you can make sure you are not spending a cent more on shipping than you should be. Further, it gives you ammunition for future discussion or target areas for concessions or fee waivers. On top of all that, it shows DHL that you are very serious about the success of your business and that they ought to treat it with the same respect.

If you are looking to negotiate or optimize your parcel contractwith DHL, do your homework. Be prepared and come openly and honestly to the table, willing to be flexible in your discussions. Remember that your DHL rep can and will help you, especially if you treat them well and develop real relationships. Have periodic business reviews and keep them advised of any changes to your shipping patterns.  Doing so will incentivize them to give you deals, discounts or advice on ways your company can save money on its shipments.

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What is Carrier Contract Management & Negotiation?

By | Contract Negotiation, News

If you own a business, whether its online or brick and mortar, you likely are all too aware of how expensive shipping and transportation can be. Oftentimes, it accounts for more than a third of a retailer’s operational budget. The cost, as well as the countless hours spent researching and renegotiating, could explain why contracts sit at the crux of the transportation management process.

Many analysts agree that customers often sign carrier pricing agreements because they think they have negotiated a reasonable pricing program and/or due to carrier loyalty. In most cases, customers aren’t digging into the data and negotiating for price reductions that would benefit them the most. Carrier contracts can be very dense and bewildering, as they are filled with unfamiliar language, details, and sub-clauses. Negotiations can be an intimidating process that will require countless hours and resources.

For a long time, the process of carrier rate negotiations, like UPS freight contract negotiation, was a one-sided affair where the customer all too often ended up on the losing side of the deal (without even knowing it!). Carrier contract management and negotiation can be a daunting process, but it is essential for any customer who wants to remain in control of their company’s shipping costs.

What would the carriers be without customers? You are valuable to them, and this puts you in in a fantastic position to review your current contracts and renegotiate for savings. Keep in mind that it’s not going to be as simple as meeting with a carrier, them naming a price, and you agreeing. You actually havee to negotiate if you want the best rates. Below we will discuss the importance of carrier contract management and negotiation and the steps in the process.

How Amazon and the E-Commerce Boom Changed the Game

Before we dive into carrier contract management and negotiation, it is essential to understand the relationship between e-commerce and shipping. In recent months, Amazon’s market value has surpassed Microsoft and now sits just behind Apple and Alphabet Inc. (Google) as the third most valuable company in the world. What once was a humble online bookstore has seen massive, almost supernatural, growth with prices of Amazon stock surging 85% in the last year. Today its stock market value sits just shy of $800 billion. The giant of e-commerce completely changed the face of retail and the e-commerce boom began.

As we continue through this rapidly developing e-commerce world, we are witnessing a developing trend. There has been a shift in the way business has always been done, with retailers and other businesses following the Amazon model of abandoning brick and mortar stores in favor of an online market. While brick and mortar will likely never fully fade, gone are the days of shopping malls and department stores. As more businesses shift their focus to the online market, the world of shipping and freight has adjusted with massive changes.

How This Affected Shipping

The growth of e-commerce has much to do with its symbiotic relationship with the freight industry; as one grows, so too does the other. As more and more people buy online, more and more goods need to be sent out. Amazon, for example, sells approximately 600 items every second, and many of those items must be delivered to the customer within 48 hours.  In today’s marketplace, cost-effective and prompt shipping is vital for the continued development of the online retail world.

Thanks to economic growth far surpassing analyst expectations, regulatory cuts, and a 14-point decrease in the corporate tax rate, the freight shipping world is expecting a record-breaking 2018. Concordant growth is expected across the board for all types of freight including: less than truckload, full truckload, partial truckload, air, sea, rail, and intermodal. The growth of e-commerce has resulted in a shortening of supply chains, a focus on lighter, smaller packages, a tighter capacity, and faster delivery times. At the same time, freight is becoming more and more expensive, which makes it all that more important for you to negotiate wisely with your carrier(s).

Examining the Contract

Whether you wish to shop around for the best contract or if you have a pre-existing contract and your intent is to re-negotiate, it is vital that you review every detail of your current and/or proposed contract. When examining the document, be sure that both you and the carrier comply with the terms and conditions of the agreement. This includes sections on: Pricing, Service Guide, Payment Terms, Automation, Confidentiality, Term, Termination, Offer Expiration and Prior Agreements. Take note of all aspects of the contract. Are all services included? Are there surcharge reductions? Are you signing away your right to guaranteed service refunds? Bring any questions or concerns to the attention of your sales representative.

Know the fees

It’s likely that you’ve seen charges on an invoice that you are unfamiliar with and a total cost per shipment that’s larger than expected. This is just another reason why it is crucial that you know your shipper profile and how it relates to your carrier pricing.  Be aware of all the fees that might be charged and why they are being assessed. The following section provides information that you need to know if you are going to effectively negotiate your carrier contract with FedEx, UPS, DHL, or a regional carrier.

  • Value Added Service – Carriers assess surcharges (also referred to as value-added service fees) that you won’t find on your contract unless you are receiving concessions. You will need to consult the current rate guide for a full list of fees. All too often retailers are unaware of these assessed fees and end up paying 20%-50% over their original base rate.  Some common fees are:
  • Courier and Documentation Fee – This often gets added to the invoice even though it is not included as a line item in the transportation proposal.
  • Pallet Fee – This fee is charged when a customer’s shipment is packed onto a carrier owned pallet, so it’s best to avoid shipping non-palletized cargo and to use your own pallets in order to avoid incurring this fee.
  • Cargo Ready Date- A CRD is the agreed upon date between shipper and retailer or manufacturer when cargo will be ready for transport or delivery. If the cargo is not ready by that date and time, not only does it lead to delays, it also results in additional fees. A late CRD can create a logistical traffic jam. If your proposal has an incorrect or modified CRD, you could wind up paying hundreds more than you planned to.
  • General Rate Increase – a GRI, referred to by some carriers as a GRR (General Rate Restoration) is an increase to the carrier’s list or base rates. Some freight companies do not tell customers about GRI’s until after booking, so make sure your shipping company is being transparent and surcharges are shown on the proposal.

Sitting Down at the Table

After analyzing your current contract, you must seize the opportunity to optimize your current pricing. A starting point may be setting up a call with your sales representative and proposing a follow-up face-to-face meeting. In most cases, this will open the door to a renegotiation via an RFQ/RFP (Request for Quotation or Request for Proposal). This will include negotiation points such as rates, packaging options, delivery schedules, fees, terms, conditions, etc. The goal of an RFQ is to acquire a comprehensive pricing program that effectively reduces shipping costs.

A detailed RFQ includes the following:

  • Submission Details– Includes deadlines, contact info, mailing address.
  • Intro and Executive Summary– The overview of the company and the requirements for services to be provided by the shipper.
  • Business Overview and Background– Brief account of your business, its goals, the products you provide and your market sector of operation.
  • Specifications– Detailed qualitative measurements and requirements, includes deliverables and timelines.
  • Assumptions and Constraints– Any and all assumptions or constraints that vendors will need will be listed here.
  • Terms and Conditions– Includes contract length, warranties, delivery penalties, service levels and options of renewal.

Review the all aspects of the contract – not just the rates

There are more components to a negotiation that just price. Remember that density and special circumstances will impact the price of your shipments, so keep this in mind when you are negotiating or optimizing carrier freight contracts.  Review the terms and conditions, rates and surcharges. Be aware of the shipping lanes, minimum charges, and freight class.

You might find that the least expensive carrier is not always the one that you’ve chosen. Potentially, superior performance capabilities of one carrier may make it worth the extra overall cost. They may be more efficient communicators, more tech savvy, or have higher customer service performance ratings.

All of the points above should be considered when negotiating or renegotiating carrier contracts with DHL, UPS, FedEx or regional carriers. Understanding the agreement and how you will be charged per shipment is key. Thorough carrier contract management will ensure that you reduce costs and ship more expediently.

FedEx freight contract negotiation

How to Save Money Through FedEx Contract Negotiation

By | Contract Negotiation, FedEx, News

Whether you are in the early phases of discussions with FedEx, or you already have a working relationship, it is essential for you to take your contract negotiation with them seriously. For those of you utilizing the services of FedEx Freight or any other carrier (such as DHL or UPS), there is a good chance that more than a third of your operational budget is spent on LTL shipping.

Because of this, it is crucial you are prepared when it comes time to negotiate your freight contract. Freight contracts are complicated, filled with dense language and challenging to see what your actual costs will be. To save yourself from overspending, you must painstakingly peruse each document a carrier presents you. By doing your homework, you will enter the bargaining table on even footing and with leverage at your disposal. Below, we will examine several tips and pieces of advice so that you can save your company money on your FedEx shipping in the long run.

Key Shipping Factors

Regardless of what carrier you use, prep work must be done before you sit down with your FedEx sales representative. The first step is to understand how FedEx will look at your business. The following are some main cost drivers that FedEx Freight uses to price your account:

What do you ship?

There are several layers to this question.  At the simplest, it’s the average weight, freight class and dimensions of a typical shipment.  To be more specific, FedEx will want to know all of the freight classes you ship (more about freight classes below); what handling units you use (pallets, loose, gaylords, crates, etc.); the dimensions of your products; the weights of your products; the frequency of your shipments (any peak shipping periods or lulls); and any special handling requirements (fragile, oversize)

Where do you ship?

The basic data set includes the origin and destination zip codes for your shipments. It is also important to know if you ship frequently to grocery store warehouses or other places with limited access for deliveries.  Another important metric is your percentage of shipments to residences or other locations that don’t have a loading dock (and therefore require a lift gate).  It will be factored into the analysis of your account.

Who is FedEx Freight’s competition (either current carriers or other bidders)?

FedEx views only a small subset of LTL carriers as direct competitors.  The rest are viewed as less of a threat based on the quality of the carrier, their service area and other factors.  FedEx positions themselves as a premium service carrier and not necessarily the least expensive option.

FedEx Freight Class, FeDex Freight Contract Negotiation

How many locations do you ship from?

If you ship from multiple locations, FedEx typically analyzes them separately to determine their pricing strategy.  Depending on your location, you might be in an area that has a surplus of freight (headhaul) or a deficit of freight (backhaul).  Typically, shippers in a backhaul area (South Florida is one example) can get very aggressive pricing from carriers because collecting some revenue is better than having empty trucks going back north. Headhaul pricing can be less aggressive depending on the metrics of the freight.

When do you need your pickups and deliveries to occur?

Any unique operational needs must be communicated from the outset to reduce confusion.  FedEx will review accounts periodically and come back to those whose margins are not meeting expectations with increases.  Flexibility in this is a positive when it comes to FedEx’s view of the account.

Freight Classes

FedEx Freight class obeys the standardized method to classify any product and help facilitate consistent pricing across all LTL carriers.  It is governed by the National Motor Freight Traffic Association (NMFTA). Products are assigned a National Motor Freight Classification (NMFC) number which corresponds to a freight class.

Classes are determined by four characteristics:  density (pounds per cubic foot), stowability (anything that makes it harder for an item to go on a truck), ease of handling (can it be loaded with mechanical equipment?) and liability (likelihood of theft/damage). The 18 classes range from 50 (most dense and best for carriers) to 500 (least dense and most expensive for shippers to transport).

One thing to be aware of is that the freight class used to rate your product is negotiable.  Just because you have an actual class of 100 doesn’t mean you have to pay the class 100 rate.  Since the rates are cheaper as your class gets lower, any adjustment to your rated class is savings right off the bat.  These adjusted rated classes are called Freight All Kinds (FAKs).  Typically, they are for a range of classes – FAK 60 (Classes 60-100) means that any shipments with actual class between 60 and 100 will be rated at Class 60.  In rare occasions, shippers will offer a single class for all shipments.

If you negotiate an FAK, FedEx will add language that reduces their liability in the case of loss or damage.  Basically, they will say the liability will be based off the rated class instead of the actual class.  This can change the liability by a significant amount.  If you experience frequent loss or damage, you would want to negotiate this language as part of your FAK.

Rating a shipment: 

The base rate of a shipment is determined by 4 factors:

  1. Origin zip code
  2. Destination zip code
  3. Freight Class
  4. Shipment Weight

That base rate is reduced by the negotiated discount to get a net transportation cost.  Every shipment then has a fuel surcharge assessed.  The fuel surcharge is a percentage that is tied to the price of diesel fuel.  As diesel goes up, the fuel surcharge goes up.

Similar to parcel, shipments can also be assessed accessorial charges based on a variety of factors.

Some of the most frequent accessorial charges are:

  • Inside pickup/delivery ($12.55/100 lbs, $132 minimum charge, $1,326 maximum charge) – carrier will go inside the storefront for the shipment
  • Lift gate ($8.74/100 lbs, $129 minimum charge, $426 maximum charge) – locations that don’t have a traditional loading dock require a truck with a lift gate. This adds costs and routing complexities to the carrier.
  • Residential Pickup/Delivery ($136 per shipment) – for deliveries to homes. Lift gates are typically part of a residential delivery.
  • Over Length ($85 per shipment with any handling unit with length of 8 feet to 12 feet)
  • Extreme Length ($157 per shipment with any handling unit with length greater than 12 feet)
  • Limited Access Pickup/Delivery ($136 per shipment) – examples of limited access include schools, churches, construction sites, mine sites, etc.
  • Notification Prior to Delivery ($58 per shipment)

Just like freight classes, these accessorial charges are negotiable.  Make sure to know which are meaningful for your shipments so that you are targeting items that have a material impact to your costs.

By answering these questions, you will have a solid idea of what your shipping needs are before you ever set foot in a room with a FedEx rep.

Potential Leverage Points to Consider

To find ways to save money in freight contract optimization and negotiations, you have to know your business and its goals inside and out. You have to know the whos, whys, whats, whens, and wheres of your business. This type of preparation will give you opportunities within your contract negotiations to work with FedEx by offering concessions or accommodations in exchange for better rates or lower surcharges.

Re-negotiating Your FedEx Freight Contract

If you already have a working freight contract with FedEx, you might wonder about when it is appropriate to re-negotiate a contract. The following are some guidelines to consider:

How often can I renegotiate?

Very rarely does a company go more than two years without renewing their FedEx agreement. Some take the next step and set guidelines where certain items will be re-addressed annually or biannually based on changes in growth, business, or GRIs.

Some carrier contract negotiations can take months, so it is wise to review your FedEx contract at least once a year so that you can address any inadequacies. Carriers often announce changes, some of which may seem minor, but can be significant. You should monitor such updates to see the impact they might have on your freight contract.

Is there a good time of the year to get it done?

Obviously, peak shipping times during November and December can pose a challenge since FedEx is at its busiest and reps are focused on their parcel retail customers.

In the past, FedEx announced rate increases for the following year in September. Customers should review the rate increases and see if they are adversely impacted. If so, that is a good reason and a good time to reengage FedEx.

Things to Consider When Re-negotiating

You should keep in mind the following expectations for future shipments before you meet for re-negotiations:

  • Shipment Volume – Has it increased, decreased, remained static?
  • Fuel Prices – Is fuel more or less expensive?
  • Average Shipments – Increased or decreased?
  • What was FedEx’s performance? – Were they on time with their collections and deliveries. Did your goods arrive at their location undamaged? What was their record of lost/damaged shipments?
  • Customer Service – Were you happy with the customer service FedEx provided? Was there anything missing, anything that requires amending?
  • Rate increase – Are there new surcharges or rates that will affect you much more than the announced increase?

Freight Contract Negotiating Areas to Avoid

All too often, shippers end up not fully optimized when it comes to their LTL contract negotiations.

Entering the meeting unprepared

Commonly shippers come to the negotiating table without detailed answers on their leverage points or comprehensive knowledge of their distribution. Like any meeting, you have to do your prep work. Otherwise, you are wasting time and money as well as setting up your company for future problems if the FedEx contract does not fully or ideally satisfy your shipping needs.

Without proper preparation, you will lose credibility and leave yourself at an immediate disadvantage. Reach out to contacts and experts within your network for benchmarks. If they have contracts with FedEx, you should try to find out what rate they are getting. Ask them what they would have done differently. This will help you enter your negotiations confident since you have comparison points.

Not reading the contract

Many shippers focus entirely on the contract negotiations and incentives and neglect the fine print, the terms, and conditions. Terms are a great place to look for cost savings that all too often go ignored. Further, incentives are often diminished or canceled out due to terms such as general rate increases, accessorial charges, minimum shipment charges, late payment fees and other hidden surprises.

Entering the meeting overly aggressive

Some view contract negotiations as if it were some sort of duel, but this mindset will likely lead to very little good. Proper negotiation requires a give and a take; it is two mutually interested parties gathering together. If you go in overly aggressive or are unwilling to be flexible, your FedEx rep will likely be the same. Remember, his job is to get his company the best rate possible for your goods, so you must work with him to establish an agreement that both of you are satisfied with.

Avoiding carrier meetings

Along the lines of that last thought, once a relationship has been forged, you have to work on it. That requires an open line of communication and reaching out to your rep besides that times you need something from them. Have periodic business reviews and keep your rep advised of any changes to your shipping patterns.

Conclusion

Optimizing your FedEx LTL pricing is not as simple as calling your rep and asking for a price reduction.  You need to know your data and be aware of the structure of your LTL agreement.  The time you spend preparing will be more than repaid by the savings you will earn in your negotiations.

FedEx Freight Contract

ups freight contract negotiation

UPS Freight Contract Negotiation: What You Need to Know

By | Contract Negotiation, News, UPS

For anyone looking to negotiate a freight contract with UPS for the first time or any who desire to re-negotiate their current UPS freight contract, it is wise to diligently prepare for that meeting or RFP (Request for Proposal) release.  Shipping and distribution can account for nearly half of a retailer’s operational budget, so it is no doubt a savvy move to initiate discussions on ways to save your company money and improve its bottom line. Below we will discuss things to keep in mind when approaching UPS for a discussion.

UPS Freight Trends

On top of UPS freight rate increases, shippers have had to deal with an increasing number of new accessorial charges over the past decade, such as home delivery, delivery area surcharges, fuel surcharges, lift gate service, handling, palletizing and substantial shipment surcharges. In many cases, accessorials now add an additional 30%-40% to a shipper’s total cost.

One blunder that many shippers make when approaching contract negotiations with UPS is to do so unpreparedly. As a result, carriers are more knowledgeable about a shipper’s distribution than the shippers themselves and to make matters worse, shippers often do not take the time to comprehend the structure and terms within the UPS contract. Often times, they will enter the meeting without benchmarks and comparisons of what other companies are being charged and provided. Having this type of information can help you check false or grandiose claims by UPS on the screaming deal they’re giving you.

Do Your Due Diligence

Prior to approaching the bargaining table with UPS, shippers must analyze all of their figures to have a better grasp of costs, accessorial charges, usage, routes, service usage, weight ranges, cost per shipment, and a variety of other factors. This way, shippers have focus points and priorities when it comes to concessions that will have the most substantial cost-saving impact on their bottom line.

Figure out which surcharges you can either find ways to avoid in future practice or can be another target for waivers or reductions. Whatever UPS says, keep in mind that all accessorial fees are negotiable. Reach out to other shippers who use UPS’s service and collect benchmarks from them. Having these numbers will give you leverage and encourage them to make concessions if they are giving others a better deal.

UPS freight contract negotiation

Questions Leading to UPS Freight Contract Negotiation

If you are planning to sit down with UPS face to face for the initial meeting, be sure to do your homework and prepare thoroughly for the negotiations ahead of time. There a variety of questions that you have to ask yourself regarding your company’s shipping goals and needs:

What type of freight are you shipping with UPS?

This is one of the most significant factors during the negotiation. Know your goods: Are they prone to damage? Likely to be stolen? Are they heavy or light? Difficult to handle or transport?  Will it need specialized equipment? Are they fungible? Could they do damage or contaminate other goods? Do they have to be refrigerated or kept at a specific temperature? All of these can play a major factor in pricing in the long run.

What type of UPS shipping service do you want?

Less than truckload – Less than truckload services allow you to only pay for the space in the truck’s cargo hold that your goods use. If you are regularly shipping less than ten pallets full of goods, or your freight ranges from 100 lbs to 4,000 lbs, LTL is likely the service you would be using. With LTL you make a tradeoff of speed for flexibility. Your goods can be shipped to multiple locations, routes, and lanes, at various times, with repeated shipments. It is more cost effective since you are getting every dollar out of the space you are renting. If you primarily ship LTL, try to get a FAK (freight of all kinds) rating where all goods are palletized together and sent using the same rate base. If you cover an array of freight classifications, this could save you a ton in the long run and also make freight bill audits easier.

Full truckload – With full truckload you rent out the truck’s entire cargo bay. You have the option to fill it up entirely or not at all. If you generally ship more than ten pallets or have shipments weighing more than two tons, then FTL is your likely choice. Even if you do not fill up the cargo, FTL may be your route if you have something that is very valuable, fragile, or heavy. With FTL your shipment is at lower risk since the goods never leave the truck and the only delivery locations are those you dictate.

Where do you ship?

Distance matters, unused or low-density routes/lanes cost more. Sometimes carriers do not service specific areas and have to transfer your shipment to a third party, which costs you more. If a carrier does not operate in an area where you do the majority of your shipping, why on earth would you partner with them?

Do you regularly pay your bills and on time?

Provide them with at least a half-year’s copies of invoices and payments to show that you are a reliable paying customer which gives you leverage. Will it be pre-paid, or paid upon completion of shipment?

If you have a current carrier, what are you paying them?

Freight negotiation often involves a non-incumbent carrier reaching out to pursue the shipper’s business. Provide them with some guidelines as to what you’re currently paying as an enticement for the carrier to offer better service or a better deal.

Are you growing?

Does your company have new goals, acquisitions or product releases in the near future that you expect will boost your company’s total revenue? If that answer is yes, you should request better rates that correspond with the improvement in the overall shipment volume that will be produced by an increase in revenue. It is challenging to grow in such a way that you see marginal gains based on that growth.  If you hit those tiers, be sure that your carrier sufficiently compensates you via discounts.

Are you shrinking?

Continued growth is often times unsustainable. If shifts in the economy, within your company, or in the industry, lead to a decline in profits or capital, this could have severe consequences to your budget. If you miss target tiers, you can lose a host of discounts that further ding your bottom line. Be open and honest with your carrier and be sure to form a new settlement that reflects the uncertainty ahead.

Are you a seasonal shipper?

If you are a seasonal shipper and you come to an agreement with your carrier that is executed outside of the peak season, you might fail to achieve revenue thresholds required to hit discounts in your target tier. To avoid this, your carrier should include an appropriate “ramp up” period so that your company has the time to establish a weekly rolling average that will let you reach your goals.

Other Questions Include:

  • How frequently do you ship your product?
  • What is your shipping schedule? – Which days of the week do you usually ship? If you can be flexible and pick non-peak days, you can likely get a better rate.
  • What is the tonnage of your average shipment – Does it require the carrier to come to your dock and load it up, or can you handle that?
  • What is the freight classification of your shipment? – Are their hazardous or breakable goods? Do special actions have to be taken to ensure their safety?

Early Termination Fees with UPS

If your contract stipulates early termination fees, do everything in your power to remove them. If a customer agrees to a deal and then terminates it before the deal expires, UPS can charge you 2.5% of the total charges billed to the customer by UPS during the fifty-two weeks previous to the customer’s notice of termination. Do everything in your power to avoid getting locked into contracts with constraining terms, early terminations, deferral penalties or any other constraints. Aim for increasing base discounts instead of creating incentives with rebates and revenue thresholds.

Consider Enlisting Help

Morgan Stanley’s Annual Best Practices Survey stated, “11% of the top 400 parcel shippers in the US have hired supply chain consultants to negotiate their FedEx, UPS, DHL and other transportation contracts. Most notably, these shippers — commanding a collective $1B in annual parcel shipping expenditures — report that parcel consultants reduced shipping costs as much as 49% lower from what the company had been able to negotiate on its own.”

Before you ever enter discussions in UPS freight contract negotiation, you should contemplate bringing in outside market experts to advise you on freight contract optimization, benchmarking, negotiations, and distribution analysis. Enlisting the services of consultants can help volume shippers obtain better terms with carriers, especially since they have a wealth of experience and industry knowledge; they know whether or not UPS is giving you the best deal possible. Many consultants will offer you a free analysis of your current rates and give you an idea of ways you can save.

Always remember that your business is very important to the carrier, even one as big as UPS. You have leverage, use it! Whether or not they will admit it upfront, often times, UPS has discounts, fees, rebates and incentives that are up for negotiation. Ideally, you want the flexibility to re-negotiate when the time comes and the companies who land the best freight contracts with UPS negotiate with a clear understanding of their shipping profile and with confidence about which areas or fees need amending. Be bold and brave, but also be respectful and flexible in your discussions. Remember, this should be a long-lasting, mutually beneficial relationship, treat it as such.

UPS freight contract negotiation

Parcel contract negotiation

Using Carrier Differences in Parcel Contract Negotiation

By | Contract Negotiation, News

Dozens, if not hundreds, of articles have been published on parcel contract negotiation: the do’s, the don’ts, benchmarking, cost basis negotiations, and so on.

While these tips are valuable and important (for the most part), many shippers have long followed these prescriptions, but feel they have taken negotiations as far as they can. Universally, they wonder what else they can do to gain leverage and maximize service and cost reduction.

Mostly, shippers don’t really understand the pricing and network differences between the two major parcel carriers, and therefore don’t properly leverage those variances to maximize service and cost savings.

While FedEx and UPS have many overlapping products, pricing structures and service parity, shippers that understand the differences between their services can use that knowledge as leverage to improve their negotiation positions. This article seeks to provide an opportunity to identify both carrier pricing and service differences, and more importantly, how to tie those differences into opportunities for improvements.

Pricing

Let’s start with pricing. FedEx and UPS rates and pricing policies are basically the same, right? Wrong!

In 2017, for the first time in a long time, rates between these two competitors no longer match, accessorials are different, dimensional policies differ, and fuel surcharges don’t compare. And while many industry pundits believe FedEx will soon announce a “holiday surcharge” to match UPS, as of this writing, UPS is the only carrier to have published details about its peak surcharge that will raise shipping costs for residential and oversized deliveries this holiday season.

Here is a list of some of the pricing differences by carrier as it relates to which has the most “shipper friendly” advantage. Study these differences before you enter parcel contract negotiation and choose teh carrier that best meets your needs and goals.

FedEx advantages:

  • Cheaper published rates: While published rates between FedEx and UPS are comparable, FedEx offers slightly less expensive published rates for all domestic Express (except Express Saver, UPS’s 3 Day Air pricing is significantly less expensive) and Ground (under 70 pounds) services.
  • Lower Ground minimum charges: At $7.25, FedEx Ground Commercial and FedEx Home Delivery minimum charges are lower than UPS at $7.32.
  • Lower fuel surcharges: FedEx customers pay less in fuel surcharges than do UPS customers. The weekly index comparisons for the week of 7/17/17 was: Domestic Air & International Air Export (4.25% for UPS, 2.5% for FedEx); Ground Surcharge (5.25% for UPS, 4.25% for FedEx)
  • No late payment fee: UPS customers are invoiced a late payment fee of 6% of the outstanding balance based upon the negotiated payment terms with UPS. FedEx carries no such fee.
  • No Third-Party billing fee: UPS customers pay a 2.5% premium when selecting Third Party Billing. FedEx carries no such fee.
  • Free Saturday delivery for FedEx Home Delivery: Many Ground Residential shippers and customers prefer delivery on Saturdays, as consumers are more likely to be home on weekends than during the week. Moreover, faster delivery (versus a Monday delivery) means customers receive their e-commerce orders two days earlier, prompting greater customer satisfaction, fewer returns (less time for buyer’s remorse) and many other documented benefits. FedEx Home Delivery is a Tuesday-Saturday delivery solution. UPS has historically delivered all Ground packages Monday-Friday; however, recently UPS modified its Ground Residential service to make Saturday delivery standard to major metropolitan zones. However, the service only covers about half of the U.S. population. Advantage, FedEx.
  • FedEx SmartPost does not apply dimensional pricing: Rather, it uses USPS standards including Balloon pricing. By contrast, UPS SurePost applies the same dimension-based pricing as Ground.
  • No ‘Peak Season’ surcharge: As of this writing, UPS shippers should leverage the fact that FedEx has not yet adopted any holiday surcharges to negotiate concessions to these new fees.

UPS advantages:

  • 166 DIM first cubic foot: While both carriers modified dimensional pricing in 2017 from a divisor of 166 to 139, UPS customer enjoy the higher 166 divisors for packages up to one cubic foot. FedEx, on the other hand, applies the costlier 139 dimensional divisor to all packages.
  • 3 Day Air: Comparing UPS 3 Day Air to the FedEx service equivalent (FedEx Express Saver), averaging all weights and zones 1-150 pounds, UPS is 17.05% cheaper than FedEx. Inner zones (zones 2-4) average 26.37% higher with FedEx Express Saver compared to UPS 3 Day Air.
  • Accessorials: Comparing key accessorial charges for 2017, UPS tends to offer more attractive pricing for shippers.
  • Some accessorials count towards revenue tiers: While both FedEx and UPS generally use revenue tiers to reward customers with higher discounts the more they ship, UPS allows transportation-related surcharges (including DAS, Large Package Surcharge, Residential Surcharge, and others) to contribute to revenue tiers. FedEx typically allows only freight (or transportation) charges – not accessorials charges – to contribute to revenue based incentives (called Earned Discounts).
  • Puerto Rico treated as domestic with UPS: As a result, UPS shipments between the U.S. and Puerto Rico are typically less expensive than FedEx.
  • Rebates: UPS often provides additional discounts as a “deferred tier thresholds” – or rebates – in which UPS will write your company a quarterly check as a percentage of your overall transportation expenditures. FedEx also offers a rebate program called the Earned Discount Override Program, but it is utilized significantly less than UPS.

Your Parcel Contract Negotiation Leveraging Edge

If you are a UPS customer,  demand they match FedEx fuel surcharges, Ground minimum charges, non-dimensioning of SmartPost, etc.

As an example, a UPS shipper wanting a discount to the Fuel Surcharge fee would want to know that they are paying a lot more in fuel surcharges than they would as a FedEx shipper.

Similarly, if UPS invoices included significant charges for Third Party Billing, Late Payment fees, or Peak Surcharges, UPS should waive those fees to match the pricing policies of their largest competitor.

And if you ship with FedEx, request that FedEx provide some of the pricing advantages of UPS (where most impacting) including a 166 dimensional divisor for the first cubic foot, ask that accessorial charges contribute to discount tiers, target FedEx Express Saver and Puerto Rico pricing for improvement, etc.

Network Differences

Apart from pricing differences, there are also significant service and network differences that can be leveraged.

As the largest user of USPS Parcel Select services, FedEx SmartPost enjoys deep discounts from the USPS for packages inducted at the Destination Delivery Unit (DDU, or final mile postal facility), allowing SmartPost a competitive advantage in the marketplace. SmartPost also offers two delivery attempts (versus one for UPS SurePost).

FedEx is also the largest LTL company in the U.S. Shippers that have both parcel and LTL needs can bundle services to enjoy deeper discounts on both services.

Finally, FedEx has invested hundreds of millions upgrading package sort centers and modernizing Ground hubs. As a result, FedEx boasts faster Ground deliveries than UPS in approximately 26% of ZIP to ZIP pairings.

While UPS might not immediately be able to match some of the services or network reach of FedEx, well-informed shippers will get UPS to provide unique services or special pricing to offset any perceived service disadvantage.

Of course, UPS also offers unique service and network distinctions that FedEx customers should leverage. UPS is the only carrier to offer a single, integrated network, providing operational convenience. By contrast, FedEx could demand their customer segregate packages for pickup by their different operating companies like Express, Ground, Home Delivery, etc.

UPS also offers more global “Access Points” – neighborhood stores designed to give online shoppers convenient delivery alternatives. Moreover, over 35 million consumers are now UPS MyChoice users – significantly more than the FedEx alternative (FedEx Delivery Manager) – empowering online shoppers and retailers with greater flexibility on residential delivery options. Again, the point being that while FedEx cannot simply wave a magic wand and get 35 million people to sign up for FedEx Delivery Manager, FedEx e-commerce shippers are wise to bring up some of the service differences with UPS as additional points in their FedEx contract and service negotiations.

In summary, shippers that understand the pricing and network differences between the two major parcel carriers can potentially leverage those variances to improve pricing and maximize services.

Wishing you great success in your next parcel contract negotiation!

Parcel contract negotiation