If I didn’t know better, I would swear the author of this popular idiom was referring to small parcel contract negotiations. The days of simplified, five page parcel contracts are over, and today’s 40 pagers are choked full of seemingly innocuous variables that can make or break your freight budget.
As carrier contracts and pricing have become increasingly cumbersome, we’ve identified several areas that are frequently overlooked or not given sufficient attention. Three main culprits include:
· Minimum Package Charges
· Package Types
· Revenue Threshold Calculations
Minimum Package Charges
Present in all parcel agreements are “Minimum Package Charges” (MPC) for all services. The default MPC for all services is the published rate corresponding to the lowest zone and weight for that service. For instance, the MPC for UPS’ Ground Commercial service is $4.57. Regardless of your contractual discounts, you will pay no less than $4.57 for that package. Many shippers fail to realize that the MPCs are negotiable. Recognizing and reducing your MPCs will go a long way to helping you minimize your parcel costs.
You should also be aware that most shippers are more negatively affected by the increase in MPCs each year than by any other aspect of the annual GRIs. The MPC for UPS’ Ground Commercial service has increased more than 26% over the last five years.
Shippers that negotiate GRI caps need to be expressly aware of how the caps will affect the MPCs. It is often assumed that your rate per weight and zone will simply increase no more than your contractual GRI cap; however, that is almost never the case. I recommend that shippers negotiate a specific dollar amount for future MPCs throughout the life of the contract rather than depending on GRI percentage caps. Also, don’t assume MPCs apply to ground shipments only. Unless your contract identifies “$0.00” MPC for a given service, assume your MPC equals the published MPC.
Package Types
The quantity of package types within carrier billing practices almost surpasses the number of services offered. FedEx currently utilizes no less than eight autonomous ‘package types’ (i.e. OB, IB, 3P, RB, PRP, ZJ, RM, and TB).
Shippers falsely assume that service incentives apply to all package types; however, this could not be further from the truth. Carrier invoices will strictly adhere to carrier contracts. Unless your contract states that incentives apply to each package types, they won’t. We have seen shippers flush millions down the drain simply by failing to negotiate incentives for all package types. A little due diligence during contract negotiations will go a long way to maximizing your discounts and avoiding costly mistakes down the road.
Revenue Thresholds
A popular method used by carriers to maximize shipper volume is to provide incremental discounts for incremental business. While all shippers want to be rewarded for generating more volume, there is more to these revenue thresholds than meets the eye.
Though the threshold structure appears rather simplistic, many factors contribute to the revenue calculation. A shipper’s threshold is typically applied each week by determining the shipper’s average weekly gross revenue over a period of time (typically 52 weeks). While it’s widely understood that accessorial charges are not included in the calculation, there may be some things you didn’t realize regarding the calculation logic. Common misconceptions about revenue thresholds include:
· All services are included. False – Unless the specific service is recognized in the revenue threshold area of your contract, the money spent on that service is not included. Common exclusions; imports, NDA Early A.M., intra-HI, etc.
· All package types are included. False – The package type will not be included in the calculation unless the specific type is included the contract verbiage.
· The weekly rolling average is adjusted for my company’s recognized ship days. False – The calculation does not account for shipper downtime or company holidays not recognized by the carrier.
A little knowledge applied in your contract negotiations will go a long way to maximizing your revenue threshold incentives and reducing your parcel expenditures.
In today’s economy, every dime counts, and the only way to ensure you’re saving as many of those dimes as possible is to realize that the ‘devil is in the details’!
As carrier contracts and pricing have become increasingly cumbersome, we’ve identified several areas that are frequently overlooked or not given sufficient attention. Three main culprits include:
· Minimum Package Charges
· Package Types
· Revenue Threshold Calculations
Minimum Package Charges
Present in all parcel agreements are “Minimum Package Charges” (MPC) for all services. The default MPC for all services is the published rate corresponding to the lowest zone and weight for that service. For instance, the MPC for UPS’ Ground Commercial service is $4.57. Regardless of your contractual discounts, you will pay no less than $4.57 for that package. Many shippers fail to realize that the MPCs are negotiable. Recognizing and reducing your MPCs will go a long way to helping you minimize your parcel costs.
You should also be aware that most shippers are more negatively affected by the increase in MPCs each year than by any other aspect of the annual GRIs. The MPC for UPS’ Ground Commercial service has increased more than 26% over the last five years.
Shippers that negotiate GRI caps need to be expressly aware of how the caps will affect the MPCs. It is often assumed that your rate per weight and zone will simply increase no more than your contractual GRI cap; however, that is almost never the case. I recommend that shippers negotiate a specific dollar amount for future MPCs throughout the life of the contract rather than depending on GRI percentage caps. Also, don’t assume MPCs apply to ground shipments only. Unless your contract identifies “$0.00” MPC for a given service, assume your MPC equals the published MPC.
Package Types
The quantity of package types within carrier billing practices almost surpasses the number of services offered. FedEx currently utilizes no less than eight autonomous ‘package types’ (i.e. OB, IB, 3P, RB, PRP, ZJ, RM, and TB).
Shippers falsely assume that service incentives apply to all package types; however, this could not be further from the truth. Carrier invoices will strictly adhere to carrier contracts. Unless your contract states that incentives apply to each package types, they won’t. We have seen shippers flush millions down the drain simply by failing to negotiate incentives for all package types. A little due diligence during contract negotiations will go a long way to maximizing your discounts and avoiding costly mistakes down the road.
Revenue Thresholds
A popular method used by carriers to maximize shipper volume is to provide incremental discounts for incremental business. While all shippers want to be rewarded for generating more volume, there is more to these revenue thresholds than meets the eye.
Though the threshold structure appears rather simplistic, many factors contribute to the revenue calculation. A shipper’s threshold is typically applied each week by determining the shipper’s average weekly gross revenue over a period of time (typically 52 weeks). While it’s widely understood that accessorial charges are not included in the calculation, there may be some things you didn’t realize regarding the calculation logic. Common misconceptions about revenue thresholds include:
· All services are included. False – Unless the specific service is recognized in the revenue threshold area of your contract, the money spent on that service is not included. Common exclusions; imports, NDA Early A.M., intra-HI, etc.
· All package types are included. False – The package type will not be included in the calculation unless the specific type is included the contract verbiage.
· The weekly rolling average is adjusted for my company’s recognized ship days. False – The calculation does not account for shipper downtime or company holidays not recognized by the carrier.
A little knowledge applied in your contract negotiations will go a long way to maximizing your revenue threshold incentives and reducing your parcel expenditures.
In today’s economy, every dime counts, and the only way to ensure you’re saving as many of those dimes as possible is to realize that the ‘devil is in the details’!
Mitch Felts is the President and CEO of Distribution Management Group, Inc. For more information, please visit www.dmgincorporated.com or email mitch@dmgincorporated.com
