For the last two years, FedEx and UPS have been putting their shipping customers to a distinct disadvantage at the negotiating table by telling them they cannot work with third party contract negotiators (3PN). The carriers’ motive is obvious – they want to make more money. Out of fear of reprisal from their carrier, many shippers have shied away from using 3PNs because carriers have threatened to cancel their contracts if they do so. The behavior of UPS and FedEx caught the attention of the US Department of Justice, which initiated a probe into antitrust practices.
The strong-arming tactics have paid off for the carriers who are reporting record profits, and the end result for shippers is that they are paying too much for parcel shipping. The amount of money being left on the table is staggering. We conducted an analysis to determine exactly how much money is at stake.
The analysis began with a market study performed by Morgan Stanley, which shows that companies who use a 3PN received discounts that were 49% better than those who used only in-house personnel. In 2006, Morgan Stanley studied 250 shippers of UPS and FedEx packages. They compared the discount levels of those who used a 3PN to the discount levels of companies who negotiated on their own — via RFP, auction or face-to-face, but without help from a 3PN.
We applied that savings to an estimated shipping volume of $75 billion for the two carriers, and calculated the amount to be approximately $12 billion that shippers are overpaying every year for parcel shipping services because they are worried that UPS or FedEx will cancel their agreements. Money that could be used instead to hire new employees, install new software and equipment or upgrade facilities. Talk about an economic stimulus for businesses!
So how do UPS and FedEx rationalize this customer-unfriendly practice of scaring shippers away from 3PNs? According to the carriers, “our people are best equipped to discuss pricing with the shippers.” Sounds pretty one-sided. Is that how you would purchase a new car — simply trust that the car salesperson had your best financial interest in mind? Probably not. Add to this scenario the fact that the carrier contracts are incredibly complex, and there is almost no pricing transparency outside of posted “rack rates.” Turning to a consultant who has negotiated hundreds of these types of contracts and who likely knows what your competitors are paying for shipping would appear to be in a company’s best interest.
The antitrust case against the carriers is moving forward with a jury trial scheduled for February, 2012. In the meantime, thankfully shippers do have options, and third party negotiators are ready to assist in obtaining the best parcel shipping rates. The carriers contend that their policies don't explicitly state they are terminating their relationships with third-party consultants, but that they would continue dealing with the third parties "at the discretion of the individual company's management."
For a copy of the Morgan Stanley report or for an update on the case against UPS and FedEx’s antitrust investigation, please contact Brett Febus at bfebus@insourcesmg.com or by calling 614-876-3407.
Brett Febus is the founder and President of Insource Spend Management, one the country’s most respected spend management consulting firms with more than a decade representing Fortune 500 and mid-market companies at the negotiation table. Insource is ranked as an Inc. 5000 Fastest Growing Privately Held Company. Brett is a former UPS Sales and Operations Manager and was recently named an Ernst & Young Entrepreneur of the Year finalist for South Central Ohio and Kentucky.
The strong-arming tactics have paid off for the carriers who are reporting record profits, and the end result for shippers is that they are paying too much for parcel shipping. The amount of money being left on the table is staggering. We conducted an analysis to determine exactly how much money is at stake.
The analysis began with a market study performed by Morgan Stanley, which shows that companies who use a 3PN received discounts that were 49% better than those who used only in-house personnel. In 2006, Morgan Stanley studied 250 shippers of UPS and FedEx packages. They compared the discount levels of those who used a 3PN to the discount levels of companies who negotiated on their own — via RFP, auction or face-to-face, but without help from a 3PN.
We applied that savings to an estimated shipping volume of $75 billion for the two carriers, and calculated the amount to be approximately $12 billion that shippers are overpaying every year for parcel shipping services because they are worried that UPS or FedEx will cancel their agreements. Money that could be used instead to hire new employees, install new software and equipment or upgrade facilities. Talk about an economic stimulus for businesses!
So how do UPS and FedEx rationalize this customer-unfriendly practice of scaring shippers away from 3PNs? According to the carriers, “our people are best equipped to discuss pricing with the shippers.” Sounds pretty one-sided. Is that how you would purchase a new car — simply trust that the car salesperson had your best financial interest in mind? Probably not. Add to this scenario the fact that the carrier contracts are incredibly complex, and there is almost no pricing transparency outside of posted “rack rates.” Turning to a consultant who has negotiated hundreds of these types of contracts and who likely knows what your competitors are paying for shipping would appear to be in a company’s best interest.
The antitrust case against the carriers is moving forward with a jury trial scheduled for February, 2012. In the meantime, thankfully shippers do have options, and third party negotiators are ready to assist in obtaining the best parcel shipping rates. The carriers contend that their policies don't explicitly state they are terminating their relationships with third-party consultants, but that they would continue dealing with the third parties "at the discretion of the individual company's management."
For a copy of the Morgan Stanley report or for an update on the case against UPS and FedEx’s antitrust investigation, please contact Brett Febus at bfebus@insourcesmg.com or by calling 614-876-3407.
Brett Febus is the founder and President of Insource Spend Management, one the country’s most respected spend management consulting firms with more than a decade representing Fortune 500 and mid-market companies at the negotiation table. Insource is ranked as an Inc. 5000 Fastest Growing Privately Held Company. Brett is a former UPS Sales and Operations Manager and was recently named an Ernst & Young Entrepreneur of the Year finalist for South Central Ohio and Kentucky.
