When it comes to global parcel and freight forwarding agreements, caution should be the rule of the day. Why? Because these agreements can often contain difficult to interpret terms or condition, which could affect your shipping costs either now or in the future. The end result should be a fair agreement for both sides, with terms and conditions clearly delineated. And don’t be afraid to seek outside professional assistance before signing on the dotted line. Carriers are understandably reluctant to reopen an already completed agreement, so it’s important to have the necessary T&Cs right the first time. Here are a few tips, gleaned from many years of experience.
Data bedrock: Solid shipment characteristic data is vital to achieving reasonable contractual discounts. It is worth the time and effort to take last year’s shipment data and this year’s sales projections and convert them into accurate, detailed shipping volume estimates for both domestic and international volume estimates.
Definition: One thing to keep in mind at the outset is that we often refer to as “carrier contracts” are actually pricing agreements, and typically do not mention the word "contract." Typically, these agreements have a 30-day cancellation provision, by either party, and without cause. In our experience, however, it's unusual that a carrier will exercise the cancellation provision, and pull the pricing on agreement prior to the expiration of the agreement.
Inclusive Discounts: Oftentimes we have seen some agreements that did not include discounts for all the services our clients were using. It is important for a shipper to have discounts in place for the services he intends to use and then to alert those shipping where the discounts are applicable. For example, in some cases an express service may have a lower net cost than an economy service based on the carrier discounts being offered. The users should understand that next AM type services typically are not discounted or have limited discounts so that a 10:30 service is much cheaper for around two hours’ difference in delivery time.
Flexibility: Some pricing agreements include provisions that may limit your flexibility, either in the event that your shipping volume decreases, or that you wish to explore other carrier options. These provisions can be in the form of tier based incentives, deferred incentives, reduced discounts, rebate checks, or even cash penalties if certain conditions are not met. As a general rule, we advise our clients on strategies to avoid those provisions whenever possible.
GRI: Another important consideration regards GRI (General Rate Increase) terminology. Although beyond the scope of a quick tip, we have developed strategies which limit rate and accessorial exposure during the second and third year of pricing agreements. GRI terminology can be expressed in many different forms. Our goal is terminology that is fair to both parties, while limiting the scope and impact of future increases to a reasonable, pre agreed upon amount.
Accessorials: We are often asked about which accessorial charges can be either be reduced, or avoided altogether. Our simple answer is the pricing needs to be looked at in its totality. For our clients, we seek the best combination of service, base rates and accessorials, which result in the lowest overall costs at the end of the day. Is it possible to get some accessorial charges waived entirely? Depending on your characteristics and spend, yes, it might be. But it is also highly likely that the waiver will be compensated by higher base rates. The take away should be: “look at the bottom line total.”
Dimensional Weight: Dimensional charges are another hot topic, since a number of carriers continue to lower their dimensional factors, which has the effect of raising costs on packages with less than favorable cube characteristics. We consult with our clients on a number of dimensional related initiatives, and we believe that carrier pricing should reflect the totality of your shipping characteristics with that carrier. For instance, dimensional penalties do not take into account your overall cube (as represented as lbs per cubic foot or kg per cubic meter), but instead penalize individual packages or shipments with less favorable cube.
Summary: When developing your global shipping contract there are a number of factors to consider. Good data and solid advice from an experienced professional are essential to development of a solid global contract. Careful review of accessorial fees, GRI, discount tiers, dimensional factors, and overall discounts can all contribute to cost savings.
Data bedrock: Solid shipment characteristic data is vital to achieving reasonable contractual discounts. It is worth the time and effort to take last year’s shipment data and this year’s sales projections and convert them into accurate, detailed shipping volume estimates for both domestic and international volume estimates.
Definition: One thing to keep in mind at the outset is that we often refer to as “carrier contracts” are actually pricing agreements, and typically do not mention the word "contract." Typically, these agreements have a 30-day cancellation provision, by either party, and without cause. In our experience, however, it's unusual that a carrier will exercise the cancellation provision, and pull the pricing on agreement prior to the expiration of the agreement.
Inclusive Discounts: Oftentimes we have seen some agreements that did not include discounts for all the services our clients were using. It is important for a shipper to have discounts in place for the services he intends to use and then to alert those shipping where the discounts are applicable. For example, in some cases an express service may have a lower net cost than an economy service based on the carrier discounts being offered. The users should understand that next AM type services typically are not discounted or have limited discounts so that a 10:30 service is much cheaper for around two hours’ difference in delivery time.
Flexibility: Some pricing agreements include provisions that may limit your flexibility, either in the event that your shipping volume decreases, or that you wish to explore other carrier options. These provisions can be in the form of tier based incentives, deferred incentives, reduced discounts, rebate checks, or even cash penalties if certain conditions are not met. As a general rule, we advise our clients on strategies to avoid those provisions whenever possible.
GRI: Another important consideration regards GRI (General Rate Increase) terminology. Although beyond the scope of a quick tip, we have developed strategies which limit rate and accessorial exposure during the second and third year of pricing agreements. GRI terminology can be expressed in many different forms. Our goal is terminology that is fair to both parties, while limiting the scope and impact of future increases to a reasonable, pre agreed upon amount.
Accessorials: We are often asked about which accessorial charges can be either be reduced, or avoided altogether. Our simple answer is the pricing needs to be looked at in its totality. For our clients, we seek the best combination of service, base rates and accessorials, which result in the lowest overall costs at the end of the day. Is it possible to get some accessorial charges waived entirely? Depending on your characteristics and spend, yes, it might be. But it is also highly likely that the waiver will be compensated by higher base rates. The take away should be: “look at the bottom line total.”
Dimensional Weight: Dimensional charges are another hot topic, since a number of carriers continue to lower their dimensional factors, which has the effect of raising costs on packages with less than favorable cube characteristics. We consult with our clients on a number of dimensional related initiatives, and we believe that carrier pricing should reflect the totality of your shipping characteristics with that carrier. For instance, dimensional penalties do not take into account your overall cube (as represented as lbs per cubic foot or kg per cubic meter), but instead penalize individual packages or shipments with less favorable cube.
Summary: When developing your global shipping contract there are a number of factors to consider. Good data and solid advice from an experienced professional are essential to development of a solid global contract. Careful review of accessorial fees, GRI, discount tiers, dimensional factors, and overall discounts can all contribute to cost savings.
