While the 2013 parcel rate increases have already been well documented (you can read more here,here and here), the more important question is, what can shippers do to mitigate the rate hikes?
Here are several strategies to mitigate rate increases and potentially reduce your overall parcel expenditures.
Manage Transportation Information
As a first step, shippers should collect and analyze service usage, expenditures, accessorial charges and other variables. The objective of this analysis is to develop a list of opportunities and priorities to be later negotiated.
Shippers should identify the impact of add-on fees such as residential deliveries, extended areas, fuel surcharges, weekly service fees and other handling charges. Quantify which surcharges have the greatest cost impact and target those accessorial charges for waivers or reductions during future negotiations.
Moreover, a thorough analysis of detailed shipment information can help you develop routing guidelines, modally optimize your supply chain using the lowest cost service per transit requirement, reduce address correction fees, decrease returns, identify missing discounts and more.
Benchmark
Prior to negotiations, conduct benchmarks to determine what range of discounting is possible and how your rates compare to other shippers of similar size.
Imagine your negotiating advantage if you discovered your current carrier incentives were the worst amongst a peer group? What if you knew the specific range of eligible discounts and accessorial concessions? You'd be prepared to enter your carrier negotiations with specific information of what's possible, and you'd certainly improve your pricing.
If you lack the ability to benchmark internally, several third party consulting companies should be able to conduct benchmark studies by industry, carrier, volume and package characteristics.
Negotiate, Negotiate, Negotiate
Armed with benchmarking data, work with your carrier reps to negotiate improved incentives. Don't overlook accessorial charges like fuel surcharges, residential add-on fees, area surcharges, weekly service fees, on-call pickup charges and the like.
Small changes to carrier agreements can have a large impact on overall savings. In addition to pursuing lower overall discounts, pursue improvements to contract terms. Negotiable items should also include payment terms, revenue bands, caps on future rate increases, dimensional divisors, minimum charges, discount structure and many others.
Formalize an RFP for Negotiations
The Request for Proposal (RFP) can be a terrific vehicle to improve shipping rates and terms. There are various RFP templates available as well as several qualified third parties if you prefer to outsource.
A well written RFP should clearly state savings objectives and include operational requirements (pick up times, trailer drop, etc.), automation needs (manifesting, web integration, etc.), pricing targets based on industry benchmarks and other key information. Be sure to provide the non-incumbent carrier with actual shipment data (cleansed of its competitor's pricing), common box sizes, pickup locations, seasonal volume data, etc.
Audit Freight Invoices
Each year more than $3 billion in "guaranteed" service claims are not refunded because claims are never filed. Refundable invoice items include late shipments entitled to money back guarantees, missing discounts, erroneous charges like residential delivery surcharges applied to business addresses, incorrect fuel surcharges, non-voided labels manifested but never shipped, and other common errors.
Don't know how to audit your invoices? Outsource it. There are a number of qualified audit & payment firms with weekly savings commonly ranging from 1% - 5% of the total invoice amount. An audit firm ensures you never overpay your carriers.
Qualified parcel audit companies have powerful software to validate rates and surcharges, identify and file claims on late shipments, and audit against a variety of common invoice errors. Once you've engaged an audit firm, they automatically receive and audit weekly parcel invoices, applying credits before you issue payment to the carrier.
Many audit firms are open to contingency-based compensation by taking a percentage of the credits applied to your parcel invoice. Moreover, parcel auditors can deliver rapid ROI by facilitating accounting charge-back requirements, GL coding, and spend management visibility and reporting.
Use your audited parcel data to better manage service levels and to make more cost effective shipping decisions. By focusing on overall delivery performance—not just the failures—shippers can drive down total shipping costs through routing compliance, identifying opportunities for modal optimization, limiting accessorial costs and other important actions. The more shippers know about their freight, the better they position themselves for carrier rate negotiations down the road.
Automation
Third-party options to carrier-provided systems offer varying levels of benefit and cost. Providers include Agile Network, Best Way Technologies, ExactShip, Harvey Software, Kewill, Malvern, Pitney Bowes, ADSI, ShipRush and TrueShip among others.
These systems can generate rapid ROI and savings of 10% or more. Some of the functions include least-cost routing across multiple carriers and/or service classes; validation of accessorial charges; accurate capture of dimension and weight; and upfront capture of total costs for accurate charge backs.
Software from a third party can replace multiple disparate systems and processes with a single solution that saves space, time and money. That also means you can integrate carrier networks, regional carriers, brokerage services, ocean and airfreight companies and third-party logistics services into one application.
Of course, there are dozens of other strategies, services and technologies not mentioned this article that can help you contain or reduce costs. However, the strategies discussed should point you in the right direction.
In summary, don't just contain rising shipping costs, make a plan to reduce them! With some effort (and perhaps a little help), you will not only mitigate 2013 rate increases, but also significantly reduce your company's shipping costs in the process. Good luck!
Rob Martinez is President and CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob has more than 20 years experience negotiating parcel contracts for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. Rob welcomes questions and comments, and can be reached at 858-879-2014 or rob@shipware.com.
Here are several strategies to mitigate rate increases and potentially reduce your overall parcel expenditures.
Manage Transportation Information
As a first step, shippers should collect and analyze service usage, expenditures, accessorial charges and other variables. The objective of this analysis is to develop a list of opportunities and priorities to be later negotiated.
Shippers should identify the impact of add-on fees such as residential deliveries, extended areas, fuel surcharges, weekly service fees and other handling charges. Quantify which surcharges have the greatest cost impact and target those accessorial charges for waivers or reductions during future negotiations.
Moreover, a thorough analysis of detailed shipment information can help you develop routing guidelines, modally optimize your supply chain using the lowest cost service per transit requirement, reduce address correction fees, decrease returns, identify missing discounts and more.
Benchmark
Prior to negotiations, conduct benchmarks to determine what range of discounting is possible and how your rates compare to other shippers of similar size.
Imagine your negotiating advantage if you discovered your current carrier incentives were the worst amongst a peer group? What if you knew the specific range of eligible discounts and accessorial concessions? You'd be prepared to enter your carrier negotiations with specific information of what's possible, and you'd certainly improve your pricing.
If you lack the ability to benchmark internally, several third party consulting companies should be able to conduct benchmark studies by industry, carrier, volume and package characteristics.
Negotiate, Negotiate, Negotiate
Armed with benchmarking data, work with your carrier reps to negotiate improved incentives. Don't overlook accessorial charges like fuel surcharges, residential add-on fees, area surcharges, weekly service fees, on-call pickup charges and the like.
Small changes to carrier agreements can have a large impact on overall savings. In addition to pursuing lower overall discounts, pursue improvements to contract terms. Negotiable items should also include payment terms, revenue bands, caps on future rate increases, dimensional divisors, minimum charges, discount structure and many others.
Formalize an RFP for Negotiations
The Request for Proposal (RFP) can be a terrific vehicle to improve shipping rates and terms. There are various RFP templates available as well as several qualified third parties if you prefer to outsource.
A well written RFP should clearly state savings objectives and include operational requirements (pick up times, trailer drop, etc.), automation needs (manifesting, web integration, etc.), pricing targets based on industry benchmarks and other key information. Be sure to provide the non-incumbent carrier with actual shipment data (cleansed of its competitor's pricing), common box sizes, pickup locations, seasonal volume data, etc.
Audit Freight Invoices
Each year more than $3 billion in "guaranteed" service claims are not refunded because claims are never filed. Refundable invoice items include late shipments entitled to money back guarantees, missing discounts, erroneous charges like residential delivery surcharges applied to business addresses, incorrect fuel surcharges, non-voided labels manifested but never shipped, and other common errors.
Don't know how to audit your invoices? Outsource it. There are a number of qualified audit & payment firms with weekly savings commonly ranging from 1% - 5% of the total invoice amount. An audit firm ensures you never overpay your carriers.
Qualified parcel audit companies have powerful software to validate rates and surcharges, identify and file claims on late shipments, and audit against a variety of common invoice errors. Once you've engaged an audit firm, they automatically receive and audit weekly parcel invoices, applying credits before you issue payment to the carrier.
Many audit firms are open to contingency-based compensation by taking a percentage of the credits applied to your parcel invoice. Moreover, parcel auditors can deliver rapid ROI by facilitating accounting charge-back requirements, GL coding, and spend management visibility and reporting.
Use your audited parcel data to better manage service levels and to make more cost effective shipping decisions. By focusing on overall delivery performance—not just the failures—shippers can drive down total shipping costs through routing compliance, identifying opportunities for modal optimization, limiting accessorial costs and other important actions. The more shippers know about their freight, the better they position themselves for carrier rate negotiations down the road.
Automation
Third-party options to carrier-provided systems offer varying levels of benefit and cost. Providers include Agile Network, Best Way Technologies, ExactShip, Harvey Software, Kewill, Malvern, Pitney Bowes, ADSI, ShipRush and TrueShip among others.
These systems can generate rapid ROI and savings of 10% or more. Some of the functions include least-cost routing across multiple carriers and/or service classes; validation of accessorial charges; accurate capture of dimension and weight; and upfront capture of total costs for accurate charge backs.
Software from a third party can replace multiple disparate systems and processes with a single solution that saves space, time and money. That also means you can integrate carrier networks, regional carriers, brokerage services, ocean and airfreight companies and third-party logistics services into one application.
Of course, there are dozens of other strategies, services and technologies not mentioned this article that can help you contain or reduce costs. However, the strategies discussed should point you in the right direction.
In summary, don't just contain rising shipping costs, make a plan to reduce them! With some effort (and perhaps a little help), you will not only mitigate 2013 rate increases, but also significantly reduce your company's shipping costs in the process. Good luck!
Rob Martinez is President and CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob has more than 20 years experience negotiating parcel contracts for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. Rob welcomes questions and comments, and can be reached at 858-879-2014 or rob@shipware.com.
