A common problem faced by shippers in today’s market is the failure to consider just how much minimums can influence the net impact on the incentive discounts of certain service levels. For some companies, mainly those with higher package weights, minimums are not an issue.

But for other, lighter weight shippers, the minimums contained within the fine print FedEx and UPS carrier pricing agreements can have a paralyzing impact on the bottom line.

To illustrate this scenario, I will borrow from a recent blog article I wrote, which highlights the issue:

Let’s say your company is growing and, recognizing your success, your carrier rep proposes improved discounts. Citing commitment to partnership and value, he or she offers to bump that ground incentive of yours from 30 percent to 35.

In-house, your management team is spring cleaning its budget and this revelation presents an opportunity to do what so many other companies are trying to do – cut cost.

One- to 5-pound ground shipments make up a good portion of your parcel spend, so the 5-percent improvement sure seems promising. But before signing off on the deal, it is imperative that you determine whether the minimum language contained in the revised deal will, in actuality, prevent you from achieving the additional discount.

For example, if your average shipment is a Zone 4, 5-pound package, then it carries a published rate of $8.42. That means the 30 percent discount you had before your rep walked in would net you a rate of $5.89.

The Zone 2, 1-pound minimum charge, however, carries a price tag of $5.84. In other words, regardless of the percentage discount, your package will never fall below that price.

So, while the gross impact of your initial 30 percent discount barely skirted falling below it, your new, improved 35 percent discount will not. In this example, you would receive just $0.05 of that additional discount before hitting the price floor – a far cry from five percent that would have resulted in you paying $5.47, or $0.42 less per piece.

If you ship 100 such packages a week, you will only save $5.00, rather than $42.00. Over the course of a year, that is $260.00 in savings as opposed to $2,184.00. If you ship 1,000 packages, the annual difference widens to $19,240.00 of missed opportunity.

As you can see, the more packages you ship, the minimum impact is hardly minimal.

Brandon Staton is the Marketing and Communications Manager for Transportation Impact, LLC, an industry-leading parcel spend management firm. Brandon and the Transportation Impact team have helped negotiate small package contracts for some of the most well-known companies in the world, reducing their respective parcel shipping costs by an average of more than 18%. Brandon can be reached directly at 252.764.2885 or via email at bstaton@transportationimpact.com.