The small parcel landscape has changed dramatically over the last few years now that the two national carriers no longer have a "low price leader" to compete with. Not only has there been a relentless increase in the base package charge every January, but new accessorial charges have sprouted like mushrooms after a warm summer rain. Both carriers have made it clear that the negative results of "yield management exercises" will be a part of the future for every shipper.
If that were not bad enough, the national carriers have also introduced conditional contracts that have punitive language ( with negative consequences) for any shipper who allows their carrier rep to foist those provisions upon them. Specifically, I am referring to "exclusive contracts" where the offending shipper will be financially penalized for using alternative carriers, canceling their contract or not meeting minimum revenue targets.
Clearly the national carriers have the right to maximize the value of their company's value to their shareholders. But it takes it to a whole new level of competitive constraint when their contracts assess their customers a penalty of 2% of their 52 week shipping revenue if they do not meet the minimum revenue threshold.
Ironically (or perhaps better phrased, perversely), the national carriers intentional constraint of their competition may leave you at a competitive disadvantage in your own industry. The average length of a shipping contract is three years. So during the 156 long weeks that your contract is in effect, you may not be able to respond effectively to changes that are rapidly taking place in the marketplace. It will be different for every company, but here are some possible scenarios. Your e-commerce company has a history of shipping Ground but the relentless pressure of free shipping is cutting too deeply into your margins. You want to take advantage of the very competitive rates that the independent postal consolidators offer but your contract terms preclude that. Or conversely, you are in danger of losing your largest customer because your chief competitor has multiple distribution centers that enable them to provide next day Ground deliveries for their B2B shipments. You want to add regional parcel carriers to your shipping mix because they can deliver next day delivery at Ground rates to Zone 4 destinations but the diversion penalties in your contract are simply too great. Or it's January and the national carriers have just added three new accessorial charges that you haven't budgeted for. You would really like to use the USPS to mitigate that additional expense, but your CFO's head would explode if he was compelled to write a check to UPS or FedEx for failing to meet their minimum revenue targets.
These are all very real possibilities and you should definitely try to factor in changes in your business landscape when negotiating carrier contracts with the Big Two carriers.
So the next time your national carrier representative tries to insert exclusivity language ( and penalties) into your shipping contract: JUST SAY NO!
Mark Magill is Director of Business Development, OnTrac. Contact him at (818) 482-0844 ormmagill@ontrac.com
If that were not bad enough, the national carriers have also introduced conditional contracts that have punitive language ( with negative consequences) for any shipper who allows their carrier rep to foist those provisions upon them. Specifically, I am referring to "exclusive contracts" where the offending shipper will be financially penalized for using alternative carriers, canceling their contract or not meeting minimum revenue targets.
Clearly the national carriers have the right to maximize the value of their company's value to their shareholders. But it takes it to a whole new level of competitive constraint when their contracts assess their customers a penalty of 2% of their 52 week shipping revenue if they do not meet the minimum revenue threshold.
Ironically (or perhaps better phrased, perversely), the national carriers intentional constraint of their competition may leave you at a competitive disadvantage in your own industry. The average length of a shipping contract is three years. So during the 156 long weeks that your contract is in effect, you may not be able to respond effectively to changes that are rapidly taking place in the marketplace. It will be different for every company, but here are some possible scenarios. Your e-commerce company has a history of shipping Ground but the relentless pressure of free shipping is cutting too deeply into your margins. You want to take advantage of the very competitive rates that the independent postal consolidators offer but your contract terms preclude that. Or conversely, you are in danger of losing your largest customer because your chief competitor has multiple distribution centers that enable them to provide next day Ground deliveries for their B2B shipments. You want to add regional parcel carriers to your shipping mix because they can deliver next day delivery at Ground rates to Zone 4 destinations but the diversion penalties in your contract are simply too great. Or it's January and the national carriers have just added three new accessorial charges that you haven't budgeted for. You would really like to use the USPS to mitigate that additional expense, but your CFO's head would explode if he was compelled to write a check to UPS or FedEx for failing to meet their minimum revenue targets.
These are all very real possibilities and you should definitely try to factor in changes in your business landscape when negotiating carrier contracts with the Big Two carriers.
So the next time your national carrier representative tries to insert exclusivity language ( and penalties) into your shipping contract: JUST SAY NO!
Mark Magill is Director of Business Development, OnTrac. Contact him at (818) 482-0844 ormmagill@ontrac.com
