Ignorance is a profit center for carriers. There—it’s been said.
Getting the best rates for your company is an impossible task if you don’t know what the carriers really want out of you. To put it simply, you just want a good deal and the carrier wants a good margin. But who has the advantage in contract negotiations?
The less you know about the carrier’s cost and pricing structure, the less likely you are to optimize your end of the deal. To cross-compare, it’s no wonder why a used car salesman will not divulge the dealership costs of that 2010 Corvette with 40,000 miles. All he tells you is that the price you’re offering will create red ink on his balance sheet. Is he being honest? Probably not. But you don’t know that unless you have specific insight into his cost on that particular vehicle.
If you’re resourceful, you can dig up benchmarked market data to create some wiggle room in negotiations. In the used car scenario, see the Vinny app. The idea behind this negotiating tool is that it provides prospective car buyers with negotiating leverage that they can take to car lots. The Vinny app scans a VIN number and pulls nationwide auction data on that Year/Make/Model vehicle. The ingenious result is the insight that provides a general idea as to what a dealership might pay for that vehicle.
The Vinny app has similarities to the benchmarking approach used by companies in carrier contract negotiations. The benchmark approach can provide general cost and pricing insight that makes companies more comfortable at the table and make carrier negotiations a little more favorable. The results are generally positive. Companies save money, and they feel great about the concessions received from the carriers. But they still have no specifics as to carrier costs and, therefore, no idea how much money was left on the table. Here’s a hint: it was a lot.
Using a cost model approach, negotiators drill deeper to understand the specifics of carrier costs relative to the company’s specific shipping traits. When implemented correctly, companies save significantly more in their carrier agreements because they understand the carriers’ preferred margins, where they’re overly profitable and precisely what concessions are available.
Yet, the cost model approach is rarely utilized in negotiations with carriers. Why? The short answer is that cost modeling requires the right mix of experience and a particular insider’s knowledge of the carriers’ cost models and pricing structure—a knowledge not generally possessed outside the carriers’ executive pricing teams.
At the Parcel Forum '15, iDrive Logistics CEO Shaun Rothwell will explain carrier pricing and how benchmarking and cost modeling impacts negotiations. Shaun will focus on carrier pricing structure, how consulting firms typically develop their pricing strategies and how cost modeling differs from a benchmark approach. Don't miss it. The information provided might forever change your financial pie charts. 
For more information about the speaking session, contact Matt Simmons at matthew@idrivelogistics.com.  
Parcel Forum ’15 Chicago
October 21, 2015
TM206 Learn the Difference: Cost Model vs. Benchmark Pricing
Presented by Shaun Rothwell, Co-Founder and CEO, iDrive Logistics