When it comes to negotiating carrier agreements, carriers have a way of making shippers feel great about their discounts. However, more often than not, “fine print” gets in the way of an optimal agreement. Negotiating carrier agreements is not simply about the shiny, front-end discounts. It’s about the below-the-surface impact that language and structure has on your agreement.
Arguably, the most impactful part of the fine print relates to minimum package charges, which tends to get overshadowed by the sexiness of discount percentages. Not surprisingly, a large majority of shippers do not understand the minimum charge, how it affects them or where to even find the language in the agreement. Of particular impact is the minimum for Ground services.
Where to Find in Your Agreement
· FedEx Ground and FedEx Home Delivery: Two places in agreement—at the end of the FedEx Ground section and again at the end of the Home Delivery section labeled “Minimum Package Charge.”
The “Minimum” Affect
To highlight the impact of minimum package charges, imagine a 35% discount on 1-5 lb ground shipments that includes an “earned discount” provision with FedEx, (or “tiered discount” in UPS speak). The provision states that if the shipper spends X amount then they receive an extra 5% discount on ground shipments. Shippers understandably assume that they’re getting 35% plus an additional 5% for a total discount of 40%. Yet, in the fine print, there’s a provision that sets a “minimum charge” as being equal to a Zone 2, 1-lb package published rate. Since $6.94 is the published rate for 2016, any amount of the 40% that yields a lower rate will be bumped back up to the minimum $6.94 rate.
Thus, large-volume shippers of light-weight packages think they are getting 40% off, but their effective discount is closer to an average of 24% (based on 2016 rates). Even if shippers push for more and get an additional 5% to the top-line discount (thus 45%), they later discover that this 5% is, on average, an effective additional discount of .1% because of the minimum.
Curious what this minimum affect looks like? Download the PDF for a complete analysis.
Shaun Rothwell is Founder and CEO of iDrive Logistics, a supply chain management company that helps small parcel shippers optimize their transportation practices and reduce shipping costs. Shaun is a frequent guest speaker at supply chain forums and was recently featured in Forbes Magazine. Visit his profile at www.idrivelogistics.com.
View Fine Print.pdf