In every bid event, you want to make sure you have all your bases covered and are setting yourself up for a great relationship with your carrier over the life of the contract. Fully understanding your parcel contract, including some of the easily overlooked pieces, can help mitigate future disagreements or unexpected budget issues. The following five things are key areas to consider carefully in your contract.
Accessorial Fee Discounts. This one may seem obvious – of course you want, and probably have, discounts on at least a few of your accessorial fees, but do you have them on the ones that mean the most to you from a monetary standpoint? A few sometimes overlooked accessorials and surcharge discounts are (a) not getting a fuel discount for all services, (b) not getting a Residential Fee discount for all Ground and Air services, and (c) not getting a DAS discount for Commercial shipments when you have one for Residential shipments. Remember, almost all Accessorial fees and surcharges are eligible for a discount—be proactive in finding those hidden ones that can cost you a significant amount over the life of your agreement.
High Minimum. You did a great job of obtaining a good discount off of list rates for your base shipping rates and are expecting to save a lot of money. While looking over the rates, you notice that a large portion is the same, which just happen to be your minimum that you failed to spend much time evaluating. Even if you think you ship very few light/low zone packages, which are generally priced at the minimum, you need to look at your finalized rates to see what the impact of the minimum is.
DIM Divisor. Consideration of your DIM divisor is especially important if you are switching your carrier or have plans to shift the mode of your shipments. With the recent announcement of FedEx going to dimensional weight pricing for SmartPost, this becomes even more important to consider for all carriers and modes.
Return Services. When you are looking through your contract proposal, make sure you look for return service codes. These can easily be overlooked or simply left out of a contract. When these are left out, you are stuck with paying list prices for returns or discussing these with the carrier after the agreement has been finalized.
Flexibility Killers. To totally optimize your shipping options, you need to ensure flexibility in your contract. Some of these are very apparent and some you have to read carefully to discern. Three areas of flexibility that can cause a lot of headaches over the life of your contract if you’re not careful are (a) locking up 100% of your packages to get the desired discounts, (b) large contract termination fees, and (c) terminology that does not allow you to bid your business until very shortly before the end of the contract. While some of these may not be avoidable depending on your situation, before signing your contract you must understand what these fully mean to you and any desired flexibility.
To know how to fully analyze the impact of these different pieces of your contract, it is pertinent to have good data at a level that will allow for modeling to be done. Navigating through all the pieces of the contract can seem extremely overwhelming at times. While there are many things to consider, this will hopefully help you gain some confidence and look for a few things that are often overlooked or hidden in the details of your parcel agreement.
Rick Miller is a Strategic Solutions Manager at Green Mountain Technology (GMT), a Parcel Spend Management service provider. In this role, Rick partners with clients representing over five hundred million dollars in parcel spend to provide GMT’s strategic Parcel Spend Management solutions - Network Optimization, Spend Analytics, and Contract Management. Rick has over sixteen years of experience working in various engineering, analytical, and management roles in which he was responsible for process and efficiency improvements, customer and product data modeling, capital expenditure justification, and cross-functional business planning. Prior to joining GMT, Rick spent four years working for FedEx. Rick holds a Bachelor of Science Degree in Industrial Engineering from Mississippi State University.
