For most shippers, negotiating with carriers can be intimidating. Whether it’s your first time at the table or you’re a seasoned veteran, it’s easy to feel overwhelmed. The carriers are not only experienced negotiators, but they also have access to the details of your data. They leverage that information with very specific cost modeling algorithms to ultimately tip the scales in their favor!
One of my all-time favorite mottos is “Play like a Champion!” This motto can be applied to all areas of life, including “Negotiate like a Champion!” What can you do to level the playing field and negotiate more favorable parcel rate agreements for your company? The fact is that you can only negotiate like a champion if you are properly prepared with the right strategies and tools to facilitate a successful parcel negotiation. Here are the four key elements every shipper must have in place before initiating a parcel rate negotiation:
1. Innovative Technology
With the perpetual rise of e-commerce, staying competitive is more critical than ever. Technologies that provide analytical reporting and real-time, end-to-end tracking capabilities are increasingly necessary for accurate billing and guaranteeing quality of service. Another benefit of powerful reporting and tracking technology is the Business Intelligence that can be gleaned to your benefit and the overall success of the bid negotiations.
The carriers have detailed analyses of your supply chain characteristics and know exactly which levers to pull to ensure a profitable return for their bottom line. Having clear visibility and a detailed understanding of your specific characteristics will better assist you in achieving your strategic objectives. Do you have a technology partner with an outdated platform, or do you have one of the new, emerging technologies that are revolutionizing the supply chain industry? Can your current technology provide a complete re-rate of each carrier draft rate proposal? Can it provide comparisons against the baseline agreement in place, including accessorial fees such as DAS and Residential surcharges? These are important questions to ask yourself, as a side-by-side, total landed cost analysis will provide clarity to support your negotiation efforts.
2. Expert Knowledge
While carriers are negotiating multiple agreements on a daily basis, shippers commonly renegotiate no more than once every fiscal year. This disparity in experience isn’t easy to overcome, and the carriers often take full advantage.
To avoid this situation, you must utilize every resource at your disposal to bridge the knowledge gap and put an end to the disadvantage. Subscribe to receive industry resources, such as PARCEL, that provide educational opportunities and other pertinent information that will keep you abreast of the latest developments (usually the carriers announcing another rate increase!). If your team does not have the knowledge or time to do this internally, then I highly recommend you seek advice from professionals regarding the critical questions you should ask and the proper verbiage you can utilize to shift the negotiations in your favor. Learn how to identify hidden conditions and components of the rate proposals that are included solely for the carriers’ benefit. Ideally, you should consult with industry experts who possess the same knowledge, technology, and experience as the carriers themselves. Reputable and highly qualified consulting firms that are market experts can bridge the knowledge gap and manage the entire bid process from A-Z. Typically the savings results will be maximized with a third party, especially one with a robust platform to manage this process, allowing your team to focus on the day-to-day operations while still maintaining all decision-making powers in the project. In most cases, clients don’t even change carriers to achieve the savings.
3. Multiple Carriers
It’s nearly impossible to negotiate when the other side is holding all the cards. Engaging with multiple carriers, including USPS and other regional parcel carriers, can create the necessary pressure to shift the incumbent into business acquisition mode instead of business retention mode. USPS and many regional carriers provide exceptional service, lower surcharges, and even quicker service in some areas.
Having additional players at the table competing for your parcels will ensure that you are getting “market competitive” rates commensurate to your specific shipment characteristics and volume. Don’t be afraid to include multiple participants, and it’s not a bad idea to let the incumbent know that you’re doing this as well. Far too many times I’ve seen instances where a client has simply asked their carrier representative for better pricing, and, unfortunately, this does not work out very well for the client’s bottom line. You should trust your carrier partners, but there’s certainly nothing wrong with verifying that the incentives they are providing are competitive. We must all remember that the carrier representatives’ goals are partly based on a commission plan that relates to account profitability. Including multiple carriers may add complexity and time to the bid process, but the benefits far outweigh the alternative. By doing so, you provide your company with a true validation that you really do have “the best rates in the region.”
Taking this approach will ensure that your incumbent provider is treating you fairly, and if not, having multiple carriers will help you to better leverage and ultimately achieve the savings you deserve. Keep in mind that you are the customer, and let them know you are willing to take your business elsewhere. This forms a fair and balanced business relationship.
4. Time Investment
One of the most critical and valuable resources of any negotiation is time. Bid projects can take months and involve an abundance of proposals, analysis, and revisions. The carriers are masters at prolonging bid processes. Their behavior is purposeful, as it allows them to hold their profits for as long as possible. Moreover, it’s common for them to submit a domestic agreement and then wait to provide the international incentives. It can be very frustrating when the carriers deliberately delay the process. Often clients will become impatient and “settle” on an agreement, even though they could do better. It’s common that projects have deadlines, and the carriers will use this time delay tactic to their benefit.
The real fun starts once draft rate agreements are received and you begin the deep dive of sifting through 15+ page agreements with various moving parts that, if missed, can and will significantly impact your bottom line. It can be a daunting task, even for experienced supply chain professionals, to identify all the revisions the carrier has made. For clients handling the bid process internally, comparing the draft agreements to the baseline agreement is typically the bottleneck of the project. It’s the most time-consuming and tedious aspect, but the devil is in the details, and performing a forensic analysis is critical to your bottom line! Investing enough time to properly review each and every proposal thoroughly is necessary to maximize your savings and ensure that no gaps exist for the primary services that your company needs. Using a superior technology to perform the analytical due diligence can provide accuracy and will save you precious time.
Recap
Carriers have been increasing costs multiple times each year, collecting data, leveraging their negotiating experience, and sometimes using hidden clauses to generate profitable rate agreements in their favor. As a result, companies are attempting to balance this assault on their profit margins by hiring supply chain professionals at premium salaries that are steadily on the rise. Other companies are taking a different route by turning to third-party experts who already have audit and optimization technology platforms and are solely focused on cost-saving initiatives that immediately impact your bottom line. If you’ve never used a third party for assistance, you may want to reach out to one for more information.
With carrier negotiations, thorough preparation goes a long way. Though it may seem they have the upper hand, you certainly have the ability to level the playing field to negotiate a “Champion Rate Agreement” that benefits both you and your customers. Being prepared with these four “must-haves” in place will put in you in a great position to secure the best terms for your company’s bottom line.
Brad McBride has been in the transportation industry for 30 years. He founded Zero Down Supply Chain Solutions in 2003 after many years in high-level sales and operations roles in the logistics industry. Determined to make an impact on traditional industry practices and provide considerable savings for businesses, Brad also launched FreightOptics, the cutting-edge technology that provides one-login access to view and optimize all modes of transportation. Brad and the entire Zero Down team are passionate about helping companies achieve efficiencies and drive bottom-line supply chain savings throughout the organization. He can be reached at brad@zdscs.com.
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