Every merchant has a contract, which they typically renegotiate either annually or semi-annually, with a major shipping carrier. As merchants sit down to renew their contracts, they aim to negotiate for the best rate possible.
However, FedEx and UPS impose general rate increases each year; in 2018, both shipping carriers increased rates by 4.9%. On top of that are surcharges, which retailers are seeing a greater impact from this year, as almost all surcharge types from both carriers experienced rate increases. These surcharges are likely to continue rising at a much faster pace than general service rates.
While it may seem like these rate increases put contract negotiations out of the merchants’ control, there are steps they can take to manage the increases.
Retailers can compare rates between the carriers to determine which one will cost less based on what the merchants ship. For example, if a merchant ships big, bulky packages frequently, the company may want to choose the carrier that charges less for those size packages. Even if the merchant has no intention of actually switching carriers, it never hurts to request a rate proposal to see what possibilities are available. What may have worked at the beginning for a company may not make sense anymore.
Some retailers may choose to trim budgets for other departments within their companies to deal with an increased shipping budget if negotiations don’t go as planned. Others may pass the increases on to customers through higher inventory prices or increased shipping prices. However, this isn’t the best way to engender brand loyalty from customers as increased prices will likely drive them to a competitor with lower costs.
Add Shipping Software
There are software programs available that can help merchants, particularly small businesses and online retailers, manage their shipments. Investing in software that tracks companies’ carrier packages and service failures can provide significant data that can be used when renegotiating carrier contracts. Internal data is only so useful when sitting down to renegotiate a carrier contract; however, when armed with market data on shipping cost and performance, merchants are able to clearly point out areas where they’re paying more than companies shipping similar size and weight boxes. This data can also show that the reduced rates the other companies are paying had similar shipping volumes as well as rates for all carriers, not just the carrier a particular company is negotiating with.
This type of data can help companies cut through the clutter of standard negotiations and negotiate based on actual facts. It also allows the merchant to enter rate negotiations with more data than the shipping carrier, making it easy for the merchant to take a hard line on the discount the company should be receiving based on shipping volume across all carriers.
Merchants may see rate reductions in various areas, such as for their most frequent dimensional shipping weights. These price reductions would likely add a significant amount to their profits over the course of a year, as the savings in shipping costs translate directly to the bottom line.
In addition to a reduction in shipping prices, merchants can use this opportunity to better express their expectations with their shipping carriers moving forward. Because the merchants are armed with this data, they can set expectations to move away from rate negotiations and focus their meetings on how the shipping carrier can help the company create a better delivery experience for its customers.
Because the company has this data, there is no need to negotiate better rates as the shipping carrier simply price matches the rates the company should be receiving, providing more time to focus the conversation on how the two partners can deliver an exceptional customer experience on every order.
Sriram Sridhar, co-founder and CEO of , is an expert in leveraging technology to optimize supply chain and e-commerce development. His focus centers on enhancing business operations through technology and creating simple but effective solutions to eliminate company-wide growth barriers.