The shipping industry is in the midst of a digital revolution, and while that has certainly changed many aspects of the field, contract negotiations are still as straightforward as ever, at least in theory. When sitting down with a carrier to negotiate a contract, a shipper’s primary concern is generally to look out for their bottom line and make sure they are getting a good deal. Simple, right? Not so much.
There are thousands of business owners out there scratching their heads at their rates, wondering where they went wrong. Worse still, there are thousands more going through their day blissfully unaware that they are bleeding profits due to excessive fees. Negotiating shipping contracts is what the carriers do daily, and they are very good at it. They know exactly what they are looking to get out of a contract, and they know the best ways to manipulate the numbers to achieve those goals.
So, what can shippers do? Actually, quite a lot.
Carrier contracts are not as mysterious as they may seem, and there are ways to level the playing field. Negotiating a new contract that can help your business, instead of just putting money in the carriers’ pockets, is a process that can be broken down into four steps:
The first step when negotiating a new carrier contract is to be prepared going in. Keep in mind that while you should include multiple bid participants in the process (more on that in step two), the incumbent carriers have access to all of your shipping data when they sit down at the negotiation table, and so should you. Be prepared to share the details (minus the rates, of course!) with all participants so that everyone is on the same playing field. This will allow all of the bid participants to assign rates and fees based on information such as volume, distribution (domestic and international), packaging characteristics, seasonality, and more. If you don’t know your exact volumes, where it’s all going, when it’s going out, and in what containers, that knowledge gap can be used against you. You must understand that your rates will go up any time a carrier has to “guess” about your volumes or shipment characteristics. Many shippers now utilize supply chain technology platforms that can give them real-time access to all of their shipping characteristics across all modes, packaged as easy-to-understand, actionable data. With access and visibility to your company’s unique shipping profile, the playing field becomes a lot more level.
Step two in negotiating is communicating properly. All the knowledge in the world won’t do you any good unless you know who to talk to and, more importantly, how. FedEx and UPS are currently vying against each other to generate the illusion of a duopoly in the parcel space, but they’re not the only game in town. There are regional carriers worldwide looking to win business, and these smaller carriers can often provide competitive, if not better, rates and services. You must create leverage by playing the carriers against one another, putting them into business acquisition mode to create an advantage for your company. Establishing leverage in a negotiation stems from one side’s willingness and ability to walk away from the table. Understanding and presenting your specific volumes and characteristics while including multiple participants is crucial for establishing the leverage needed to foster successful bid results.
You have pored over your shipping data and you now know exactly what revenue band you are in, the service levels and most frequently used accessorial charges, along with the zones you ship to most frequently. You’ve reached out to multiple carriers and the proposals are starting to come in. Now what? Step three in a negotiation is to make sure you understand what you are looking at before you sign on the dotted line. Carrier contracts can be dozens of pages long, packed with eye-crossing numbers and loaded with fine print. Understanding the impact of that oversize fee buried on page 17 or identifying that one line stating “client agrees to waive their right to money back guarantee on late shipments” can make a massive difference to your company’s bottom line and the transit times that you receive. Again, this is where technology can help. Modern digital shipping platforms are capable of inputting multiple contracts from diverse carriers and directly comparing those total landed costs against each other. Understanding the difference in accepting a higher discount for the additional handling surcharge versus a better dimensional weight divisor becomes much easier when you can simply look at rerated historical data to understand the bottom line impact. There are robust platforms in the marketplace that can model these nuances to clearly show what’s best for your specific bottom line.
The final step in negotiating a carrier contract is the hardest. In today’s business world where everything moves at a thousand miles a minute, your customers are certainly not going to slow down while you engage in a contract negotiation. It can sometimes seem like the carriers are masters in creating delays, and negotiating with them may take multiple proposals from each carrier before you achieve the best results. However, having the patience to wait out multiple offers and properly perform the analyses will end up paying off big time in the end. Landing better rates and lower fees could be the catalyst that propels your business to the next level. As they say, patience is a virtue.