With companies of all kinds still wary of a potential recession, more are looking at how to cut costly consulting engagements. In an e-commerce age when it is more important than ever to optimize parcel shipping operations, the question is clear: Is it possible to cut expensive consulting engagements that provide carrier contract analysis and negotiation services? The answer may surprise you.
We have all seen it before. With a potential recession looming and blue-chip stalwarts – companies thought by many to be immune to economic woes – announcing layoffs and trimming operational costs, businesses of all kinds are taking proactive steps to jettison costs.
During such times, leaders typically require business units to decrease or cut consulting engagements. For shipping operations, this naturally necessitates looking at the expensive and now ubiquitous parcel consultants who provide carrier contract analysis and negotiation services.
But even in light of economic headwinds, is it advisable or even viable to cut consultants that help save money, but are themselves a source of payment fatigue? More specifically, is there an alternative able to address the complexities associated with parcel shipments and myriad factors that ultimately determine how much it costs to send any parcel from one point to another? Other industries provide some indication.
In some sectors technology now handles complex tasks that once required consultants
Across the business landscape complex, many mission-critical business functions that once required an army of consultants are now completed with Software-as-a-Service-based applications and platforms that feature robust data science capabilities. The examples are many and varied.
Tax consultants were replaced by TurboTax for millions of Americans. Through an intuitive interface, users navigate the complexities of the US tax code, with more than 100 million Americans filing their taxes through the platform over the past nine years.
Travel consultants likewise saw their businesses change when trip-planning apps like Expedia and Travelocity enabled anyone to easily book flights, hotels and rental cars – tasks that once required the insights and help of professionals.
Stock brokers faced a similar scenario when ETrade first enabled investors to buy and sell stocks with ease. Entrants like Robinhood later eliminated the commissions typically paid to brokers with each transaction.
Realtors experienced a similar transformation. Apps like Zillow and Redfin not only made it easier for individuals to sell or purchase a home, but offered commission rates half those traditionally paid to agents.
Most parcel negotiation consultants today benefit from a long-established model
Despite the widespread use of apps to displace or fundamentally change the role of consultants in other industries, most parcel carrier contract analysis and negotiation consultants today continue to benefit from a lucrative compensation model that has changed little over decades of use: gain share.
With gain share, the consultant is compensated by taking a percentage of the savings generated from the more favorable carrier contract terms and conditions they help to secure. This percentage is paid out to them over an agreed upon time period, often three years.
It is a lucrative arrangement for consultants who continue to be paid long after the work for the client is done. The typical parcel shipping audit offers a great example.
The audit is the first, rudimentary step most parcel consultants take. Many consulting companies still use human resources to perform this audit, which tends to be slow and error prone. Because of this human factor, it’s not uncommon in an RFP to have one consulting company identify twice as much savings as another. Many of the savings opportunities are simple fixes, while others require deep analysis, but the consultant reaps the benefits typically for three years regardless of the level of effort required.
In many cases, the client’s own success further enriches the consultant in such an arrangement. This can be seen when the savings the consultant secured grow as shipping volumes increase, such as during peak seasons, or even when the shipper’s organization expands one of its product lines and ships more of a product impacted by the consultant’s recommendations.
Shippers, while historically tired and weary of this arrangement, have had little choice given the complexities involved. With innumerable fine-print details governed by a litany of constantly-changing criteria – including new fees, new surcharges, and requirements related to everything from zones to parcel dimensions, and even what constitutes “peak season” – carriers’ shipping contracts were and remain purposely complex.
Most shippers assumed they didn’t have the expertise, resources or time required to decipher them, let alone negotiate a better agreement based on those insights. And in most cases, they were right. Each and every parcel shipment includes innumerable, and often unique, datapoints. As a result, for most the only option available was to continue with the status quo: hiring consultants.
Negotiating a carrier contract is complex, but it really comes down to three things
In thousands of negotiations for clients, we have found that there are three critical factors that lead to a successful negotiation. These include:
● Know your shipping profile better than the carrier: To effectively negotiate, shippers must know their shipping profile even better than the carrier. This requires knowing their shipping vital factors – the core metrics that reveal the scope, reach and health of their operation – among them total parcel shipping spend, total surcharge spend, average cost per shipment, average weight, the percentage of parcels that hit the carrier’s minimum charges, and average zone or which zones are shipped to most. This data enables shippers to “follow the money.” In this way, shippers can concentrate on those discounts that will have the greatest impact on the bottom line –just like stock trading apps show which investments to pay the most attention to.
● Know what to ask for: Wouldn’t it be great if the carriers’ actual pricing was transparent and shippers had visibility into compensation levels such as with consumer-oriented real estate apps today? And wouldn’t it be great to know exactly what you will be paying them, and once, rather than over the next three years as with gain share agreements? Simply asking for a “discount” is not enough. It must be specific. For example, does the data show that you are routinely paying overage charges because a popular product in your line includes packaging that is an inch too long on one side? If so, you must do one of two things: negotiate an exception to that rule, or redesign the product packaging used.
● Know how to ask for it: Negotiating a carrier agreement that is often many pages long and filled with exceptions and directives in fine print can be difficult and complex, kind of like navigating the US tax code when filing your returns. Sales representatives at the major carriers today use sophisticated data science applications to know each customer’s shipping profile and details before they go into negotiations. In much the same way, it is imperative that shippers point to facts and specifics when asking for exceptions. To do that, they must have data and be able to point to it when needed. Wouldn’t it be great if there was an app like TurboTax to guide you through the process – and to highlight what you should explore and ask for?
It is time to apply data science to parcel shipping
Notably, despite the lack of standardized data in the parcel shipping industry, new advancements in data science make it possible to address these three critical success factors with unprecedented speed and accuracy. Just as importantly, with an intuitive user interface, these capabilities are not confined to data scientists with machine learning, artificial intelligence and analytics expertise. Anyone can use them.
Like the advancements that ultimately changed how people file their taxes, book their travel, buy or sell their home, or trade in the markets, shippers can now do what once required armies of consultants. Not only that, but they can do so with more context and actionable insights at their fingertips than consultants have ever had access to. Through data science, complex “what if” scenarios can also be parsed in mere seconds – giving shippers real intelligence into how to best negotiate the best terms, conditions and service levels with their carrier.
Is parcel negotiation consulting dead?
SaaS-based apps and data science dramatically changed the role of accountants, travel agents, real estate agents and stock brokers. In much the same way, they will also dramatically change the parcel consulting sector as we know it today by giving shippers the ability to do on their own what consultants traditionally did for them. In the process, they will also likely eliminate, or at least change the gain share model.
But this does not mean parcel carrier contract analysis and negotiation consulting is dead. Just as a self-employed business owner or complex multi-national company might need robust accounting assistance, a consumer might need a real estate agent when purchasing a home from afar, a family might require a travel agent while planning a multi-faceted vacation, or an investor might benefit from a dedicated adviser able to provide insights relevant to their entire portfolio, knowledgeable parcel shipping consultants will remain needed for many organizations and in many situations.
Just as importantly, parcel consultants themselves will benefit from the data science now available to shipping operations. Armed with more data and context than ever before, consultants will bring unprecedented accuracy and efficiency to the clients they serve – a development one could argue will make parcel shipping consultants more important, and more needed than ever.
Josh Dunham is the co-founder and CEO of Reveel. Founded in 2006 to help shippers level the playing field for carriers, Reveel’s experts analyzed carrier contracts and provided insights used in thousands of negotiations by the nation’s most successful companies. In 2021, Reveel launched its Shipping Intelligence Platform, a SaaS-based analytics, contract analysis and negotiation solution that provides shippers with the actionable insights they need to lower shipping costs right now, on their own.
