True parcel experts are relatively rare, and if you don’t have one on your side, your parcel contract analysis and negotiation is not a level playing field with your carriers.
Fresh off both legacy carriers announcing their annual general rate increases, which happens every fall with the same inevitability as death and taxes, now is a good time to consider renegotiating your parcel agreements. While some really smart people have recently claimed that the need for consultants is waning due to advancements in artificial intelligence (AI), my experience illustrates why it remains vital to hire a consultant if you don’t already have an expert on staff. But you don’t have to rely on my opinion alone. A cursory understanding of the recent failure of Convoy provides a concrete example of how an overreliance on data spelled failure in the closely related LTL field. (“'Is there a need for technology? Hell yes!’ Barnes said. At the same time, it is vitally important to have traditional problem-solvers on the inside to make everything work, he said.”)
Of course, data is important, but practically every shipper has access to its parcel data. The carriers provide it in weekly invoices and online reporting tools. Many shippers even have auditors that provide further visibility to their data. However, not everyone knows how to use the data, including an increasingly high percentage of carrier sales reps.
Parcel Agreements Are Complex… on Purpose!
Parcel agreements serve as the blueprint for the shipping arrangements between a shipper and its carriers. They outline critical details such as shipping rates, surcharge rates, service levels, and other terms that impact the cost and efficiency of transporting goods. These agreements are complicated, and the complexity works to the carriers’ advantage. The longer and more intricate the contract, the more likely the shipper is to fatigue when trying to understand their agreement.
Navigating the complexities of these contracts demands expertise and strategic insight beyond what a machine can currently provide. Even the simplest of carrier agreements, think pricing templates, are often nine or 10 pages long. Typical carrier agreements exceed 20 or 30 pages, and some agreements can be over 100 pages long. All throughout these long, complex agreements are land mines, or “gotchas,” that can be hard to recover from.
More prevalent than ever is the insertion of commitment and early termination language, with severe financial penalties for shippers that don’t “live up to their end of the bargain.” This practice has become increasingly common as a result of UPS’s months-long labor negotiations, a period in which other carriers aggressively tried to win volume away from UPS. Often, it takes an expert to recognize these trends and, more importantly, know how to negotiate them.
You Need an Expert on Your Side
FedEx and UPS have, over time, conditioned shippers to unknowingly accept the fact that pricing agreements are complex and long. Similarly, shippers have been conditioned to accept that there is always an annual rate increase – commonly referred to as a general rate increase or GRI – around the same time each year, and often at the same reported average percent increase. “I know the carriers will be raising rates five again the first of the year and have already budgeted for it,” is something I hear often. It’s as if shippers have thrown their hands up and accepted that there is nothing that can be done about it.
You need an expert on your side because the carriers have teams of experts and count on the fact that it’s not a level playing field. Counting on AI to spit out some numbers – especially given the near impossibility of collecting enough timely, relevant data to properly train a predictive algorithm – will not help you win in a negotiation with FedEx and UPS. Instead, it takes a unique skill set to understand the nuance involved in a parcel contract because parcel contracts are uniquely different than all other transportation agreements. In order to figure out the cost of one parcel shipment, you may need to reference as many as five or six (or more) pages of the agreement, as compared to other forms of transportation being much more straightforward. Again, the complexity helps the carriers!
I lived this reality every day for 20 years in the roles I had before becoming a parcel transportation consultant, and coming to consulting has only solidified this belief. If you don’t have an expert, either in-house or by hiring an outside consultant, you are selling yourself and your organization short, leaving money on the table, and accepting a win/lose relationship with the carriers. Achieving a win/win outcome is possible, but the tables are tilted in their advantage, and the only way to compete is to create a level playing field by beating them at their own game.
Human vs. Machine
Using this past year as an example, it’s nearly impossible for AI to understand what is going on in the marketplace. The past year has seen more fluctuations in parcel pricing than the average year, largely due to market demand reverting to pre-COVID levels and the contentious labor negotiations between UPS and the Teamsters. With their networks down hundreds of thousands or even millions of pieces per day, UPS and FedEx are hungrier now for volume than they have been in the past three to four years.
Machines need massive amounts of data to properly interpret and predict trends. All available data is inherently looking backwards, and because access to this data is so tightly guarded by UPS and FedEx, achieving intimate, real-time knowledge of the marketplace is nearly impossible. Consultants possess a comprehensive understanding of the ever-changing logistics market. They stay updated on carrier pricing strategies, emerging technologies, and industry benchmarks. This knowledge empowers them to negotiate agreements that are not only competitive with the past, but uniquely position themselves for future success to ensure businesses remain agile in a dynamic market.
It’s Still About Relationships
Again, everyone has access to their parcel data, and everyone has a parcel rep. Yet, there are such disparate outcomes across shippers that look very similar on paper. This disparity doesn’t happen with AI-generated agreements, it happens because people still play the most influential roles in determining the rates a carrier is willing to offer, unlike the dynamic pricing models so common in the airline and hospitality industries.
While data is essential, the ability to foster strong relationships is equally critical in parcel agreement negotiations. Effective consultants understand that success in negotiations is not solely determined by the terms of the contract, but also by the rapport developed with carriers. Establishing trust is foundational to any successful negotiation. Consultants cultivate trust by demonstrating integrity, transparency, and reliability throughout the negotiation process. This trust forms the basis for a long-lasting and mutually beneficial partnership.
The most successful consulting engagements come when the shipper and the carrier have a great relationship. The role of the consultant then becomes growing the relationship even more by helping to create a win-win outcome through effective communication, whereby both the shipper and the carrier reach an agreement both are happy with. Sizeable shippers will not achieve an outcome like this simply by using AI-generated discount recommendations.
Parcel carrier agreement negotiations are too important to your organization’s long-term success to not have an in-house expert or outside consultant, on your side balancing the scales. In a perfect world, your expert will balance the knowledge gained by combing through your data and current agreement with real-world, real-time expertise.
Consultants bring invaluable expertise and insight to the table, enabling businesses to navigate the complexities of these contracts. However, beyond expertise, consultants understand that relationships are the bedrock of successful negotiations. Through trust, communication, and adaptability, they forge partnerships that not only yield favorable agreements but also lay the foundation for long-term success in an ever-evolving business landscape. In this way, consultants play an indispensable role in driving businesses toward best-in-class parcel agreements.
Paul Yaussy is a Senior Professional Services Consultant for Shipware, where he consults and advises clients on transportation cost-reduction strategies. Paul joined Shipware in April 2021 after more than two decades in logistics management roles where he distinguished himself as a transportation cost-reduction specialist. He was responsible for negotiating and enacting over $200M in parcel, truckload, intermodal, and LTL freight agreements.