5 Common Mistakes Businesses Make with Parcel Contracts

If you’re actually negotiating with your shipping carriers, and not just blindly signing renewals with UPS and/or FedEx – you’re already ahead of the pack. If you actually know where your carrier contract is and have reviewed it since signing it – give yourself another point. But there’s a lot more to securing best-in-class contract terms than just paying attention to renewal dates. Are you making any of these five costly mistakes?

Set It & Forget It

Parcel contract management should be a continuous process of review and strategy re-alignment. If you are signing a three-year carrier contract and not thinking about that contract again until it’s time for re-negotiation, you are shooting yourself in the foot. Internally – business requirements change, volumes grow or shrink, your network changes, and the options you offer customers shift. Externally – market factors and a changing carrier landscape (more on this later) lend themselves to dynamic shifts that can impact your business. You consistently need a contract that is reflective of these internal and external factors.

Our recommendation is to re-evaluate your contract(s) every year. Make sure you are looking for ways to cut costs on existing contracts, but also are staying apprised of cost-cutting opportunities you’re not taking advantage of currently (new carriers, packaging solutions, elimination of accessorial fees, etc). And please don’t think you have to wait until contact expiration to start the review process. The majority of engagements we do with shippers happen in the middle of a contract term. Even with repeat clients, we like to start the process well ahead of contract expiration. One big reason being if you wait until contract expiration to start negotiating, the carrier can use that expiration date as leverage to encourage you to sign whatever paper they put in front of you. This leaves you no time to negotiate or explore alternative options. An expert like ParcelLogix can ensure you’re receiving best-in-class discounts on existing contracts, help you vet the myriad of alternative carrier options that now exist, and identify operational opportunities for additional savings.

Up, Up, (and Up) and Away

Assuming you negotiate favorable rates, multi-year carrier agreements can be a great way to lock in solid rates for the foreseeable future. But there can be some pitfalls.

Some shippers miss the fact that just because you signed a multi-year agreement, that doesn’t mean your rates won’t go up for the length of the contract. In actuality, on a standard three-year agreement, your rates will probably look about 15-25% higher than they did at time of signing. This is because, each year when the General Rate Increase (GRI) takes place (typically in effect the last week of December), your rates are going up. If you don’t have any protections in place, you will absorb the full cost of the carrier’s rate increase – typically we’re talking about a 5-10% total increase to your business per year!

One measure you can take to mitigate the effects of the GRI is ensuring you have a rate cap on your contract. A standard rate cap won’t fully protect you because a) it will only mitigate some of the increase to your transportation costs and b) those pesky accessorial charges aren’t covered under a common rate cap. However, It still is one of the best tools to save on yearly increases, especially if you currently do not have one on contract.

The True Cost of That Package

During your last contract re-negotiation, you were able to get your Ground Residential discount bumped up from 55% to 60%? Awesome!

– How did you do on your residential surcharge concession that is getting slapped on to every one of those packages?

– How about your Delivery Area Surcharges, which are getting added to about 20-30% of packages?

– Have you accounted for fuel costs? You know they’re not only rising as a % of package cost, but getting added on as a % of certain surcharge costs, right? This is a surcharge getting added to a surcharge, people!

Point is, accessorial costs typically account for 25-35% of total parcel costs for most shippers. With the list of accessorials growing and the calculations consistently changing, it is becoming just as important to review these costs as it is package costs. Even when ignoring accessorials and just focusing on net package costs – you still need to understand how that cost is spread across shipping zones (higher zones = higher price), and how the carrier is pricing your packages at different weights.

Knowing your shipping profile is crucial to ensure that you’re receiving the best discounts in the areas of your contract that matter most to you. Our recommendation would be using a tool like our analytics platform, Parcellytics, to give you real-time insights into where and how much you’re spending.

Choose Your Fighter: Brown or Purple/Orange

For years the parcel space has consisted of a brown truck, a purple and orange truck, and a guy who delivers mail on foot that your dog likes to bark at from the window. This dynamic is changing. While their market share is still small (but growing), there are many alternative carriers that exist today for a variety of shipper’s complex use cases.

– Do you ship a large % of your shipments to/from a specific region of the country? There are regional carriers that can often get packages to these areas faster and at a lower cost than the national carriers.

– Are you looking for tech-driven carriers that you’re willing to line haul trucks to if it means cost savings and quick delivery times? Enter final-mile providers.

– Are you attracted by the USPS’ low-cost and across-the-board coverage in the US? They’re currently making major changes to their network to steal business from brown and purple.

Listen, for many shippers it will still make sense to give a significant portion of their volumes (if not all) to UPS and/or FedEx. But for many it would also make a lot of sense to divert at least some % to someone else. Wouldn’t you want to at least understand your options?

How Are We Doing?

“Listen ParcelLogix, the cost savings you think you can find us in this engagement sound great, but we want to make it clear that we aren’t willing to sacrifice on-time delivery for savings.” – a client before starting an engagement with us.

Our answer: “Of course not!”

We recognize that saving money is fantastic (it’s our main goal with each of our clients), but not if packages aren’t arriving on time. At the end of the day, you’ve got a customer on the other end of that order that wants their package, and they find no solace in knowing you saved $1 while they wait for it.

But let me ask you- how are you currently measuring carrier performance? Do you wait to get the data from your carrier? When they present the data to you, are they showing you the true on-time delivery %, or are they factoring in all their exceptions?

With service times going hand-in-hand with savings as the top two issues our clients care about, we’re blown away to see how often they don’t have an effective way of measuring it. Some of these clients even have Guaranteed Service Refund (GSR) and Performance Standard programs, which tie real dollars to the contingency that carriers will deliver packages on time.

For help here, I’m going to have to shamelessly plug our analytics platform, Parcellytics, again (yeah, it also helps with this too). An analytics tool like ours is going to be able to show you not only what % of packages are arriving late and on-time, but also what warehouses or recipient zips are contributing to the most “late” deliveries to pinpoint the problems.

Final Thoughts

Optimizing your parcel contracts isn’t just about getting better discounts—it’s about maintaining a strategy that evolves with your business. Regular reviews, proactive rate management, and performance tracking are key to avoiding costly mistakes. Need expert guidance? ParcelLogix ensures you get the best rates, the best contract terms, and the highest level of carrier accountability.