How do you lower your small parcel rates? Negotiations with the carriers can be a daunting task. However, strategies do exist to help ensure that your organization can secure the best small parcel pricing possible. This article seeks to lay out some of those strategies and also provides some observations to help your company put more money to your bottom line . . . not the carriers’.
- IDENTIFY YOUR NEGOTIATOR
Assign the negotiation task to the best negotiator in your organization. We suggest someone who has negotiating experience, a good poker face and is more or less carrier agnostic, or at least has the ability to appear so.
- LEVERAGE MULTIPLE CARRIERS
Keep in mind that FedEx and UPS still represent a near duopoly. While this oftentimes doesn’t work in your favor (think miraculously similar and contemporaneous rates increases), this can in fact benefit you when negotiating. To allow the duopoly to work for you and not against you, get two or more carriers involved. You want to receive multiple offers to leverage all or some of the aspects of one offer against the other. This doesn’t necessarily mean you need to launch a full scale RFP, but it may be something to consider, depending on multiple factors.
- PLAY HARD BALL
Be willing to walk away from the incumbent carrier and let both carriers know of your willingness to do so. The incumbent carrier needs to know that the business is seriously at risk and the non-incumbent carrier needs to know that you’re willing to seriously consider their offer as you are looking to go with the least expensive bidder. This will help to get the carriers to come forward with (perhaps not right away) their best offers.
- UNDERSTAND THE DETAILS
This may sound obvious, but make sure you know how to accurately interpret and quantify the content of your carrier agreement and the offers that come in. These contracts can seem like they are a different language and it’s easy to gloss over portions of the agreement that may have material financial implications. So be mindful of, among other things, minimum charges for each service, GRIs, earned revenue tiers, rebate amount and frequency, General Rate Increase information, technology credits, and peak (and off peak) season surcharges.
- SEEK NEGOTIATION HELP IF NEEDED
Related to #4 above, while the contract should be analyzed as a whole, as one portion of the agreement may impact the concessions granted in other portions, most items within the contract are negotiable. We aren’t necessarily referring to boilerplate contractual language, but rather to areas which involve hard dollars. So not only are the transportation and accessorial discounts negotiable, but so are the examples in #4 above.
- MODEL YOUR FINANCIALS
Build a model to accurately, quickly and objectively assess the financial impact of the offers that come in. We suggest a spreadsheet approach as this is a great way to compare multiple offers side-by-side. The carriers will often present their own (meaning subjective) interpretation of the offers and we often see that their interpretations lack accuracy. In other words, don’t take the carriers’ word for it when it comes to savings.
- PRICING & RATES
Know what rates you should be paying. This is going to be tough to accomplish without the assistance of a third party that specializes in providing this information. It’s for this reason that we recommend partnering with an organization like ParcelLogix that can provide accurate price benchmarking and small parcel rate negotiations services.
Think of it as hiring an entity that can level the playing field during negotiations and give you an accurate assessment of how far the carriers will be willing to move on their small parcel pricing. Otherwise, the negotiations will likely be extremely one-sided.
The appropriate firm should be able to perform the benchmarking, negotiations and financial impact analysis of all proposals that come in from the carriers. And as it happens, that is exactly what we at ParcelLogix do for our clients.
ParcelLogix has negotiated thousands of carrier agreements and literally save our clients hundreds of millions of dollars each year.
If you’re interested in determining whether or not negotiating with your carrier is a worthwhile endeavor, allow us to conduct our free analysis to determine the savings opportunity. This is absolutely free of charge and free of any commitments. It’s simply a diagnostic to see if there is an opportunity to unlock value for your organization.
Reach out to Michael below to get started. We look forward to hearing from you.
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