The news coming out of Wall Street continues to be dire. Businesses are watching the markets carefully, looking for any sign that an economic recovery will begin and Americans will start spending. In no industry is this more true than retail. Sales are down, forecasts have been cut, store closures are reported almost daily, and job losses in the sector are staggering. This is the uncertain world in which we live.

In today’s economy, retailers are looking for every opportunity to cut costs in an effort to protect their bottom line, and in some cases just survive. Identifying these cost savings is an exercise that requires consideration from the entire organization. 
In order to examine the impact of transportation costs, the direct-to-customer retailer must make informed carrier negotiations. This process will fulfill customers’ needs, in addition to maximizing long term cost savings and return on investment.

Understand the Carrier Contract
Transportation is expensive, sometimes accounting for up to 40% of a retailer’s operational budget. Too often, retailers sign a contract for transportation services based solely on what is perceived to be a “great rate,” or the fact that they have become comfortable with a particular provider. At no time is it more important to get those contracts out and look for areas of incremental savings.

Carrier contracts can be extremely confusing. They are long, and the details contained within them can be mind-numbing. This causes retailers to sometimes feel as though the company is not in a position to negotiate with the carrier. It can be an intimidating process. However, shippers are in the perfect position to review the current contract(s), ensure that all parties are in compliance and negotiate for additional savings. 

One of the most difficult areas to understand is the application of “value-added service” fees, more commonly referred to as surcharges. Carrier contracts are oftentimes loaded with fees that may be levied against a package. In fact, it is not uncommon for a retailer to pay as much as 25-40% in surcharges over and above its base rate. 

The reason that it is so difficult to understand “value-added service” is because it is oftentimes impossible to reconcile the electronic billing statements in a comprehensible manner. Ultimately, this leads to tremendous frustration, confusion and concern on the part of the retailer.

Not long ago, a client shared that the company was looking to renegotiate its carrier contract for small parcel deliveries and sought our advice on the matter. We advised them to do three things before attempting to renegotiate the agreement.

1. Examine the contract and make sure that the business and the carrier are in compliance with the terms of the agreement. 
2. Look at what the company was paying in the way of surcharges in an effort to understand what their total small parcel delivery costs were. 
3. Make sure the mix of shipping products being provided by the carrier meets the needs of the customer. 

Following a thorough review process, the company successfully renegotiated their contract and realized incremental savings of more than $2 million dollars per year.

It is the retailer’s obligation to become intimately familiar with his or her carrier contract. Most importantly, companies need to identify areas where one or both parties are not meeting the other’s needs and negotiate. Insist on a transparent contract and partnership. If the parties are unable to come to mutually agreeable terms, consider alternatives, because significant savings opportunities may be available. 

Listen to Customers, Listen to Business
More than ever, customers are willing to consider less expensive shipping alternatives in the interest of saving money. Studies have shown that high shipping costs are an inhibitor to an individual’s willingness to purchase online. This provides a golden opportunity for a company to demonstrate that it is an advocate and understands the consumer’s needs by offering alternative shipping solutions that provide additional savings.

As a part of the evaluation process, examine all options. A company is in business to serve the best interests of its customers. Putting together the right mix of products to meet their needs may be the difference between winning and losing a customer’s trust. The long-term effects associated with increased revenue and customer loyalty can be significant.

Oftentimes, retailers look at small parcel delivery services as a function of operations. The reality is that an effectively managed carrier partnership takes into account the needs and requirements of the entire organization. Specifically, a retailer should work with a carrier that is interested in helping a business manage:

1. Marketing – Did the delivery experience meet the customer’s expectations?
2. Customer Service – Can the customer easily track a package up to the point of delivery? 
3. Transportation – Are the carrier’s services the most optimal solution to meet delivery expectations while controlling costs, or are they trying force-fit a shipping product where it does not belong?
4. Operations – How easy is it to manage the carrier in terms of sorts, processing, real estate planning? 
5. Finance – Is the company effectively controlling costs while managing the customer experience in a manner that will lead to future purchases and increased revenues?
6. Information Technology – How easy is it to manage the data being supplied by the carrier as a part of the shipping activity and how is that information used within the company to improve communications and optimize processes?

The fact of the matter is that this is only a starting point for understanding how to work with the carrier and better manage a business. 

As partners, retailers and carriers must be interested in each other’s mutual success. If the carrier is not committed to working with the company in identifying ways to lower costs, improve service and build the business, then it is time to consider other options. Additionally, if the company has not seen its carrier since the last time a rate increase was announced or a renewal of the contract was in sight, then the business should consider other carriers that share in long term goals and interests.

The individual who is responsible for managing a company’s small parcel strategy must reach out to other members of the organization and begin a dialogue on how the company can work together to improve business. The willingness of an organization to work together in managing all aspects of the customer experience will result in a more robust service offering, lower costs and provide for a more solid foundation during this climate of economic uncertainly. 

Best wishes for a strong and prosperous 2009.

As director of marketing for Newgistics, Kevin Brown is responsible for the company’s public branding and communication initiatives, in addition to supporting strategic planning efforts in the development of new products and services for the small parcel industry. Prior to joining Newgistics in early 2003, Brown spent the first 10 years of his career in the technology industry, focusing on the sale and marketing of enterprise software solutions and services with companies like IBM, Dell Incorporated and Lotus Development Corporation.