This article originally appeared in the September/October issue of PARCEL.
Negotiation pre-season is about to kick off. Annually, we should be reviewing our agreements, adjustments, and invoices (invoices are our Magic 8-Ball to reveal rates and weights). A little pre-season prep can eliminate that post-season post-audit of invoices, where you wonder where all the negotiated savings went. Prepping rate changes is like prepping a recipe — we need to know what is currently in-house, what our receipts look like, and what is on our list.
What’s In House
Simply put — you need to know what you ship. How will you reduce costs if you don’t know what drives them? Are you looking at all volume or just outbound shipments? (Hint… if you are paying for it, you need to monitor it.) Is your data even accurate? Just like a recipe, keep it raw when you can. Additives skew taste; mining skews data. Zone 1 skews the short-haul landscape (Zone who?). Remember what we learned in Negotiating 101 — you can’t negotiate if you don’t know what you are negotiating.
How much does your shipment weigh? If your answer did not consider actual versus billed weight, dimensional versus minimum billable weight (MBW) — you may be quadrupling your base rate.
For those of you avoiding the DIM by using a FedEx box, grab an invoice and make sure you are not paying MBW.
Let’s say we are sending some promotional material Standard Overnight to Zone 6. The actual weight of the tube is one pound at a $54.35 list rate for 2017. Applying MBW, the billed weight is seven pounds at what becomes an $92.02 list rate — an increase over 69% at list. If you did not realize this surcharge existed, or you didn’t understand what it was, you probably did not negotiate discounts at the seven-pound weight, which is your actual billed weight.
When in doubt, DIM it out. A quick calculation to see if you cross the 139 divisor can save your company on shipping costs… and you on antacids for that heartburn induced by sticker shock.
Service Guide/ GRI
Once you understand what you are shipping, you will need to understand how it is priced — and how that price increases each year. You often hear about the 4.9% general rate increase (GRI), but your costs may actually increase 13.5% if are you shipping 2-Day to Zone 6. How do we get that increase more manageable? We want to limit the impact — in other words, cap or freeze the increase.
Don’t forget minimums. If those reductions change from that last time you negotiated, your list rate could be at a four percent increase, and your minimum charge could increase 16% due to the change in the reduction. Be sure the clause applying the cap to the minimums is on your contract as well.
Whether you are confirming a discount on soup or shipping spend, you need to confirm the original cost is correct — no sense planning a meal around last week’s sales flyer. Most of us fall under the current year’s rate guide. Base rates are shown on UPS and FedEx invoices so a quick quarterly spot check is your personal pre-audit for pending rate changes.
Net rates — we pay them, we don’t pay them, sometimes they are our base rates… do we even understand them? Agreements are set up to reward shippers for gross transportation spend. UPS and FedEx put this spend on your invoice to track tiers and discounts. When we talk about falling off tier, but we don’t know how close to the next threshold we are, we simply need to reference our invoice against our agreement.
Adjustments and other charges are where we find which shipments dimmed. UPS shows both customer-entered dimensions and audited dimensions, as well as the rerated weight and new charges. For FedEx, we see the rerate within the charge section. For actual weight versus rated weight, remember — if the two weights are not the same, you may have work to do on the divisor, the minimum, and/or the actual packaging.
We all have that friend who is the master of extreme couponing and receipt overages. We just want the laundry detergent; they want to make sure we get $.50 off when we buy three. Same idea with carrier invoices. Your friend Freight Bill Audit and Pay (FBAP) will check those invoices for you and recover errors — even when the freight isn’t overcharged. (Editor’s Note: For more on FBAP, see Brittany’s article from the July/August issue of PARCEL).
What’s on Our List
The third part of the negotiating trifecta is contract language. Nothing lessens negotiating leverage quicker than not knowing what is in your carrier agreement — and the impact of the agreement structure. We have several areas of potential ‘gotchas’:
· Penalty Clauses
· IT Constraints
· Late Payment Fees
· Ramp Ups
Which of these are the ninja gotchas, creeping up on contracts? Ramp ups and rebates, no question.
Ramping up restarts (read: wipes out) your revenue aggregation. If your spend is consistent week over week, no problem. But if you are seasonal, the change in that discount is your net rate impact. A four percent tier discount, when lost, can create a 12% net rate increase if your base discount is aggressive. The more aggressive the contract discount, the more aggressive the net rate increase when the discount is lost.
Rebates give shippers a little “pocket money” based on net transportation spend. Simple enough. We negotiate spend levels to make sure we get the incentive. Enter the ninja — the minimum. Packages that hit the minimum net package charge will contribute to rebate tiers. However, the rebate will not be paid on these packages.
How do you know if you hit the minimum? Ask your carrier for your net rate sheet. Now look at your service guide Zone 2, one-pound (ground, for example). If you see that dollar amount anywhere on your net rate sheet, you are hitting the minimum.
Say your deferred agreement offers a five percent rebate on the net transportation spend of $500,000. Now remove the net spend impacted by the minimum. Your total is $200,000 counting towards the rebate. We expected a rebate check for $25,000. Instead we receive $10,000. If the pocket money was earmarked to pay for outside service fees, you will need to prep those pockets to dig a bit deeper.
Brittany Beecroft is Regional Sales Vice President at AFMS. She can be reached at 304.374.4739 or firstname.lastname@example.org.