Today’s UPS and FedEx contracts are more complicated and difficult to negotiate than ever before.
Before we address the major issues affecting your carrier contracts and how you can successfully negotiate the best rates possible for your company, I would like to give you a brief background on AFMS and why our advice is worth reading.
Founded in 1992, AFMS is a transportation contract advisory and auditing firm, comprised of former VPs and directors from UPS, FedEx, DHL, and USPS. We specialize in showing companies of all sizes how to save money, improve service levels, and obtain better discounts. Our inside knowledge of the carriers' pricing programs is unparalleled.
With all the changes that are happening today with UPS and FedEx and the levels of complexity surrounding today’s contracts, we have compiled the following information to help you better manage your ongoing transportation pricing contracts and carrier negotiation strategies.
Knowing what the carriers consider profitable freight and unprofitable freight as it relates to package characteristics will help you determine what discounts the carriers can offer you. The metrics surrounding these pricing variables are complex and need to be reviewed prior to sitting down with your carriers and negotiating a new agreement.
1. Why has this happened? The carriers have dramatically improved their cost-to-serve pricing models, generating billions in new revenue annually, through new accessorial fees.
2. What has created these pricing changes? Technology improvements and better data capture capabilities by the carriers. The data capture technology the carriers use has allowed them to bill for services and new accessorial fees they physically couldn’t charge for a few years ago.
3. For shippers in 2020, this translates into hidden cost increases and higher accessorial charges.
4. What can a shipper do to offset these new charges? Start by gaining a better understanding of the impact these changes are going to have on your company. How much of your transportation spend is in accessorial charges, base rate charges, what is the real impact of the annual general rate increase? This varies by shipper, but it is not the 4.9% you're told by the carriers.
5. Prior to negotiating, learn everything you can about your packages, shipping characteristics, box sizes, zip codes you ship to - DAS or Extended DAS.
6. Perhaps the most important thing to understand in the freight negotiation process, is getting the carriers to see how valuable your shipments really are, based on package characteristic. Leverage your positive box characteristics to your advantage.
Carriers thoroughly analyze your company’s shipping profile to determine profit margins and what discounts to offer. It’s critical to know in your freight carrier’s own terms how profitable your shipments are to them.
Whether you’re a seasoned transportation manager, or a director of purchasing, understanding the impact these new carrier accessorials have on your transportation costs is important.
Knowledge is power, understanding the terms and details around your contracts and how they impact your business can make a big difference in the carriers you choose and how those carriers price your shipments. Negotiate with your package characteristics strengths. The lack of benchmarking data and analytical detail could cost you 10-20 percent in service discounts. Make sure you ask for competitive discounts on all the services you frequently use; even small volumes should be discounted.
More than 50 percent of all U.S. companies have outsourced some part of their distribution procurement process, many shippers use a consultant to help with the carrier selection, benchmarking, and negotiation strategies. As carrier shipping contracts change, so must a shipper’s knowledge.
This article originally appeared in the March/April, 2020 issue of PARCEL.