Breakups are never easy, even in the interconnected world of shipping goods.
Like modern romance, most carrier breakups begin and end with money. This sentiment is especially true right now as many businesses struggle to rein in costs. The coalescence of steep logistics fees, rising material costs, and depressed demand have inflated prices making the current economic climate a challenge for many shippers. Declining consumer demand is of particular concern for shippers as, according to the EY Future Consumer Index for 2022, at least 50% of US consumers say rising costs are making it harder to afford goods and services.
Now more than ever, businesses are contemplating a switch to an alternative shipping carrier to manage risk, decrease the cost to consumers, and reduce inflationary impacts. If you are looking to go steady with a new carrier, here are a few strategies to end things on good terms.
How to Know When to Break it Off
Cost is typically the top reason for breaking up with a carrier, but my team has witnessed switching carriers for other notable reasons, such as:
· Poor KPI Performance
On-time performance mattered greatly to a client of ours that ships healthcare goods. According to a survey done by ShipMatrix, UPS had a stronger on-time performance. In 2021, UPS delivered 96.1% of parcels on time as compared to FedEx delivering only 83.9% on time. The client ended up switching carriers as their goods were surgical and needed to be timely. In this case, the carrier’s on-time performance was worth more to the client than the cost.
As this year continues, FedEx has been working to improve this area of service. A survey of the same period in 2022 found that UPS had 96.6% on-time deliveries and FedEx had improved to 95.3%.
· Poor Carrier Relationships
They say good communication is the foundation of a healthy relationship. For another client, we assisted with a switch due to the carrier representative’s communication style. The client felt the carrier’s communication was infrequent, and they could not get access to them if there were auditing issues. On the other hand, the client saw that the alternative carrier was willing to take the time to prioritize their program and hold quarterly meetings. The switch greatly benefited the client.
· Bad Fit for Commodity Shipped
In a recent negotiation, a client switched carriers due to the commodity being shipped not fitting into the carrier’s network. USPS, for example, does not ship gasoline or explosive items. This was a problem for a client shipping goods that needed gasoline. We assisted them in finding a better carrier that could fulfill their hazardous material needs without unnecessary surcharges.
How to Have the Breakup Talk
No matter how poor a relationship may become, it is important to maintain a professional relationship with your incumbent (soon-to-be) ex-carrier. Negotiations happen as often as once every three years - sometimes more, sometimes less. In either case, the key participants rarely change. Consider the suggestions below when communicating a service breakup:
1. Decide on Further Involvement
Maintain a formal, positive relationship. Shippers also tend to leave the door open for split-carrier scenarios. Some may keep their incumbent for cross-border packages or heavier packages if they had a cheaper rate for those services. Be mindful of any revenue-based discounts as these are dependent on maintaining volume with the incumbent carrier! Completing a sensitivity analysis can help determine what volume can be carved away from the primary carrier.
2. Be Firm, but Gentle while Breaking the News
Provide gentle feedback on service expectations and layout improvements that could earn your business in the future.
3. Work with Incumbent Carrier on Data Needed for the Switch
Request a full list of account numbers, your last 12 months of raw shipping data, or anything that could be useful for your new program.
4. Secure a Temporary Agreement During the Switch
Negotiating a temporary agreement (or an extension of the existing incumbent agreement) while switching can help avoid being put at list rate by your incumbent carrier. Failure to do this could result in higher shipping costs!
5. Prepare for a Counteroffer
Your incumbent carrier could surprise you with additional savings or a new carrier representative. Keep in mind a counteroffer means you have tremendous value to your carrier!6. Break Things Off Internally
Update internal stakeholders in your company to prepare them for the change. Make sure your IT teams, upper management, and relevant departments are aware of the carrier change. Be sure to communicate the potential technology and internal costs incurred to change carriers.
How to Move On
Moving forward, my team recommends keeping copies of your previous agreements in an accessible place, like a SharePoint site. This can assist you if you want to approach older carriers when your newer contract expires. It may also be useful to set a calendar notification for when your temporary agreements are about to expire, to finalize the carrier switch.
Once finalized, keep tabs on your current carrier by meeting with the carrier representative and asking personalized questions about your program, especially during times of peak demand or inflation surges. Overall, carrier and shipper relationships need to balance useful service offerings with individualized company needs.
Chelsea Snedden is a Transportation Consultant at Körber Supply Chain. She works with clients to model transportation scenarios, often interpreting complex agreements as the primary data analyst. With a background in sustainability and logistics, she brings a future-oriented perspective to managing transportation programs. Some of the customers she has worked with include Canva, GNC, Covetrus, and many others.
This article originally appeared in the January/February, 2023 issue of PARCEL.