Actively managing your carrier agreement isn’t something that requires countless hours every week. In fact, there are just a few easy steps you can take to reduce your costs and optimize your small parcel contract. Unfortunately, many shippers don’t take advantage of these steps because they don’t fully understand what they’re signing.
One common concern of shippers is the belief that they can’t lower their costs because their small parcel contract hasn’t expired. This belief is false. In fact, the arrangement between the shipper and the carrier isn’t truly a contract.
This misconception feeds into a second one : that carrier agreements are static. Yet, for many logistics managers, once the negotiations are over, the documents are filed away, never to be looked at again.
For shippers, this can be a costly belief, as rates are constantly changing. Every year, major small parcel carriers implement rate increases and introduce new charges and fees. If you sign a parcel agreement lasting three years and don’t actively manage it, you could be paying hundreds of thousands of dollars more for rate increases and new fees that didn’t exist when you signed the deal.
Actively managing your carrier agreement is a necessity, and doing so will not only save your company money now, but will also position you well in future negotiations.
Start by Managing What’s in Your Parcel Agreement
Even if you are not satisfied with your current parcel contract, there are still ways to save on your shipments before you renegotiate .
First, audit your invoices. While you’re required to meet the minimums for service guarantees, many shippers overpay by up to 10% because they continue to utilize their carrier once they’ve met the service guarantees, even if they aren’t getting the best deal.
If you audit your invoices, not only will you catch these extra charges, but you can also address them with your carrier to ensure they don’t perpetuate.
Secondly, pay attention to the delivery method. Companies often pay for premium services they don’t need. Sometimes Ground services can get a package to its destination just as quickly as Air. Or customers might be as satisfied with an evening delivery as they are with a morning delivery, which is more cost-effective for the shipper. Create a reliable process for determining which method of delivery is optimal to save on costs.
Thirdly, don’t default to a single carrier for every shipment. While your preferred carrier will give you the better deal most of the time, a different carrier could offer an advantage in at least one area. If you only rely on a single carrier, your budget likely suffers. UPS, FedEx, and the USPS all offer distinct advantages depending on the service. Before you send a package, compare costs to choose the optimal carrier.
These three steps will help you reduce your shipping spend under your current small parcel contract, but sometimes, reducing costs still doesn’t get your prices low enough.
With Your Operations in Shape, Turn Your Attention to Your Carrier Agreements
Even if you’re vigilant about every step, there’s a chance your parcel costs are still not optimized. There are several reasons why this might be the case.
The first is that your strategy might need to change. For example, if your company promises its customers free two-day delivery, examine whether it’s a vital part of the business. If you have customers that are satisfied with slightly longer delivery times, use two-day delivery as an upcharge rather than the default.
Another factor could simply be a change in market conditions, which happens quickly in the logistics industry. When it does, rates that once looked good are now hurting your business.
Shippers often believe that when market conditions change in the carriers’ favor, there’s nothing they can do because of their parcel agreement, but this isn’t the case.
Most small parcel contracts can be renegotiated at any time. If your rates are hurting your business, you should always renegotiate.
Prepare for Renegotiation — Here Are Six Ways
Of course, actively managing your carrier agreement isn’t only beneficial for the one you already have ; doing so can also help you save more money in future negotiations. From understanding your shipping profile to pinpointing carrier pain points, here are six things you should do to prepare for your next negotiation.
1. Know Your Shipping Profile
If you’re renegotiating your parcel agreement, you won’t be able to optimize costs if you don’t know your own shipping profile. Examine your data trends and determine how often you ship packages with certain dimensions and weights, volumes, and service modes, and also look at where your packages are being delivered to.
2. Know Your Parcel Agreement
Just as it’s important to know your shipping profile, for a successful negotiation it’s just as vital to know what is in your current carrier agreement. Which services are you paying for, and which surcharges can you avoid? Identifying which parts are working for you and which are not can help you craft a small parcel contract that better suits your needs.
3. What Is the Shipping Environment?
Are you hitting the service-level minimums? Do you have exposure in the areas where carriers are increasing rates the most? These are just two questions you need to answer before you renegotiate. Understanding the shipping environment will help you make adjustments that optimize your small parcel costs.
4. What Are the Carrier’s Pain Points?
Just because the carrier makes a few extra bucks for every package where there are dimensional adjustments or for incorrect commercial or residential information, that doesn’t mean the carrier enjoys the work. Sometimes, imposing these extra fees is more of a hassle than a benefit. Savvy shippers can identify what these areas are and how to leverage them to produce a successful parcel negotiation strategy.
5. Look at the Competitors
With FedEx and UPS reaching capacity (and one being on the verge of a potential strike), it could be an optimal time for a change. You might even be able to leverage one carrier to get a better deal with your incumbent, or you may find that a different carrier suits your needs best. Either way, exploring the options on the table can help you take advantage of opportunities to lower costs.
6. Negotiate Confidently and Collaboratively
Actively managing your carrier agreement doesn’t mean coming to the negotiating table with hostility. You want to be confident and firm about your needs, but without aggravating your carrier. After all, you’ll be relying on them for the next few years.
Don’t Let Misconceptions Hurt Your Budget
Monitoring your parcel operations can seem like a time-consuming obligation if you’re just getting started. Add contract negotiations into the mix, and it can look like you’re creating a headache for yourself.
The truth, however, is that not only are these two tasks easy to manage, but you can work on them simultaneously without burning through hours and hours every week.
The misconceptions about your carrier agreements and your ability to lower your rates in your current agreement are easy to overcome, but damaging if left unaddressed.
Following these key steps will not only save you money now, but will help you save money on your small parcel shipping in the years to come.
Brian Byrd is EVP, Operations, at TransImpact. In this role, he assigns responsibilities, develops functional roles, and oversees operations to help ensure that the company remains an industry leader in developing innovative technological solutions that helps its clients to grow their companies.
This article originally appeared in the May/June, 2023 issue of PARCEL.