Prices continue to escalate in the parcel/express industry at an unprecedented rate. Last fall, PARCEL published a survey conducted by Morgan Stanley stating that only 11% of major shippers utilized consultants. The survey showed that those who did engage consultants to help in the parcel/express negotiation process realized a 49% improvement in discounts over those that did not. To gain a greater understanding of what appears to be a major opportunity, we spoke in-depth with Brett Febus, President of Insource Logistics, a parcel shipping consulting group.
Q:Why wouldnt a company want to utilize a consultants services to reduce shipping expenses when that cost is growing rapidly?
A:Many shippers want to believe their carrier reps when they tell them that they have the best discounts. The rep may even believe it themselves because it is impossible for them to know
everything that is available from their own corporate pricing groups. Since [consultants] are working within this process for clients all over the country, we keep the real maximum discounts by customer and characteristic in our proprietary database. We negotiate dozens, if not hundreds, of carrier agreements over the same period that a shipper negotiates one.
Q:What differences do you see in the environment of negotiations between shippers and carriers 10 years ago as compared to today?
A:Ten years ago, UPS had no equal ground competition, and tying services together into a portfolio package wasnt common. There were also fewer surcharges, and automatic annual increases had just begun.
Q:Once you understand your clients needs and objectives, who in the carriers organizational hierarchy would you normally negotiate an agreement with?
A:The shippers existing day-to-day representative is the best contact. If it becomes necessary to escalate the process to the carriers officer level, that should occur.
Q: I think we both agree that good negotiating is an art. During your years of negotiating, what have you seen that shippers do not usually consider in the negotiation process?
A:There are several mistakes that are frequently made. The primary mistake is giving a carrier too much information. The shipper plays all of his or her negotiation cards at once or plays them at the wrong time. A second thing that is not considered is who runs the negotiation. Letting the carrier run the negotiation is not a wise choice. Some shippers continually ask for additional discounts at every opportunity. Getting a concession from the carrier may make the shipper feel good, but theyve turned the negotiating process into a perpetual cycle, of which the carrier is well aware. We know of situations where the carrier has held back discounts, just so they could say yes when they are asked for even more discounts down the road. Lastly, using the same playbook to negotiate with carriers in all transportation segments is a mistake. As an example, while there are a dozen players in LTL, there are only three with complete integrated and global capabilities in the parcel/express segment of the industry.
Q:Companies pay invoices for a wide range of document and package shipments worldwide inbound, outbound and third party shipments, ground and express shipments, half-pound envelopes to 150 pounds per package shipments. Does it help the shipper to put all of their corporate volume, either domestic or worldwide, on the table at once in order to secure the greatest possible discounts?
A:Not necessarily; the only information that should be discussed with the carrier is that which will maximize discounts. Control the information, and play your negotiation cards in the right order.
Q:Do you find that waiving a carriers guaranteed service refund helps the overall negotiation in terms of a better discount?
A:Yes, but only at the right time, and it is only good once.
Q:When should a shipper renegotiate its carrier agreement?
A:Now, as this puts the shipper in control of the negotiating process and helps drive the maximum discounts into place
Q:Do your clients receive discounts on anything during the carrier agreement period?
A:We tell clients that if you want to save the most money possible, stay in general configuration with the carriers contract structure, which generally does mean annual rate increases and fuel surcharges that vary month to month. Frequently, we do negotiate rate certainty in a number of areas for our clients.
I spoke with some of Bretts clients after promising them anonymity and found several attributes of interest:
1. Long-term relationships of over eight years with the consultancy
2. Savings of six figures each year were reported
3. Carrier relationships were significantly improved
4. Most companies remained with the same carrier but at a lower cost
In todays environment, with volumes and costs simultaneously rising, there are tools for shippers to help reduce transportation costs:
1. Negotiate wisely and for the long term. Consider outside expertise to help reduce your costs.
2. Evaluate the USPS workshare program. A combination of the carrier providing pickup and the USPS providing delivery, it can represent significant cost savings.
3. Use available technology to help your end users select the best carrier for every package shipment. Remember that:
» A carriers automation may appear to be free, but it ultimately has cost and flexibility reduction
» Audit firms can ensure you are not double-billed, over-billed or paying for late deliveries
4. Think globally but act locally by considering regional carriers for specific situations:
» Distribution centers
» Using line haul on Thursday and Friday to regional carriers in your major markets for Monday delivery
» Improved service and good public relations are many times realized by using local carriers at headquarters locations
5. Remember that regional carriers are a safety valve by not keeping all your eggs in one basket
Review your overall system for savings:
» Packaging evaluate how it can be changed as dim weight is becoming more expensive
» Send shipments for delivery when the customer wants them;
» Evaluate the location of distribution centers
» Evaluate your return policy
» Evaluate declared value costs; they may be less expensive through an insurance company as compared to carrier costs
Thankfully, this is all about the energy and choices we have in a capitalistic and free society.
Rob Shirley is President of ExpresShip, Inc. (XPship.com), a firm providing consulting services for carriers and shippers worldwide. Robs business experience provides a unique perspective of the transportation industry, and he is a frequent speaker at logistics events. Contact him at Rob@XPship.com.