Carrier Negotiation in 2021: What Shippers Need to Know

 In Industry News

New Year. Changed world.

If you’re a small parcel shipper, this means it’s probably time to revisit your carrier agreement(s) and see if it’s still valid for your needs. It not (as is likely), you’ll want to renegotiate.

Thorough preparation is crucial for success in any negotiation. So here are six steps to help you ensure you enter your carrier agreement negotiation well prepared.

1.        Understand your own shipping profile

Before kicking off a negotiation, you need to understand your own shipping profile. Data trends like volume, service mode, zone, package weight/dimensions, commercial vs. residential, and accessorial exposure are good starting points.

Without a proper understanding of your shipping profile (including any seasonality), you will enter into a negotiation handcuffed and will limit your success in bringing substantial savings.

2.        Understand your carrier agreement(s)

Equally important in the preparation phase is getting familiar with your current carrier agreement(s). Hidden in the agreement could be pockets of leverage. Some examples are how long it has been since you last negotiated, expiration of surcharges/rate caps/dimensional divisors, tier band growth, etc.

To help focus your attention in useful areas, you can raise questions like:

  • Is my agreement out of date?
  • What has changed in my supply chain since I last negotiated (package characteristics, volume, modal, accessorial exposure)?
  • Have I outgrown my target tier?
  • Is Freight/LTL bundled with my Parcel tier thresholds?

Some carrier agreements also have language that makes it harder for a shipper to negotiate. For instance, your agreement may have a component like Early Termination or Minimum Commitment penalties. Some agreements also have technology subsidies or implementation bonuses/rebates that would have to be reimbursed if terminated early.

3.        Understand the overall shipping environment

To kick off a negotiation in early 2021, savvy shippers will be aware of the overall shipping environment and this year’s GRIs. In the past, understanding the overall shipping environment has not been as critical. But in a post-COVID world where the carriers are pushing capacity, they will be more picky in the volume they want to keep or gain.

The domestic carriers’ networks are currently inflated with lightweight residential packages. A shipper that has more of an expedited, commercial, or heavier package profile will find an easier path to negotiation.

In tandem with this, we understand from the GRI announcements that lightweight, ecommerce shippers will feel the largest increases. Shippers will have new Additional Handling rules and aggressive increases for accessorials like Declared Value and 3rd Party Surcharge.

Sample questions to raise at this point include:

  • How will the 2021 landscape drive my parcel costs?
  • Do I have exposure in the areas where the carriers are increasing the most?
  • Do my packages often hit the service level minimums?

4.        Identify the carrier’s pain points

Your carrier will have pain points related to servicing your business. A truly savvy shipper will identify these pain points and target areas that will bring relief. You can then use this information and understanding to set goals and build a narrative to focus the negotiation strategy.

While many cost drivers will be uncovered in the shipping data, some pain points can be identified from operational behavior or customer feedback. Sample questions include:

  • What percentage of my packages are subject to dimensional pricing?
  • Am I paying my invoices on time?
  • Do I have any operational issues like missed pickups or late/damaged packages?
  • Are my packages being adjusted for incorrect manifesting habits (weight/dimensional or comm/resi adjustments)?

5.        Leverage the competition

More shippers are exploring shipping alternatives, particularly now that FedEx and UPS are reaching capacity limits and have suspended their service guarantees.

The following questions can guide you in exploring ways to leverage the competition, either to get a better deal with the incumbent, or a better deal with one or more other carriers.

  • Have you considered the competition?
  • What does the non-incumbent carrier(s) offer that you don’t have currently?
  • If you have a relevant shipping footprint, are you willing to entertain a regional carrier?

If you do engage with the non-incumbent carrier(s) for an RFP, the carrier will most likely ask for a package-level detail (PLD) sample. These PLD samples can typically be extracted from the carrier billing sites (electronic invoicing). A word of advice: Be sure to cleanse the data of pricing before sharing with the non-incumbent(s).

6.        Negotiate firmly and collaboratively

Contrary to popular belief, negotiation is not a war. As former FBI lead international kidnapping negotiator Chris Voss writes in Never Split the Difference, “Negotiation is the heart of collaboration. It is what makes conflict potentially meaningful and productive for all parties.”

Bearing that in mind, negotiate firmly, but without spoiling the partnership. Driving savings may be your end goal, but burning bridges with the carriers could come back to bite.

If 2020 taught us anything, it’s that supply chain flexibility is paramount. In times of disruption, having a healthy, working relationship with the carriers can be a key component in maintaining a healthy, working business.

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