How to Negotiate a Better Small Parcel Rate Agreement
All shippers, from small businesses to ecommerce giants, have a lot at stake with their small parcel service agreements. And heightened expectations for faster delivery from customers of all types has placed even more attention on the importance of these agreements.
But smart shippers are not satisfied to simply settle for what the carriers offer in terms of pricing and the many other details (like fees and surcharges) that are part of these agreements.
In other words, shippers should never take a carrier’s first offer. Shippers should also question any pre-conceived assumptions about how things SHOULD work when it comes to negotiating with carriers. If you are not sure about something, don’t take a carrier’s word for it — go ask an expert. Here’s what we mean.
One Size Does Not Fit All
Many shippers feel they are locked into an agreement until it expires, or that they have to award all their volume to one carrier. These ideas are not correct. First, contracts can be renegotiated any time. Also, there is no rule that says that businesses must continue to use an incumbent carrier or only one single carrier. A company may find that using different carriers for different types of shipments or using a regional carrier instead of a national one will reduce their costs.
To determine the best overall strategy that optimizes cost and service, shippers should look at their data. Better carrier selection, as well as choosing the shipping mode on a shipment-by-shipment basis, can result in serious savings.
Send Out an RFP
Often, the best way to check the market is to send out an RFP (request for proposal). Working with a negotiation consultant like Transportation Impact will help a shipper get the most out of this process.
Any good RFP should include:
- Background on your company and the types of products sold
- Shipping methods used, customer locations, and service types
- Expected terms
- Special delivery requirements for all origins and consignees
- Shipping history, with as much detail as possible
Once proposals are received back from carriers, each line needs to be read word by word because carriers make it very difficult to make apples-to-apples comparisons. Again, if you don’t understand the fine print and are not confident in your own ability to do a cost analysis, seek a consultation with an expert who can help.
The greater the volume of packages shipped, the better the negotiating power of a shipper. This is Logistics 101. But, even with low volumes, rates can still be negotiated, as some carriers are looking to fill capacity in specific lanes and regions. Again, data on the shipper’s historical volumes will give the carrier an idea of annual or seasonal volume, and rates can be adjusted accordingly.
Carriers are not going to just give things away, so you have to ask. Base incentive discounts are usually a flat percentage discount per package and vary by specified weight ranges and service levels. Base discounts are not automatically included in a contract but should be expected to get a competitive rate.
It is not only the actual rates that can be negotiated. Fuel surcharges, GRI caps, accessorial charges, and other fees are all up for negotiation. As for the actual freight rates, don’t accept the first discount that the carrier comes back with. And remember, just because a contract has been signed does not mean there cannot be more negotiating at any point.
Ecommerce is changing the way companies ship and how the carriers approach rate negotiations, so contracts should be reviewed more often to ensure rates are competitive relative to the current market. When a carrier contract no longer works to serve the way a company is doing business, it is time to renegotiate. For businesses that feel they are not adept at negotiating, third-party shipping consultants can help determine where the market is at and what the shipper should be paying.