Shipping is dominated by an industry-wide assumption: Shippers have to do business with either UPS or FedEx. And in many cases, that’s true. No other carriers have networks or service levels that can match these two giants.
So how is a shipper to know if they’re getting the best deal from one or the other?
Shipping contract proposals are confusing. Carriers design them to be opaque, to make them harder to compare to one another.
But being too forward with a carrier can cause companies to worry that they’ll be dropped entirely.
Though UPS and FedEx are direct competitors, they don’t adhere to the same rate structures. When one hikes a certain accessorial surcharge, the other may modify the dimensions of what constitutes an oversized package. When one raises holiday surcharges during peak weeks, the other could raise them only on certain packages. One carrier is siloed into several distinct services, while the other operates on a hub-and-spoke model.
These disparities give executives room to distinguish between FedEx and UPS contracts based on what matters most to their business. Leaders who know exactly what their shipping needs are can spot the differences that will benefit them most and negotiate lean, effective contracts.
Here’s what to consider when comparing contracts from two competing carriers to choose the one that best suits your business.
1. Carriers Want to Confuse You — But They Also Want to Woo You
Shipping contracts are incredibly opaque. Carriers publish rates, of course, but these rates are unique to each carrier, difficult to parse and subject to change at any time.
On top of that, carriers frequently customize contracts for shippers. That may make it sound like the shippers are getting good deals — and, yes, sometimes they are. But carriers are still in the driver’s seat, tailoring contracts to their own needs while negotiating with shippers.
The challenge of customization is that it makes it extremely difficult for a company to estimate how much its competitors pay for shipping. If UPS gives one carrier a tailored break on a surcharge, how’s a company to know their competitor isn’t getting the same break, or even a bigger one?
It’s important to remember, however, that while carriers have the upper hand in negotiations, they (arguably) have the tougher position in the marketplace. If UPS gets your company’s contract, FedEx does not. That means the big two carriers are constantly vying to win contracts from each other.
Shippers, on the other hand, have choices. They can work solely with FedEx or UPS, pursue a multi-carrier strategy that involves the U.S. Postal Service and regional carriers, or partner with an up-and-coming carrier like the recently re-launched DHL.
If you’re negotiating with a competing proposal in hand, you’ve automatically strengthened your position.
2. The Strongest Negotiators Know Exactly What They Need From Their Carrier
When preparing for negotiations, it’s essential that shippers know the ins and outs of their shipping profiles. Companies know their own parcel products better than anyone else. They ought to know their on-time delivery needs that well, too.
Before your next negotiation, undertake a careful review of what you ship and where it goes. What are your parcel dimensions and weights? How much do you ship ground, two-day, or overnight? How many of your customers are residential and commercial?
Carriers are seeking efficiency, which means they prefer shippers whose customer bases align with their existing delivery networks.
It’s also important to consider the different business models of each company. Have you ever received multiple FedEx shipments in the same day? That’s because FedEx separates its Ground Service and FedEx Express, or air, divisions almost entirely. UPS, on the other hand, uses one interconnected delivery network for both air and ground.
End-of-line consumers may not notice these differences, but shippers should.
These differences help explain variations in a guaranteed delivery time. They also explain some variation in rates: UPS’s model is more expensive to maintain, which is why its shipping rates tend to be higher across the board. FedEx’s rates are somewhat lower, but shippers will likely have to manage several pickups and drop-offs per day.
3. Evaluating Your Current Contract Isn’t Hard
When comparing contracts, start by comparing dimensional divisors. FedEx and UPS chased each other toward a lower dimensional divisor before arriving at the industry-standard 139 several years ago, but there’s no reason to think this race to the bottom (that is, to higher prices) won’t start again.
Make sure you know which of your products ship using actual weight and which ship using dimensional weight. If carriers change their dimensional divisors, you’ll easily be able to understand which products those changes impact — and compare contracts accordingly.
Second, UPS and FedEx notoriously have rate increases and add new surcharges and fees every year. Lately, they’ve been targeting oversize and heavy package surcharges, either by spiking additional handling and oversize package fees or by reducing the dimensions of packages that require these fees.
Both shipping carriers also levy fees for expedited shipping and weekend package delivery. Needs for these services can vary widely from one business to another.
If your customers often demand overnight or weekend delivery, it’s important to calculate how much you pay your carrier to meet that demand — and see if a competitor could do it for less.
Delivery insurance may be another consideration for companies moving high-end shipments. FedEx and UPS have comparable tracking services, but FedEx offers somewhat more coverage, topping out at $100,000.
Finally, shipping leaders have to know exactly where their packages go. FedEx and UPS both set price floors for residential and commercial postal service, meaning that even if shippers don’t move a minimum amount of product, they still have to pay for it. (Price floors can be good negotiation targets for the right companies.)
Beyond the nature of their customers, shippers have to know their geography. FedEx and UPS each have systems for shipping to different locations, even if parcels are traveling the same distance they have different delivery area surcharge zip codes. Understanding those differences in the opaque shipping market is almost impossible — which is why many shippers are seeking support in shipping intelligence.
Knowing the details of your shipping profile is the critical first step in comparing contracts. But most shipping executives can’t see into carriers’ heads. That’s where Reveel comes in — our consultants are former pricing executives and carrier leaders, and they can lift the veil on how UPS, FedEx and others design their contracts.
Our team has a proven track record of saving clients 15 to 20 percent on shipping costs. The best part? We don’t get paid if you don’t. Let us help you save money on shipping, starting today.