The shipping industry is wishing us a happy new year in its usual way: the 2018 general rate increases are now in effect.
In the next month, companies will get a keen sense of how these shipping rate increases will affect their bottom line this year, and how closely the reality lines up with their predictions.
After gathering a few months of data, executives should set aside time to review their shipping services, identify areas where they could cut costs, and consider renegotiating their contracts.
Even with base rates rising by nearly 5 percent, companies who negotiate wisely could actually end 2018 with reduced spending on shipping — here’s how.
Step 1: Apply Price Increases to Your Shipping Spend to see how Changes Affect Costs
If your company’s logistics leaders already did this when rate hikes were announced last fall, congratulations — you’re ahead of the game. But if not, now is the time to do detailed calculations to understand how rate increases will increase your shipping spend.
Start by reviewing your data from the last year — how much volume you shipped, your zone distribution, how many packages were considered oversized, et cetera. The more granular your data, the better you can understand how rate increases affect your company.
Some of these changes seem small — FedEx’s change in the definition of a package that requires an additional handling surcharge, from 60 inches on the longest side to 48 inches on the longest side, for example — but if one of your company’s leading products ships in a box that is 55 inches on the longest side, this tweak could cost you a lot of money.
Or, if your company used to accept UPS’s large package surcharge of $10 per parcel, you’ve surely noticed that the carrier is multiplying that price by 8. Paying $80 per package (and $90 after July 8) could take a big bite out of your shipping budget.
If either of these changes, or others like them, affect your company dramatically, they’re points to target in your next contract negotiation. Broad carrier policies — including base rates, dimensional weight, and holiday surcharges — are less malleable in contracts than a specific surcharge.
Step 2: Stay Up-to-Date With Your Shipping Profile Throughout the Year
If you don’t already collect parcel-level data in real time, make a belated new year’s resolution to do just that. Detailed information about what you ship, where it goes and how much it costs is critical to identifying inefficiencies in your company’s logistics, as well as collecting every refund and benefit you’re owed under your existing contract.
The first type of data you need is information about your parcels themselves. Companies should understand their parcels’ size and weight ranges, how many packages are overweight or oversized, and how dimensional weight affect their shipping spend.
Then, gather data about who and where your customers are. Make sure you’re tracking residential versus commercial deliveries and zone distributions, as well as how many of your customers require next-day, two-day or international shipping.
Finally, keep track of how well your carrier is performing. Companies should independently track on-time deliveries, deliveries without damages or errors, and service provider responsiveness. In the short term, you can use this data to make sure your carrier is paying you any promised refunds — try a free invoice audit from Reveel to see how this works — in the long term, you can use it to negotiate a more favorable contract or even consider switching carriers.
Step 3: Prepare for Contract Negotiation Season
As the year continues and the impact of 2018 rate increases becomes clear, figure out what you want to target in your next contract negotiation. Be specific. Which shipping costs would you like to reduce, and by how much?
Remember that carriers evaluate potential partners based on four metrics: Their spending on small parcels, their alignment with existing distribution networks, the value of their brand and what they could lose by not preserving the contract. Carriers seek to maximize retailers’ spending, of course, but they also value mutually beneficial partnerships. That means, if you can understand how they benefit from having your company as a client, you can pitch these contract changes as win-wins.
Tracking your shipping data, auditing your invoices, modeling rate increases and preparing for negotiations can be daunting. But when Reveel’s clients have adopted these practices, they’ve saved as much as 20 percent on shipping contracts.
Make 2018 the year you outsmart your carriers’ rate increases. Start monitoring your data today.