Carrier contracts have long been one-sided to benefit the carrier — naturally, of course, because they’re usually the ones writing them. But by understanding the fine print of your current contract, you can identify instances in which you’re paying too much, and by reviewing your invoices, you can make sure you’re getting every service you pay for.
By knowing your company’s needs inside and out, you can ask for creative solutions tailored to your products. By being sensitive to your carrier’s needs, too, you can pitch your desired contract as a win-win — because it probably is.
Consider the following steps when it’s time to review your carrier contract.
Step One: Review Your Current Contract and Invoices
Shipping carrier contracts are often long, convoluted and confusing — sometimes intentionally so. First, there are your rates, likely broken into tiers depending on your gross transportation spend, weights, and zones. Then there is the laundry list of surcharges and miscellaneous fees, some added after packages are shipped.
If you can review all of those parameters and understand exactly how much each one costs, you can strategically decide what to target in contract negotiations. You may have little leverage to negotiate a lower base rate, but you can ask for reduced or waived fees based on your needs.
It’s also critical to review your invoices and make sure you’re getting everything the contract promised. This is difficult, but its potential dividends are huge, even in one-time instances.
Take the San Diego Zoo. Recently, the nonprofit organization audited some of its invoices from FedEx. The zoo had used FedEx to transport an animal to New York City for an appearance on a TV show. FedEx was a few minutes late arriving in New York, and when the zoo examined the paperwork, they found that FedEx had to refund a $13,000 shipment fee.
By looking closely at your contracts, you can identify fees and surcharges that may be ripe for renegotiation. Armed with information from your invoices, you can seek specific exceptions tailored to your business in your next contract.
Step Two: Know Your Product and Your Shipment Data
Understanding your shipping profile will put you in the strongest possible negotiating position. You already know what you ship, where you ship it to and how much of it you ship at once. But if you can take a step back and look for patterns in that data, you may discover a unique solution you hadn’t considered.
For example, your company — like many — may focus on single package shipments for home delivery. There’s not much profit in that for carriers, so you may not have much room to push hard for a better rate. But when you look at a comprehensive portrait of your data — your service mix, how much you’re importing or exporting, weight distributions and zone distributions — you may identify specific asks you can make of your carrier.
Aligning your data with your contract — which you examined closely in step one — can mean the difference between your current contract and one that is at least 15% cheaper.
Step Three: Understand Your Carrier’s Needs, Too
Shipping companies don’t simply assign a dollar amount to every package or every pound. Your providers likely offer different price tiers based on how much you ship or where they’re delivering your products, based on how your needs fit into their existing business.
If you can understand what they need — how they calculate your shipping cost, where they do the most business and where they’d like to grow — your negotiating position gets even stronger.
Take KC HiLiTES, an auto parts manufacturer based in a small town near Flagstaff, Ariz. The company had long considered their remote location a disadvantage. But during a recent review of their decades-long relationships with FedEx and UPS, they realized they could pitch their location as an asset. Both carriers routinely made deliveries in the area, but seldom had pickups to fill those trucks. KC HiLiTES was the largest account for miles around.
The company explained to their carriers that their presence outside Flagstaff turned those rural routes into regular sources of business. In a contract renegotiation, they were able to cut costs by 18%.
As always, contract negotiation is a two-way street — carriers want your business and you need their services. By understanding their needs and strategies and tailoring your negotiation to them, you can explain why your proposal is truly a win-win.