Reveel Resources

Evaluating Carrier Contracts: Should You Negotiate a Better Deal or Switch Providers?

Parcel Contract Negotiation Evaluation

Winter is coming, and so are rate increases.

Shipping rates have risen about 4 to 5 percent a year since e-commerce began booming. They’ve also tacked on increasingly inventive surcharges and fees, like peak season charges. We expect dimensional weight, which became a major factor in 2017, to remain essential to how carriers set rates.

That means it’s time for company leaders to consider a change. Based on intimate knowledge of their transportation data, they can identify areas to target for savings in their next contracts. Then they can compare carriers, seeking out one or several who are most amenable to the changes leaders want to make.

Switching carriers is an important decision. Working with trusted partners, who can lift the veil on carriers’ inner workings and help clarify company shipping data, can be the key to the best possible contract.

Reflection: Are You Satisfied?

As always, leaders who know their company’s shipping profile and understand their transportation spend are best suited to make optimum decisions. They are armed with information about exactly what their company needs. Those who understand carriers’ needs, too, are positioned for very successful negotiations.

Then, executives must ask: Are you satisfied with your current carrier? What do you like about the service you’re receiving? What do you dislike? Based on a review of your shipping profile, where could you be saving money?

Most company leaders are not satisfied, according to a 2017 survey from Parcel magazine. Nearly 36 percent of executives surveyed said accessorial surcharges were their biggest source of frustration with their carriers. About 16 percent said their biggest complaint was pricing. That means more than half of leaders surveyed were frustrated with their contracts themselves, not the service they received.

Research: Comparing Carriers

Contracts are founded on shipping rates. Rates vary by size and weight of packages and by distance they travel, and they rise every year — we anticipate UPS and FedEx increasing ground and air rates by about 5 percent for 2018.

The good news is that companies who know their shipping profiles can plug their data into potential contracts to understand exactly what they’d spend.

Related: Decoding Your Shipment Data: Surprising Information Your Analytics Reveal

The U.S. Postal Service is generally the cheapest carrier, and it doesn’t tack on many of the surcharges that corporate carriers do. And though its reliability has been criticized over the years, its point-to-point tracking system is winning back some consumers.

Then companies must identify what’s most valuable to them and their customers to decide which surcharges they’re most willing to pay. Are buyers primarily residential or business addresses? Are they domestic or international? Do they require package tracking or insurance? Will your shipping needs change dramatically during the holiday season? Each of these come with possible fees, all of which can be negotiated.

FedEx and UPS compete for market share, and both have historically applied similar surcharges. But in 2017, UPS announced a peak-season surcharge, increasing fees by almost $1 per package shipped during the holidays. FedEx has not imposed a per-package holiday surcharge. Instead, the carrier is increasing select accessorial charges.

Finally, of course, service matters. Do packages reach their final destinations on time? FedEx scored highest on these questions in the Parcel survey: Companies rated FedEx 8.06 out of 10 for on-time service performance and 7.53 for delivery performance, compared to 7.27 and 7.35 for UPS, respectively. The U.S. Postal Service received sixes in both categories.

Some companies even choose to use multiple carriers, often one for local and regional service and one for national service. While FedEx and UPS are similar in many ways, pricing and offerings from regional carriers can vary dramatically. Again, companies who know their shipping profiles inside and out are best positioned to take on those confusing negotiations.

Decision: Bring in a Trusted Partner

Needs vary widely from one company to another, and some carriers — or multiple carriers — might be better suited to some companies than others.

Reveel’s industry experts can lift the veil on carrier strategies and help companies use their data to decide which carrier fits their needs best.

We compile local and industry benchmarks that help companies compare their rates to industry standards. Our data and analytics tools arm company leaders with the information they need to understand the contracts carriers offer.

As negotiation season begins, Reveel can be a partner to companies navigating rate increases. Dozens of companies trust our expertise to help them secure the best possible rates, and we routinely help them save 15 percent or more.