It’s not an easy time to be a parcel carrier.
UPS, FedEx, the U.S. Postal Service and their competitors are continually adjusting to new market constraints. To put it simply, these challenges come from changing consumer demands arising from e-commerce. Online buyers expect two-day and same-day shipping. Many of them expect it to be free. Parcel carriers have to move more volume than ever, even while fuel and labor prices keep rising. On top of that, they’re facing new competition from Amazon and other alternative industry services.
Shippers can’t control the cost of transportation or trucking labor. Further, they have to be just as responsive to consumer whims as carriers do. If one manufacturer offers two-day shipping and the other offers standard ground, the latter is going to lose customers. So they have to collaborate with carriers to offer the best possible service at the lowest reasonable prices.
However, in negotiations between shippers and carriers, carriers tend to be in control. They get to set pricing and service levels. Shippers have to pay whatever their contract requires. It doesn’t have to be that way.
Parcel shippers can better manage their costs by staying knowledgeable about changing shipping industry trends. If they can anticipate their carriers’ needs, they can negotiate smarter, resulting in better contracts for both shippers and carriers.
Understand Your KPIs
Saving money on parcel shipping starts with knowing how much you spend. And that’s not just the number that appears on your invoice every two weeks. It’s how much you spend per pound, per parcel or per mile.
Shippers who closely monitor key performance indicators like cost per shipment and cost per unit weight, can easily spot spikes in spending and understand the impact accessorial surcharges will have on their next bills.
Executives who know their shipping data in detail can also understand how the challengers carriers face. For example, fuel and labor costs might reach them. Fuel is easy to understand. FedEx and UPS both apply fuel surcharges based on air and ground fuel prices. If shippers are monitoring those indexes and their shipping volume, a few simple calculations can show how much they’ll be hit by rising oil prices.
Further, shippers can use KPIs to identify inefficiencies in their own networks to identify opportunities to streamline their processes to save money even without changes to their carrier contracts.
Demonstrate the Worth of Your Company to Your Carrier
Contracts are two-way streets. Shippers choose their carriers based on what they offer and in turn, carriers choose to work with certain shippers because they demonstrate some value.
The first metric carriers evaluate is a simple one: how much does your company spend shipping small parcels? If it’s under $100,000 per year, unfortunately there’s limited room for negotiation. But if your shipping spend is larger, your company may have a lot more leverage than you realize.
Second, carriers consider how well shippers’ customer networks align with their delivery networks. The more volume carriers deliver along established routes, the more efficient and profitable those routes become. That’s what helps regional carriers remain profitable in relatively small geographic areas. National carriers also have carefully calculated delivery routes and critical distribution hubs and if your location data overlaps well, a good deal may be in store.
Third, shippers’ brands matter to their carriers. Brands that have loyal customers who frequently order and re-order products. Think about subscription services like running shoes and outdoor gear that generate business for their carriers on an ongoing basis. And brands with wide reach can become valuable promotional partners. If free shipping during a Presidents Day sale results in more business year-round, it may be advantageous for both shippers and carriers.
Finally, remember that shipping is a zero-sum game. If your company contracts with UPS, it probably doesn’t work with FedEx. Shippers who understand this can convince carriers that they have more to lose by not negotiating than by making some small concessions.
Evaluate Your Negotiation Approach
It’s a carrier’s market right now. Wes Jayne, associate manager of Hall’s Fast Motor Freight, told Supply Chain Dive this spring that “since mid to late 2017, the landscape has changed, and carriers are now in the driver’s seat.”
Jayne explained that carriers have less capacity today than they have in years, in part because shipping volumes are increasing faster than they can scale. Further, truck drivers are aging and trucking companies are struggling to keep up with changing regulations. In other words, there’s too much product and not enough trucks or drivers.
How do your company’s shipping needs align with what carriers want? It’s all about how you tell the story. Make sure you know how to leverage your data to highlight what makes your company well-suited to your carrier’s needs.
Thinking like your carrier and positioning solutions as win-wins are key to successfully negotiating your shipping contract. First, consider your carrier’s needs: do they want shippers who can be flexible? Are they looking for consistent shippers who move the same products week after week? What does their residential delivery network look like?
Then, consider your own needs: what do you need to ship, and when and where? Do your customers care more about shipping costs or speeds?
The best negotiators are those who can bring those two questions together to suggest mutually beneficial solutions for carriers and shippers.
Walking that line can be challenging. That’s why consultants at Reveel can review your current carrier contract and provide negotiation tips and localized insights. Our team has a proven track record of saving companies 15% to 20% on shipping. Let’s talk about how we can help you.