Reading a shipping contract can be awfully confusing. In addition to ever-increasing flat rates, carriers use price floors, dimensional divisors, volume discounts and suites of surcharges to calculate what their clients owe.
It can feel like these formulas are full of surprise fees — but if understood correctly, they may reveal opportunities to save by way of a negotiation process.
The key to understanding a company shipping contract negotiations thinking like a carrier. How does a company’s customer network align with their delivery network? How do they evaluate the potential size of a contract? How do they decide which brands are valuable partners?
The best negotiations are those that end in mutually beneficial contracts — terms that save them money and make carriers happy. That means the best negotiators are business leaders who can think like their carriers.
Companies like FedEx and UPS evaluate potential partners with just as much scrutiny as retailers do when looking for carriers. They start with four simple criteria:
1. How Much Your Company Spends Shipping Small Parcels
Carriers first measure retailers based on how much they spend every year shipping small parcels. They treat most companies spending less than $100,000 the same way, evaluating what kind of services they need and how much they ship and assigning fairly predictable rate. But companies above the $100,000 threshold are potentially valuable partners — meaning they have a lot more leverage in rate negotiations.
For smaller contracts, carriers start by asking companies for data. How much of their products ship to commercial customers compared to residential customers? How much is air service versus ground service? How much does the average package weigh? How far do packages travel and how many travel to each zone? In other words, what does their supply chain look like?
Small retailers can improve their negotiating position by knowing this data inside and out. Review your current contract, then identify any changes in your shipping data since you last negotiated. If you ship more commercial than you used to or if your zone distribution has changed, you will be able to create a negotiation strategy to push your carrier towards a new agreement.
Companies with bigger rates have more wiggle room. Carriers want these contracts and are willing to offer them deals, so they examine how closely large companies’ distribution networks align with theirs. They also examine pricing along industry verticals to understand how they might offer you a better deal than their competitors.
2. Your Alignment With Their Network
The more carriers can deliver along established routes, the more money they stand to make. Regional carriers, for example, become profitable by delivering a lot of volume in small areas. But national carriers also have carefully calculated delivery routes and critical distribution hubs — and the better your location data matches theirs, the more likely they are to want your business.
In addition to geography, industry matters. If your company manufactures large, custom or sensitive products, you might require special equipment. Biological materials, for example, often have to be transported in refrigerated trucks.
If your company’s industrial needs align with specialty services carriers already offer — and if your business could help them grow those offerings without taxing them too much — carriers may be willing to negotiate on pricing.
3. Brand Recognition and Credibility
Your brand means a lot to carriers, just like it does to every business you work with. Strong brands tend to have reliable customer bases, which means a steady stream of business for carriers. Think about running shoes and outdoor apparel — many buyers choose their brands carefully and stick with them for a lifetime. By extension, they become clients of whichever carriers Adidas, REI or L.L. Bean work with.
Brands that inspire devotion tend to have repeat customers — that is, when buyers’ running shoes wear out, they naturally buy a new pair. Then, these customers often become de facto brand ambassadors, buying packages as gifts for family and friends.
Finally, carriers see brands that have both wide reach and devoted customers as potential promotional partners. They may be willing to help those brands offer occasional deals to customers — free shipping during a Memorial Day weekend sale, for instance — if it means shoring up the brand’s customers year-round.
4. What They Could Lose by Not Working With You
For carriers, shipping is usually a zero-sum game. Many retailers work with just one carrier — which means that if FedEx wins your contract, UPS does not. Further, if one carrier disappoints, you can switch. Successful bargaining can convince carriers that they have more to lose by walking away than by agreeing to some compromises.
Think not only about what your company offers now, but what you could offer in the future. Is your business on track to grow significantly in the next year? Are you planning an expansion to another state or region? If your data shows you have reason to be ambitious, carriers may see your contract as an investment. And, if they can win your loyalty now, their competitors can’t.
Once you start thinking like a carrier, you can position your company as an ideal partner: A healthy size, in line with their logistical plans and brand values, poised for growth. Review your shipping data, then get ready for your next negotiation.