Carrier Contract Negotiations: 8 Effective Tips To Consider
With industry outlooks like parcel shipping becoming even more expensive in 2022, contract negotiations are more important than ever. Failing to negotiate your carrier contracts could be the difference between a healthy margin and losses.
This article will go over eight carrier contract negotiation tips that you need to consider before starting the process.
1. Know Your Shipping Volume
This is probably the most important tip on this list. To negotiate effectively, you need to know your shipping volume. This information will determine things like discount tiers and which services you’re eligible for.
Your shipping volume can also be used as leverage during negotiations. If you can show that you ship a significant amount of packages, carriers will be more likely to offer you better terms.
Consider using shipping software to help track your shipping volume over time. This data can be beneficial during negotiations by providing insight into patterns and trends.
2. Know and Understand Your Data
You need to know and understand your data to get the most out of your negotiations. Most carriers have access to your shipping reports and other data, so you must establish your baseline to get a headstart on the carrier.
Filter essential data points such as:
- Surcharge: As we all know, surcharges make up a significant portion of our shipping spend. So you must look at your historical patterns to understand what you’re currently paying.
- Dimensional Weight: This is the weight of your packages using a dimensional factor. This is important because it can affect your shipping costs if you’re not careful.
- Zone and Weight Distribution: This data will help you understand what services you’re using and how much it’s costing you. It can also be used to negotiate for lower rates.
You should be aware of your current discount rates and service levels. This data will help you benchmark your current carrier contracts and identify areas where you may be able to improve.
3. Know Your Carrier’s Pricing Structure
To negotiate effectively, you need to understand how your carrier prices its services. This includes things like discount tiers and accessorial charges.
Most carriers have a tiered pricing structure for their services. It means that the more you ship, the higher your discount. This is why it’s important to know your shipping volume before starting negotiations.
You should also be aware of accessorial charges. These are charges that carriers add to your shipping costs for things like fuel surcharges and residential delivery. Accessorial charges can make up a significant portion of your shipping spend, so it’s important to understand how they work.
4. Know Your Options
It’s important to know your options before starting negotiations. These may include things like:
- Which services you’re currently using
- Which services you’re eligible for
- What other carriers you can use
This information will help you determine your starting point and what you’re willing to compromise on. It’s also important to understand that you don’t have to use the same carrier for all of your shipments. Using multiple carriers can often be more cost-effective.
5. Quantify Every Proposed Agreement
One of the most important things to remember during negotiations is to quantify every proposed agreement. This means that you need to put a number on everything.
For example, if the carrier offers you a discount, ask for the exact percentage. This will help you compare different offers and make sure you’re getting the best deal possible.
You should also calculate the annual savings for each proposed agreement. This will help you understand the true value of the offer and make sure it’s worth your time.
6. Don’t Forget Your Right To Refunds
During negotiations, it’s important to remember that you have the right to refunds. Don’t sign away your right to a money-back guarantee, especially during carrier contract negotiations.
They may offer hefty discounts to those willing to forgo their right to a refund, but it’s not worth it. Always have a way to hold shipping carriers accountable if they don’t deliver on their promises. That means keeping your rights to refunds.
7. Review Contract Terms Periodically
It’s important to periodically review the terms of your carrier contract because it will help you identify any changes that may have been made without your knowledge.
This is especially important if you’re using a third-party logistics provider (3PL). 3PLs often have their contracts with carriers, so it’s important to make sure that the terms of your contract are still being met.
Here are some of the factors you need to frequently review:
- The times your shipping carrier increased its rates
- How the increased rates affected your business
- The average number of packages you send
It’s generally advised that you renegotiate at least two months before your discounts expire. If you let your discounts lapse and continue to deliver, your shipping expenses may skyrocket. Always keep track of dates and remain updated on changes to prevent outgrowing your contracts.
8. Avoid Long-Term Contracts
Long-term contracts may offer some stability, but they’re not always in your best interest. Most experts recommend against signing long-term contracts with carriers.
This is because the shipping industry is constantly changing, and what works today may not work tomorrow. For example, a new carrier may enter the market and offer lower rates than what you’re currently paying.
If you’re locked into a long-term contract, you won’t be able to take advantage of these lower rates. However, if you’re on a month-to-month basis, you can switch carriers.
Get The Most Out Of Your Contract
These are just some things you need to keep in mind when negotiating your next carrier contract. Remember, the goal is to get the best possible rates for your business without sacrificing quality or service. By following these tips, you can be sure that you’re getting the most out of your carrier contract.
If you’re looking for more ways to save money on shipping, consider harnessing the power of AI technology. Reveel’s intelligence platform can help you optimize your process and provide effective negotiation consulting solutions. Click here for a demo of how our platform works.