Many shippers don’t know how carrier package minimums affect their shipping spend. Actually, many shippers don’t even know they exist.
But carriers use these benchmarks to negate discounts and make sure they get paid a certain amount — which might be much more than shippers realize.
First, carrier package minimums are difficult to identify. They have different names in contracts depending on which carrier you’re using. And carriers almost never spell out how much they’re going to impact a partner’s spending.
Parsing shipping contracts is one of the most challenging things supply chain leaders do. They need to look closely at carrier-promised discounts on their most commonly used service levels, then calculate how much they give back in accessorial fees and surcharges.
For a full picture of the company’s shipping costs, however, they also need to identify carrier package minimums — the minimum amount a carrier says it needs to charge per package to complete a shipment. These elusive figures can wipe out discounts, and many shippers don’t even notice.
Once leaders find and understand carrier package minimums, they’ll probably find carriers claim that their package minimums are non-negotiable. This, of course, is rarely true. In contract transportation negotiations, everything is on the table. Understanding how carrier package minimums impact your company could lead you to big savings.
What Are Carrier Minimum Package Rates?
In the simplest terms, package minimums are the lowest amounts shippers can pay to send packages. That is, carriers say the minimum charge for shippers can never be less than that amount per package, no matter what discounts apply.
The default package minimum required for both FedEx and UPS is the Zone 2, one-pound package rate. All shippers have negotiated agreements with FedEx and UPS that specify minimums per zone and service level. Review your contract to find yours.
What this means in practice is: Let’s say your carrier sets its minimum package rate at $5.00, based on the Zone 2, one-pound rate. But your company has negotiated a 30 percent discount on packages traveling to Zone 5, because you have a large contract with a customer there.
If that discount brings the per-package charge below $5.00 per parcel — say it reduces one-pound parcels to $3.75 and two-pound parcels to $4.25 — those rates are automatically required to bump back up to $5.00.
That means that you may not be getting the discounts you budgeted and negotiated for.
How to Find Minimum Package Rates in Your Contract
UPS customers should find this process fairly straightforward. That carrier describes minimum package rates in contracts as “minimum shipment charges” or “minimum net charge.” With UPS, these charges are specific to each zone, service level and container type.
A UPS International shipper should note that International minimums are usually listed as percentages off across all service levels, based on minimum tables that are published separately from service guide rates.
FedEx makes identifying package minimum requirements a little harder. FedEx Express labels package minimums “minimum reduction amounts,” and for Ground, Home Delivery and Smart Post, FedEx publishes a separate reductions table.
FedEx International minimums appear after the Export/Import discount in most contracts. Like UPS, these minimums are based on minimum tables separate from the carrier’s standard service guide.
It’s easy enough to understand how package minimums impact the cost of a single parcel. But what really matters for shippers is how they affect the company’s entire shipping spend.
Take time to calculate your company’s effective discounts to see if you’re actually paying the rates you negotiated for.
Securing Better Carrier Package Minimums
Package minimums are negotiable, even if carriers say they aren’t. But they’re not going away. That means every shipper has to solve the package minimum optimization problem: How much do you need to reduce package minimums to maximize discounts, across all zones and service levels?
It’s also important to note that, although package minimum requirements are negotiable, this is a challenging negotiation route. Carriers are resistant to changing these figures, even a little bit — so you’ll need to be careful and strategic when you broach this point.
This is where a trusted partner can be invaluable. If you want help sorting through your minimum package charges, figuring out a negotiation target and preparing for a conversation with your carrier, contact Reveel. Our consultants can help lower your shipping costs by understanding your contract, and figure out how to make it more competitive — so that you actually get the savings you deserve.
