Shipping rates have been increasing steadily by about 5 percent per year for the better part of a decade. There’s no reason to believe that trend will slow or change anytime soon. But rates, fees and surcharges aren’t set in stone.
Every shipper negotiates a custom contract with their carrier. If they can convince the carrier that their account is valuable enough, they can get the carrier to make some exceptions.
The key to successful contract negotiation is knowing exactly which areas to target when you are looking to renegotiate your parcel carrier contract.
To determine what those areas are, company leaders must know their parcel shipping profile inside and out. They need to understand which fees and surcharges cost their company the most money, and experiment with different models. How much would a reduced oversize package fee save us? What about a lower price floor or a higher dimensional divisor?
Second, it’s essential to think about what carriers are willing (and able) to do. Many shippers would love to part with holiday surcharges, but carriers have implemented them across the board and usually don’t budge. However, they may be willing to reduce a lower-profile fee, such as an additional handling surcharge, for example for some clients.
An aspect of your contract that you think your carrier is willing to modify that would significantly benefit your bottom line is where you should focus your preparation for negotiations.
Here are a few key areas to consider reviewing and if the time is right, renegotiating:
The Dimensional Divisor
Carriers use dimensional divisors to standardize pricing by weight and size. Using the dimensional divisor, a large but lightweight package has similar shipping costs as a heavy, small parcel. This is instead of the much lower costs they carried when carriers charged shippers only by weight.
Like rates themselves, dimensional divisors have been changing every year in a way that translates to higher prices for shippers. UPS and FedEx have also been expanding dimensional weight pricing to more and more parcel delivery options, including FedEx SmartPost most recently. But some carriers are willing to budge on the dimensional divisor by either the number itself or what it applies to.
If your company ships a lot of large but lightweight packages, you may be paying more using dimensional weight than you would be using conventional weight pricing. Study your shipping data to understand how dimensional weight impacts you, and how your shipping spend could change with a larger dimensional divisor or a more selective application of dimensional weight.
Dimensional weight is particularly negotiable in the midst of carrier or mode changes. If your company is moving to a different parcel service carrier, or if you’re moving some air shipments to ground, it’s worth asking whether your new contract can include a dimensional weight exception.
High Minimums and Price Floors
Many carriers require shippers to spend some minimum amount of money every month or every quarter. Minimum spending requirements known as “price floors” are common across industries.
Carriers may say price floors exist so they know they’re taking in enough revenue to survive each month. If your company is consistently spending less than that minimum or shipping extra to make sure you meet it, it’s too high.
To address minimum spending requirements, review your carrier’s service categories to see what fits your shipping profile. Then, look at your finalized rates to understand the impact of these requirements on your bottom line. If you’re on the cusp between two service categories, you may be able to push for the lower minimum until your business expands.
These are more complex calculations than the dimensional divisor problems above, so you may want to seek the help of an expert.
Reveel offers a reporting and analytics service that can automate many of these calculations in real time. Using that data, our trusted local experts can help your company identify opportunities for savings.
Other Surcharges and Accessorial Charges
According to a 2017 survey from Parcel magazine, accessorial charges are executives’ biggest source of frustration with their carriers said 36 percent of leaders surveyed. This is compared to 19 percent who said their biggest frustration was “pricing” in general.
In other words, if you’re dissatisfied with how much you spend on courier surcharges you’re are not alone.
While reviewing your spending on surcharges, start by making sure you’re taking advantage of existing carrier discounts. Most carriers impose dozens of fees and surcharges, and they may offer seasonal or volumetric discounts. Be proactive in reading carrier offers and taking advantage of them because these savings can add up significantly.
Even after taking advantage of those discounts, choose some specific accessorial fees and surcharges to target in contract negotiation. These may be common fees like oversized package fees or additional handling surcharges, or they may be uncommon but very expensive fees.
Is now the time to renegotiate your contract? Generally, Reveel suggests reviewing your contract whenever you see a significant change in your shipping profile like shipping a new product or targeting a new market. Or, if your company undergoes a merger or acquisition.
If two years pass without a major change in your business, revisit your contract anyway. Your carrier’s rates have certainly increased, which means it could be worth looking a regional carriers or the postal service for parcel delivery. Plus, regular renegotiation ensures that you’re keeping your data up to date and keeps your carrier on it toes.
The Reveel App uses AI and machine learning to provide an unparalleled look into what’s impacting your bottom line. Through invoice audits, peer benchmarking, and rate modeling/simulations, you can see the health of your operation and assess pricing changes from parcel carriers like FedEx and UPS. Sign up for a free Reveel account today to see how you can leverage automation to synthesize your data, ship more for less, and reduce the time needed to identify issues and action items.