When it comes to Small Parcel Contract Negotiation shippers should be proactive. Internal factors such as business requirements and volumes change, while external factors like regional carrier options and fulfillment optimizations can drive costs down.

Taking a proactive approach to parcel contract renegotiation can save you 10-20% annually. Leveraging shipping data analysis and a carrier management platform like ShipSigma gives you the leverage to negotiate a fair agreement.

1. Data Driven Negotiations

Carrier contracts impact shipping expenses by establishing specific rates and discounts, surcharges, fees, and service conditions. Effectively negotiating these contracts is one of the most powerful strategies to help e-commerce businesses maximize shipping cost savings and efficiency. Negotiating contract terms may seem daunting, but leveraging accurate pricing benchmarks and the support of a parcel spend management partner can level the playing field and make e-commerce shippers feel confident entering their negotiation process.

To prepare for a successful RFP, you must be able to identify your unique business profile and parcel carrier needs. You must also be able to compare carrier proposals thoroughly and model proposed networks. Having this knowledge will enable you to define clear negotiation objectives and ensure that you receive the best possible deal from your carriers.

Oftentimes, companies will come into the negotiation process believing that they have already negotiated the best deal possible and that there is no room to improve upon their existing contract. This is a dangerous belief that could lead to missed opportunities for significant savings and costly mistakes.

In order to effectively negotiate your small parcel agreements, you must be able to understand the overall shipping environment and current year’s GRIs. In addition, you must be able to measure performance metrics and identify areas of waste and inefficiency.

The simplest way to do this is through freight and parcel audits that analyze your carrier invoices and review performance metrics, costs, and service levels. This data is a key element in understanding your unique shipping profile and will allow you to identify and leverage your true potential for savings. In addition to identifying savings opportunities, audits provide insight into the effectiveness of your existing shipping processes and your ability to leverage automation.

2. Know Your Value

It can feel like the carrier holds all the cards. But the truth is, it’s not true. Carrier contracts control rates and accessorial fees that set the base of your shipping costs, and they can also be leveraged to negotiate loyalty or volume discounts, fuel and dimensional surcharges, and revenue-based incentives that reduce cost and improve service. It’s critical that you have an expert review your current contract before it’s time to negotiate.

The best way to do this is by partnering with an organization that can analyze your invoices and data, then conduct a parcel invoice audit to identify billing errors, overcharges, unnecessary accessorials, and other costly elements of your shipping process. This reveals the areas where you can cut costs and concentrate your negotiation efforts.

For example, if you have a lot of charges for lifting equipment or oversize packaging, it’s likely that these are not being properly charged based on the dimensional weight or DIM weight formulas that most carriers use to determine the size of your package. A simple adjustment to this charge in your contract can save you significant money.

It’s also important to remember that your contract is designed to increase the carrier’s bottom line, not yours. Despite what may seem to be competitively priced agreements, most carriers are making 20-40% margin. With the help of a parcel negotiating team and an organization that can provide detailed invoice analysis and data, you can reduce this margin to 5-7% and put more money in your own bottom line. The right partner can not only ensure that you’re receiving best-in-class discounts on your existing contracts, but they can also vet the myriad of alternative carrier options that now exist and identify operational opportunities for additional savings.

3. Know Your Goals

When preparing to engage in a parcel contract negotiation, it’s important to identify and define your objectives. A thorough approach will help you optimize rates, offset annual GRI increases and minimize unnecessary overspending. It’s also necessary to understand your carrier partners’ goals and needs so that you can find compromises that serve your network simultaneously.

For example, leveraging shipping data to understand the impact of negotiated tiers, volume-based pricing penalties and accessorial charges is key to maximizing savings. Additionally, examining the services and conditions offered by other carriers beyond the USP duopoly (such as regional options, consolidators and value-added resellers) can help find a carrier that is a good fit for your shipping profile and offers competitive pricing.

Finally, it’s critical to consider the terms of termination. This will include the timeframe, reasons for termination and any associated fees/penalties.

During the negotiation process, it’s vital to stay focused on your goals and use a clear, assertive and respectful dialogue with your carrier representatives. Additionally, it’s important to recognize that both parties have interests – the most powerful interests are those of basic human needs such as security, economic wellbeing and a sense of belonging.

With e-commerce shipping costs increasing and rates on the rise, it’s more important than ever to prepare for your next small parcel agreement negotiation with the carriers. A well-planned and executed strategy can help you reduce costs, offset annual general rate increases (GRI) and secure terms that allow you to pass along these cost savings to your customers. By leveraging shipping data, thoroughly comparing carrier proposals and establishing a comprehensive negotiation strategy, you’re well on your way to improving your bottom line.

4. Understand the Fine Print

When it comes to parcel contract negotiations, the devil is in the details. A few missteps could thwart the best intentions to save on shipping rates and end up costing more than necessary. To avoid this, it’s essential that e-commerce businesses become masters of parcel contract negotiation. Mastering this process helps them optimize rates, offset rate increases and minimize unnecessary overspending, while meeting the unique needs of their supply chain.

The goal of any successful business is to secure a win-win agreement with their carrier partners. Becoming proficient at this negotiation allows them to level the playing field and cinch a deal that fuels their growth. To do so, they must understand their current rates, pricing structure and shipping data. Using these insights, they can easily run carrier pricing proposals and compare them to their own, helping them identify and negotiate a contract that’s optimal for their business.

Beyond transportation and accessorial discounts, many parcel contracts contain a host of other items that are negotiable. These include things like negotiated tiers, volume-based pricing penalties and residential delivery surcharge discounts. In addition, a contract may include termination language outlining the conditions under which either party can terminate the agreement, including any associated penalty.

With peak season looming, it’s crucial that e-commerce businesses begin the process of reviewing and negotiating their parcel contracts now. This will ensure that they’re capturing the best-in-class discounts on their existing agreements and exploring alternative carrier options before their expiration dates. Moreover, it will help them protect themselves from unforeseen operational strains during the final quarter of the year. Getting the support of a third-party logistics expert can make this entire process much easier, helping them navigate the myriad of carrier options and identify additional savings opportunities for their unique shipping profiles.

5. Know Your Options

In Vegas there is a saying that “the house always wins.” In the world of parcel contract negotiations, this may be true. However, strategies do exist to level the playing field when negotiating with carrier partners.

Having the right team on your side during your next round of parcel contract negotiations can make all the difference in getting a fair deal and securing a contract that fuels business growth. A third-party partner with industry expertise can ensure that you’re receiving best-in-class discounts on your existing contracts, help vet the myriad of alternative carrier options and identify operational opportunities for additional savings.

When tackling the intricacies of a carrier agreement, you should also be aware of what is not negotiable, like early termination fees and minimum commitment penalties. You’ll want to avoid stipulations that could limit your flexibility in the future, especially given the anticipated GRI increases coming with 2020.

You should also be familiar with the terms of your residential delivery surcharge discount, as this can save significant money on shipping costs and allow you to pass those savings on to your customers. Additionally, it’s important to understand that your MPCs (Minimum Package Charges) are often negotiable.

MPCs are based on the dimensions of your shipment, which can push you into higher weight tiers, driving up cost. The ability to track dimensional data can help you identify and reduce MPCs, which can result in substantial savings for your business. Finally, you should be aware of the impact that re-routing charges can have on your rates. While these can be difficult to track, they’re also an opportunity for savings. Lastly, don’t forget to leverage your rights to refunds on late deliveries through your carriers’ money-back guarantee.

Autumn Marsh