May 16, 2005
COMMENTARY: Parcel post | How to negotiate small freight shipping contracts
By Dennis B. Reed
Senior vice president, MESCA Freight Services, Augusta
The amount of small package freight moved on behalf of small companies throughout Maine and the U.S. is vast, and could include everything from CDs to canoes; in most cases, these firms employ the services of parcel carriers like FedEx, UPS and the U.S. Postal Service to ship and receive goods.
This year, DHL entered the domestic small package arena with its acquisition of Airborne Express, which increased competition and offered more products and services to client companies. With a new carrier to consider and recent rate hikes from FedEx and UPS, this is the perfect time for Maine companies to revisit their small package contracts to ensure they are receiving the most competitive, market-driven shipping rates.
Many companies make the mistake of dusting off their contracts only when they are up for renewal at the one or two-year mark. There are two key reasons why you should review contracts early and often. First, your company profile might have changed. If you are using new services (e.g. air or ground) that aren't outlined in the contract, it's very likely that you are not receiving the benefits that are in line with those new services. Second, the volume of your shipments might have increased over the course of the year. This is important to pay attention to, because contracts tie incentives to specific dollar volumes. Typically, small package carriers build a minimum dollar amount into contracts that the customer must reach in order to be eligible for incentives; the minimum varies per contract, and incentives are based upon previous and projected gross annual revenue levels.
Many times a customer will reach the maximum threshold incentive specified in the contract. You can avoid this situation by projecting growth into the terms of the contract, and making certain the contract allows additional incentives as you continue to add to the carrier's revenues.
When the freight contract no longer aligns with your company's business, re-negotiation is a must. Here are some tips that your company can use to master small package service contract negotiations:
ˆ Review service contracts line by line. Don't assume that you know the true meaning of the fine print. If you don't understand the terminology in the contract, seek help deciphering the language from the carrier's representative or a qualified freight consultant. It's important to build options into the contract up front, just as you would when purchasing a new car.
ˆ Be aware of "unless otherwise noted." Most carrier service contracts offer incentives for outbound, prepaid shipments only ˆ unless otherwise noted. It is your responsibility to sift through the many pages of the contract to see if it is, in fact, noted. Fifty percent of transportation is inbound, so shippers need to be covered for both inbound and outbound shipments. Many companies have receiving departments that take in small package carrier deliveries every day. If a discount isn't applied when shipments are delivered to a receiving department, then you could be overspending. Your business could be well served by employing the help of a freight consultant to ensure that the language is clear in the contract.
ˆ Ask for base incentive discounts. These discounts aren't always included in contracts, so you or your freight consultant must ask for them. Base incentive discounts are usually expressed as a flat percentage discount for each individual package, and vary among multiple, specified weight ranges.
ˆ Be sure that all of the services your organization uses ˆ not just the big ones ˆ are listed. This will ensure that the services align with your needs and count toward tier incentive discounts. Tier incentive discounts are based on the total "weekly rolling average" revenue (the gross dollar volume tendered to the carrier each week) for eligible services only.
ˆ Employ the services of a freight association. If you have a small package shipping budget of $20,000 or more annually, freight associations can be an invaluable resource. With access to cooperative buying power and expertise in contract negotiations, freight associations can help companies save on freight costs regardless of volume or mode.
ˆ Always employ "positive uniqueness." In addition to mentioning that other carriers want your business, express to carriers the positive and attractive aspects of doing business with your organization. Carriers favor delivery density, air shipments and heavier package pickups and deliveries. Be your own best advocate.
ˆ Stay tuned to carrier rules tariffs, and know the surcharges. The rules change often and companies must be proactive, checking carrier websites frequently to remain unaffected by increasing costs.
The carrier contract negotiation process can be confusing and intimidating. Taking control of the fine print, understanding the benefits of the various services and handling the broad range of rate enhancements is a complex task that shouldn't be taken lightly. But paying close attention to the small print can mean big savings to a company's bottom line.
The amount of small package freight moved on behalf of small companies throughout Maine and the U.S. is vast, and could include everything from CDs to canoes; in most cases, these firms employ the services of parcel carriers like FedEx, UPS and the U.S. Postal Service to ship and receive goods.
This year, DHL entered the domestic small package arena with its acquisition of Airborne Express, which increased competition and offered more products and services to client companies. With a new carrier to consider and recent rate hikes from FedEx and UPS, this is the perfect time for Maine companies to revisit their small package contracts to ensure they are receiving the most competitive, market-driven shipping rates.
Many companies make the mistake of dusting off their contracts only when they are up for renewal at the one or two-year mark. There are two key reasons why you should review contracts early and often. First, your company profile might have changed. If you are using new services (e.g. air or ground) that aren't outlined in the contract, it's very likely that you are not receiving the benefits that are in line with those new services. Second, the volume of your shipments might have increased over the course of the year. This is important to pay attention to, because contracts tie incentives to specific dollar volumes. Typically, small package carriers build a minimum dollar amount into contracts that the customer must reach in order to be eligible for incentives; the minimum varies per contract, and incentives are based upon previous and projected gross annual revenue levels.
Many times a customer will reach the maximum threshold incentive specified in the contract. You can avoid this situation by projecting growth into the terms of the contract, and making certain the contract allows additional incentives as you continue to add to the carrier's revenues.
When the freight contract no longer aligns with your company's business, re-negotiation is a must. Here are some tips that your company can use to master small package service contract negotiations:
ˆ Review service contracts line by line. Don't assume that you know the true meaning of the fine print. If you don't understand the terminology in the contract, seek help deciphering the language from the carrier's representative or a qualified freight consultant. It's important to build options into the contract up front, just as you would when purchasing a new car.
ˆ Be aware of "unless otherwise noted." Most carrier service contracts offer incentives for outbound, prepaid shipments only ˆ unless otherwise noted. It is your responsibility to sift through the many pages of the contract to see if it is, in fact, noted. Fifty percent of transportation is inbound, so shippers need to be covered for both inbound and outbound shipments. Many companies have receiving departments that take in small package carrier deliveries every day. If a discount isn't applied when shipments are delivered to a receiving department, then you could be overspending. Your business could be well served by employing the help of a freight consultant to ensure that the language is clear in the contract.
ˆ Ask for base incentive discounts. These discounts aren't always included in contracts, so you or your freight consultant must ask for them. Base incentive discounts are usually expressed as a flat percentage discount for each individual package, and vary among multiple, specified weight ranges.
ˆ Be sure that all of the services your organization uses ˆ not just the big ones ˆ are listed. This will ensure that the services align with your needs and count toward tier incentive discounts. Tier incentive discounts are based on the total "weekly rolling average" revenue (the gross dollar volume tendered to the carrier each week) for eligible services only.
ˆ Employ the services of a freight association. If you have a small package shipping budget of $20,000 or more annually, freight associations can be an invaluable resource. With access to cooperative buying power and expertise in contract negotiations, freight associations can help companies save on freight costs regardless of volume or mode.
ˆ Always employ "positive uniqueness." In addition to mentioning that other carriers want your business, express to carriers the positive and attractive aspects of doing business with your organization. Carriers favor delivery density, air shipments and heavier package pickups and deliveries. Be your own best advocate.
ˆ Stay tuned to carrier rules tariffs, and know the surcharges. The rules change often and companies must be proactive, checking carrier websites frequently to remain unaffected by increasing costs.
The carrier contract negotiation process can be confusing and intimidating. Taking control of the fine print, understanding the benefits of the various services and handling the broad range of rate enhancements is a complex task that shouldn't be taken lightly. But paying close attention to the small print can mean big savings to a company's bottom line.
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