Mastering the Art of Carrier Negotiations (ft. Mark Kolde)

In this episode of LeaderShipping, host Caleb Nelson speaks with Mark Kolde, VP of Logistics Engineering for Sifted, about expert strategies and tactics parcel shippers can employ to get the best possible parcel shipping contract for their business.

Main topics:

• Industry trends, shipping to a shipper’s market
• Understanding if you actually have market-appropriate shipping rates
• Data’s power in negotiations and beyond
• Crafting a contract with long-term viability in mind
• Capitalizing on favorable negotiation timing
• Concessions carriers are willing to make
• Successful negotiating strategies
• The benefits of a diverse carrier mix
• Targeting your contract RFPs to earn the best possible rates

Additional resources:

• Mark Kolde on LinkedIn
• Caleb Nelson on LinkedIn
• Favorable negotiation timing
• 4 additional negotiation strategies
• Sifted’s YouTube
• Sifted’s Unboxed Newsletter

Find LeaderShipping on all major podcast platforms, including Apple and Spotify. Don’t forget to rate and subscribe to stay updated on the latest shipping insights and trends!

SPEAKERS
Caleb N, Mark K

Caleb N 00:10
Hey, welcome back to another episode of LeaderShipping. I’m your host, Caleb Nelson. And this is powered by Sifted’s Logistics Intelligence shipping software. And we’ve got an awesome episode for you today. Today we are joined by Mark Kolde, a man who needs no introduction, but we’re going to introduce him anyways. And if anybody is familiar or aware of parcel negotiation in the industry, Mark Koldei is a very well known figure. We’re lucky to have Mark here at Sifted. Mark, welcome to the show!

Mark K 00:41
Thank you very much. Good to be here.

Caleb N 00:44
Absolutely. Mark brings deep knowledge of carrier negotiations. With really, with 25 years of parcel experience, I would bet some of the carriers you used to work for which was like DHL Global Mail, and a couple of the others, still use some of the same pricing modules that you helped build. Is that right?

Mark K 01:04
I would, I would dare say, yes.

Caleb N 01:07
Yeah, I think one of those things that, you know, as we were prepping in, in, you know, getting ready for the show, I think it’s one of those things that I wanted to really jump into what, what makes mark, tick. And Mark, I’m really curious, you know, what, why are you so passionate about this negotiation process of FedEx and UPS?

Mark K 01:29
Yeah, I tend to draw sort of a parallel to the automotive market, you know, when you go to buy a vehicle, there are just an abundance of resources at your fingertips. You know, it sort of arms the consumer with data points that make it a fair and equitable negotiation. You’ve got your dealer invoice, you’ve got dealer kickbacks, OEM incentives, lease factors, local, financial or finance packages, right? So you have all of these different resources that don’t really exist in transportation. And you know, the transportation is not really a singular transaction, at any rate, and so I should be able to, in the auto industry, go buy a Ford in central Ohio, and be able to negotiate that and get a very similar price in say, Kansas City, or in Salt Lake City. And there may be some local incentives, differences, things like that, but for the most part, it’s going to be about the same. But in transportation, that’s just not the case. There is not really a Kelley Blue Book, if you will, in transportation. So if you have a $5 million shipper, let’s say, in central Ohio, and you drive 20 minutes down the road, you find another $20 million, or a $5 million shipper, you’re gonna find markedly different pricing terms within those contracts, You know, to me, you know, an effective small parcel, I guess, supply chain management goes beyond just price. And, you know, it’s a bit cliche, but data is king. And, you know, what you have to really be able to do is have the tools to identify, to uncover, to interpret to action, the data points to solutions. And so my passion is sort of taking that pocket protector and geeking out and diving into the data, and really helping customers find all the other opportunities with operational efficiencies and optimizations and, and really looking at the entire supply chain.

Caleb N 03:32
I think if it’s one thing you and I have in common, it’s our love for data. I think, mainly because we realize and understand that, as you said, data is king. But when you can find a way to really utilize that data, weaponize that data and identify ways in which a client can save more money by understanding their parcel data, it opens up a whole new world for them of opportunity that they didn’t really understand before. I think going back to your your car comment of the auto industry, I think it’s a perfect analogy that I haven’t really thought of before. You know, I think there is something that is similar, which is if you go to negotiate a FedEx or UPS agreement, or just ask your carrier rep, ‘hey, are my pricing? Is my pricing any good?’ It’s probably gonna be the same response as if you go to buy a car. And you ask the salesman or woman ‘is this price good?’ What else are they going to say besides ‘yes?’

Mark K 04:32
‘You are my largest account in my district.’ I hear that time and time again.

Caleb N 04:37
‘You have the best rates in the state or the best rates this side of the Mississippi.’ How many times have we heard that? And ultimately, that’s the world in which most shippers use to kind of identify or benchmark the rate structure that they currently have in place. They’re going to ask their carrier rep. ‘Is that good? Is there any room for improvement? Is this all you can do for me? All those questions really position the carrier rep to responding back and in really only one way, and that is ‘you’re getting the best rates possible already.’

Mark K 05:12
You have to remember you don’t have sales reps, you have margin protectors. And that’s really what these reps are, their job is to retain the business at the most profitable levels possible. And so by having the you know, the rep be your sort of your guiding light on whether or not you have market competitive pricing is probably not your best resource.

Caleb N 05:35
Yeah, in some ways that you look at it from purely margin. And as your as your statement of, you know, margin protection, you’re basically putting the fox in the henhouse by putting a lot of trust in the carrier rep. The carrier rep, you have to have a great relationship with that carrier rep. No doubt, absolutely. This is not a matter of, ‘I’m going to beat up the carrier for better pricing.’ At least the most effective shippers do not approach it that way. And on the flip side of that, you can’t trust every single word that they’re going to tell you. As to your point some of their motivation is to protect margin. I’m really curious for anybody who is looking to, you know, touch their contract or their pricing agreement with FedEx or UPS this year. I think one of those things that this really puts us in a position of is identifying ways in which a carrier can really still make decent money on an account, but a client is able to get market appropriate pricing. During COVID. We didn’t see market appropriate pricing. So talk to us a little bit about kind of that pendulum swing of the carrier, you know, having it be a carriers market where the carrier’s flooded with freight. And what are we seeing now in terms of where that pendulum is swinging?

Mark K 07:01
Yeah, it’s a valid point. You know, obviously, in current market conditions, you know, timing is obviously apropos for opening a negotiation negotiation. But you have to understand the difference between negotiating a best in class pricing agreement, and a best in class contract. And those two are very different things. A little of a history lesson; when you go back into… you talk about this pendulum, and this pendulum has swung back and forth forever in a day, and it will continue to do so. Pre-COVID back in ’19, we were in a shipper market, and FedEx exited the Amazon relationship. And all of a sudden, we started waging into what was unofficially dubbed a pricing war, UPS eventually responded in kind, and we saw some of the most aggressive terms that we had seen in years, with the two sort of trading packages between brown and purple trucks, then fast forward into COVID. And the market literally turned on its head. Almost overnightm capacity disappeared. Now we’re back to a carrier market. We rode that wave for probably two years, we saw peak Q4 2020, peak Q4 2021, where we had significantly more volume than there was capacity in the big four. We saw some just incredible events during that time, caps restrictions on volumes, missed pickups, its supply and demand. Then in 2022, we started to see things a level off. Carriers, what they call ADV, average daily volume started to decline. And now as we kind of move into 2023, we’re back into a shipper market again. So again, the pendulum is there, always has been, and one of the keys is again to know when to negotiate. But one of the areas that is most almost always overlooked is creating and negotiating a sustainable contract. So often, you know, customers have what I call tunnel vision. And you know, imagine you’re a shipper, you’re in your target revenue bands, you’re status quo, you’re not thinking about future trends, you’re not talking or thinking about, you know, perhaps declines in revenue. You are taking advantage of the shipper market, the here and now and you’re grabbing immediate savings, immediate gratification. But what happens when the market turns? What happens when there’s a market disruption? Does your contract have the ability to weather that storm? And that’s not to say that you negotiate a contract once and you never touch it. Quite the opposite. But you’ve got to negotiate a contract that is scalable, it is flexible, and it is sustainable. So you negotiate a best in class contract that has best in class pricing. Absolutely. But the sustainability of that contract will give you the longer term returns and it wraps it in an insulation to protect you from these market events. And you got to read the market There are so many market events that are coming up. We’ve got 2024 elections coming next year, you know, all of these things will impact pricing, you got to be prepared for it.

Caleb N 10:09
I love that analogy of shippers oftentimes will, will step over a dollar to pick up a dime. And ultimately, it sounds like that’s what you’re saying is that shippers can get into a mindset of, ‘I want this particular discount right now, on this particular either service level or accessorial, you know, minimum reduction or a new dimensionalization factor.’ But ultimately, is that going to serve them in the long run? And we’ll end up coming back to them and taking a holistic approach, I think is really important. From what I heard, from 2019 to now, you’re saying that right now is, in the last three years, at least, probably one of the best times to negotiate? Is that right?

Mark K 10:56
Right now is absolutely, and then some clients don’t have the ability to in other words, we saw some clients where their contracts came to term right in the middle of COVID. And there was nothing they could do about it. And I’m not saying that any of us could have predicted COVID. But you can read the market and know when your pendulums are going to start to swing. And that’s when you start to create, identify with market events and create those sustainable terms to try to insulate your yourself for that. But right now, if you have the ability to open that agreement, do it, but widen your lens on how you approach the negotiation. Don’t keep your blinders on, take the opportunity now and take a more holistic approach to it.

Caleb N 11:36
I think that’s going to come as a shock for a lot of customers that are hearing this right now, a lot of shippers of FedEx and UPS, that right now is probably one of the best times to negotiate in the most recent last couple of years. I think mostly because a lot of customers are still under the impression that this is a carrier’s market still. And you have to be watching, I would say the industry really closely to understand when it’s a carrier’s market, when it’s a shipper’s market and based off of, you know, declines that are happening on the client side, that they’re just not shipping as much and I think it’s more of a normalization since COVID and not necessarily this major economic issue that we’re running into. I think it’s more just we’re getting back to pre-COVID levels. But that still puts us in a position of really the power being on the shipper’s side, not the carrier’s side.

Mark K 12:34
Yeah, yeah. And you’re spot on. I mean, we saw that kind of that COVID eComm bubble, and then it sort of leveled off in many cases, right, as brick and mortar started to open back up, and things kind of got back to normal. And so in many cases, we’ve seen customers ride that wave and come back down. And it’s not that they’re in dire straits, and that the sky is falling, they’ve simply gone back to pre-COVID levels. Clients that took advantage of that, that didn’t think longer term are now finding that they are falling down on revenue bands where they negotiated contracts at the high, not really thinking through what’s going to happen when that right what goes up must come down and they’ve started started to kind of level off now/ Those are some of those sustainable elements that you need to kind of be mindful of, and build that necessary installation into your agreements.

Caleb N 12:41
So having this be now more of a shipper’s market, not a carrier’s market. Where are you seeing the carriers being willing to budge a little bit more on or provide a little bit more concessions on versus what they’re still not able to really, you know, they’re indicating that their their hands are tied? I think it’s hard for some shippers to to answer that question, because when they get that information from the carrier rep, oftentimes, it’s like we talked about ‘you got the best.’ So what are you seeing?

Mark K:
So even as the pendulum swings back and forth, you’re always going to have a very fluid scenario in terms of pricing. So even within let’s say, a, a carrier market or a shipper’s market, the pricing terms will still kind of modify and and be tweaked and changed throughout those those times. But as we look now at sort of a shipper’s market areas that we’re seeing them push back on: general rate increase caps is a big one. We’ve now seen 6.9% on an average published for the last two years. We’ll see what happens this year in GRI season. But as a result of that, the carriers, if you are a shipper that had previously negotiated a very aggressive GRI cap, expect you may get some pushback if you are a shipper that otherwise may have or expected to qualify for a GRI cap, you may get some pushback on that. So caps are areas that we’re seeing some pushback but again, that will be fluid based upon what We see in ’23 and ’24, GRI season based upon what they publish.

Caleb N 15:07
Yeah. And it’s wild. And we’re halfway through the year. Right now, Q4, the start of Q4 is kind of right around the corner. It’ll be interesting to see, you know, how shippers really react to that. And I think a lot of that GRI and Q4 peak season talk, shippers need to be preparing for that right now. And negotiation can go a long way in setting you up properly, for whatever the carrier really kind of throws your way for peak season and GRI season. I’m curious on the strategy side, what strategies have you found to be most successful? And that the carriers really respond well to? What have you found to be effective strategies recently?

Mark K 15:56
So I would say, you know, a bit of a political answer, every strategy is different, every strategy is unique and should be unique. But some of the more popular strategies we’ve seen as a strategy/direction, is the diversification. You know, COVID, taught a lot of customers some valuable lessons, especially larger enterprise level, where they found themselves in caps and restricted volume scenarios.

Caleb N 16:22
There was a lot of stories I had heard in conversations with shippers around the country that were being capped, as you said, in Q4, where they simply could not get their partner carrier to pick up, pick up their freight. And ultimately, that is a growth limiter to your business. It doesn’t allow you to get your product out, it allows for, you know, poor client experience, when a customer’s ordering product expecting to receive it in X number of days. And literally, it’s sitting on your dock because the carrier can’t pick it up, because you’ve hit your limitations. I think ultimately keeping it keeping options open allows you to be able to be flexible, and to be safe. I think that’s a great, I think it’s great call out, I get a lot of questions too, on difference between a targeted RFQ, or a blind RFQ, or RFP, tell me about the difference and what you feel like is more effective.

17:20
So again, this is where I get my pocket protector out, you know, a traditional RFQ, or what I call a blind RFQ is where a company will go to market because they don’t necessarily know where the finish line is, and they’ll take the traditional 35 page, you know, RFQ dossier that talks about who they are and where they’ve been and where they’re going. And then they’ve got the 18 different categories of what they’re going to judge, you know, the different carriers when they bid on. But at the end of the day, internally, they have selected a criteria that they are going to use to pick a winner. And the fallacy of picking a winner is you’re picking based upon the best of the best, not what the market can yield. And so in a very simplified example, with a blind RFQ, imagine you have four carriers that place a bid on the first round, the best of the best is 50. Round two carriers submit, best of the best is 55. Final round, best of the best is 58. They pick the winner based on 58 because it’s the highest of the bunch. But what if 70 was available? So the inherent flaw with a blind RFQ is that you’re picking the best of what is given to you, as opposed to starting at the top and negotiating down with a targeted RFQ.

Caleb N 18:39
It’s interesting, it’s one of those things that an analogy that I think I’ve heard you use in the past, specific to this, RFP RFQ you know, strategy is really, it’s like watching poker on TV. Really, it’s really easy to win the pot when you can see everybody else’s hand and your percentage of winning the pot or like taking a test when you already know the answers, it’s really easy to get an A and honestly it takes that negotiation from an arduous, difficult, purposefully difficult process, I’d say by the carriers, and ultimately makes it kind of fun when you’ve got when you’ve got some help behind the scenes because you know, you’re getting it maximized, you know, what is real, what’s not, you know what you can hold the carrier accountable to based upon the discounts that they say they’re going to come back with to ensure that they actually do come back with those discounts. It’s a really, you know, it’s it’s the most buttoned down way you can possibly do a negotiation. I think that’s a really great idea for a shipper is make it fun by utilizing some more resources and getting some more view of what’s happening kind of a better lay of the land, so that you you can easily disseminate between fact and fiction

Mark K 20:00
Well and the real, you know, benefit to doing that, sort of that that poker analogy, is you do all of the different modeling, you do all of the different sort of spoon feed scenarios, and carrier analyses before you ever tip your hand to the carrier, right if you use your income and carrier, and I’m not slamming on the the carrier’s ability to help clients, but if you use your incumbent carrier to help you create these models, there’s going to be a bit of a bias there. And it’s it’s common sense. So if you do all of the modeling behind the scenes, you then approach the carriers once you’ve defined the model, your appetite for your systemic ability to accommodate right, all of these things have been check, check check, now you’re approaching them with ‘this is what you’re going to bid on, this is the data set, this is the requisite price. Go.’ And it’s a very different process.

Caleb N 20:50
Yeah, it is, and it… I think, you know, let’s make it fun. I know that’s, that’s an odd way to say that. But I think ultimately, if you’ve been through negotiations in the past, they’re not fun. Now, if you’ve got some help like those back-end hallways of FedEx and UPS we talked about It kind of kind of turns it into a little bit more of a fun scenario, to make sure that you really are maximized. I’ve got, you know, one last question. And that is, you see a lot of things happening in the marketplace right now – what is your last little bit of advice for shippers around the country, in ways that they can really maximize their next negotiation?

Mark K 21:31
There are, there are many. But I would say, you’ve got to have the tools. I again, I know I said it before, data is king. That’s a bit cliche, but it is. You know, those wild wild west, I used to always say, you know, the broad brush, grit and a big stick, that approach does not work anymore. And so you’ve got to have data, you’ve got to have tools to get into the data. And when you get into the data, you have to have the ability, the expertise or the resources to help identify it, and be able to action it and data can be overwhelming. You put a lot of data in front of somebody, a lot of times the first question is, ‘therefore what?’ Right? ‘What do I do with it?’ Yeah. And I would say, you know, know your strengths and weaknesses, right play to your strengths, mitigate your weaknesses, or lessen them to the extent you can and really understand how attractive your business is. You know, modeling is a big component to pre-negotiation, as I mentioned that analogy, where you can do all of that upfront modeling so that you know exactly what you’re getting into. And you know exactly what you’re going to represent and offer to the carrier or carriers before you ever have those conversations. And I would say partner with your carriers, you know, be a partner, have a strategic relationship with them. It does not mean by any sense that you are not going to get best in market pricing. But be a strategic partner, be a long term partner, read the market, you’ve it’s no different than reading the financial markets. You’ve got to read the market and make sure that you can to the extent that you’re able to, understand what’s coming and what’s going to impact and/or disrupt the small parcel market transportation in general, and create those sustainable contracts to try to mitigate that.

Caleb N 23:24
Yeah, I love it. I think this is an extremely valuable conversation. And I hope that anybody who is listening right now who’s a shipper, they’re using carriers like FedEx or UPS. There are ways in which you can be able to significantly reduce your costs, and improve your client experience by identifying ways that you can, you can definitely improve. Mark, it’s been an absolute pleasure. This has been a really valuable conversation. Thanks so much for having been on the show. We really appreciate it.

Mark K 23:54
Appreciate you having me. Thanks so much, Caleb.

Caleb N 23:56
Well, that’s it for this episode of LeaderShipping. This is powered by Sifted and Sifted’s Logistics Intelligence shipping software. If this is your first time listening to LeaderShipping, there are other episodes that I suggest you dive into that are extremely valuable. We have episodes on sustainability in shipping, really industry news and expertise with Nate Skiver. We’ve got even an episode on Amazon and how to navigate Amazon services as well. You can find those episodes of leader shipping on any major platform, podcast platform, such as Apple, Spotify, even YouTube, interact with it, if you like it, subscribe to it, comment, and you can always reach out to us at https://sifted.com. We’d love to be able to hear back from you. And ultimately our goal is to make this really entertaining and fun so that you can be able to be the best shipper version of yourself that you can be. Again, thank you so much for listening and have a great one!