How and When to Negotiate Your Parcel Carrier Agreement

by | Oct 18, 2021

9 min read

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Here’s the truth: We’ve entered the age of the carrier, and you should start getting comfy. They’re looking to survive this eCommerce explosion like everyone else – through margin control and partnering with their ideal shipper.

Flashback. Before COVID-19, negotiating with carriers didn’t require obtaining a Ph.D. in parcel data.

But now that capacity is haywire and consumer demand is hitting heights beyond the stratosphere, carriers have to rethink their business model.

What can you do about it? Go to your agreement negotiations armed with your data and walk out with results that align with your desired outcome – and a better relationship with your carrier.

P.s. Start drilling into your data NOW.

 

Why should you negotiate your carrier agreement?

 

  • To curb impact from surcharges, dimensional charges (DIM factors) and the GRI (general rate increase)
  • For the best prices based on your shipping profile
  • To keep up with the sea of changing pricing terms and fees (remember what happened to additional handling?)

All of these items tie into your total landed costs (the total price it takes to ship a product to a customer’s doorstep). Which I’m sure mean a lot to you and your business.

 

When is a good time to start planning a negotiation with your carrier?

Q4 – right now.

Q4 is the perfect time to sift through your data and understand its impact before you attempt negotiations. And if you need some help, Sifted has the analytics expertise to set you on the right path.

Carriers announce the General Rate Increase (GRI) in September/October giving you the preparatory stage for a January negotiation.

The GRI announcements offer a convenient time to do an annual review of the risks and opportunities the impact will have on your business specifically. Allowing you to decide if you want to chase or mitigate fees and if the impact is significant enough to call for negotiation. Because you don’t want to negotiate just for the sake of negotiating.

 

How long do carrier negotiations take?

 

A little over three months in most circumstances. Some shippers will have longer negotiations based on the complexity/size of their spend and how intricate the data is.

 

What can you negotiate within your carrier agreement?

 

Short answer? Everything.

Smart answer? Fish where the fish are.

That means you need to know what carriers are looking for, what they want from shippers, and whether your shipping profile is attractive to them.

And that comes down to knowing and understanding three things:

  1. Your business
    Be honest with yourself. If you ship odd-shaped or large parcels like a couch or a rug, you need to know going into the negotiation that those items are more expensive for carriers and don’t fit the “mold” they are looking for. Instead, you need to focus your efforts on areas of your profile that are more desirable. Finding where you do have leverage is the first step.
  2. Your Data
    Data is the question, not the answer. Because data on its own means absolutely nothing without interpretation, and that’s the challenge. What does raw data mean for you, and what can you do with it? You can run scenarios to understand the future impact of changes like peak season or if switching to another service will reduce costs. But you don’t have to do this with static spreadsheets. Find the answer through logistics intelligence and a robust analysis of “what if.” Without logistics intelligence, your data is hollow.
  3. Your Options
    Once you’ve analyzed the attractiveness of your shipping profile and understand areas of opportunity from your data, you’ll know where you stand and what options you can take.

You don’t want to find yourself asking for unrealistic changes. Knowing your options will help you find the carrier that’s willing to work with you.

Know The Fees: Carrier Costs 101



Your shipping volume is the main factor your carrier representative is centered on. But every shipper is different, and other variables will ultimately plug into their final landed costs. All of these areas together are what will actually determine the pricing you get.

  • General Rate Increase (GRI)

    FedEx announced an industry-shaking GRI for 2022, with an average increase across all services of 5.9%. But for example, when your shipping costs for additional handling rise by over 25%, that average of 5.9% doesn’t apply to you. You need to know its actual impact.

  • Dimensional Weight (DIM)

    Dimensional weight is based on the measurements of a package: (L x W x H) / DIM divisor
    The DIM divisor for 2021 is 139. Your carrier will electronically scan your package to determine its dimensions and calculate the DIM weight, rounding up to the next pound. If the DIM weight is higher than its actual weight, you’ll pay based on the DIM weight. This makes it absolutely vital to choose the right packaging.

  • Additional Handling Surcharges (Weight/Size/Packaging)

    If you’re not careful, these will pile up on you in the blink of an eye. And depending on what you ship, they could be unavoidable costs. You won’t know unless you take a deep dive into how these affect your business specifically. Only then can you optimize based on your shipment characteristics.

  • Service Mix

    Do you ship internationally or have higher premiums to fulfill your operational requirements? Do you pay more for two or three-day deliveries? Are your parcels shipped domestically via air or by ground? Do you have some shipments that are shipped via air but the carriers actually move it via their ground service? Knowing which services carriers prioritize (such as B2B shipments and conveyable freight) and how your service mix can best align them will result in a more attractive profile to your carrier.

  • Weight and Zone Distribution

    Now that more areas of your carrier agreement are going zone-based (thanks to the latest GRI), you must investigate which zones you’re delivering to and how they differ PER service.

  • Destination Points

    By implementing delivery area surcharges, carriers make up for their additional costs in servicing your less profitable shipments. You may not control where your customer lives, but you can ask for a flat fee when shipping to specific zip codes. This is a big one to remember if you want to keep your costs down.

  • Commodities

    Your business’s commodity type could be the most valuable cost factor from the perspective of a carrier. For example, do you ship fragile parcels? Do you frequently call in claims? All of these cost the carrier more money, and they trickle those costs down to you.

  • Effective Discounts

    The actual realized discount applied to a package is frequently different from the amount listed in the agreement’s discount matrix. Effective discounts are the discounts that matter and depend heavily upon factors like minimum package charges, average weekly spend, package count commitments, the use of electronic billing, etc.

  • Perks or Value-Added Services

    Carrier perks can often be more incentive-based than price-based, and they can end up making future negotiations difficult. Once your company becomes integrated into these carrier perks, it’s harder to find the flexibility or opportunities to break away. But that doesn’t always indicate cash is greater than value-added services. It all depends on your shipping profile and which will be best for you.

 

How often should you negotiate with your carrier?

 

When considering your next negotiation, we like to recommend The Goldilocks Rule. You don’t want to be the shipper asking for renegotiations every few months. Nor should you be the shipper waiting several years to give your rep a call. Not too much, not too little. Renegotiate when things are just right.

  • Before your agreement ends (planning at least a few months in advance)
  • When significant changes are announced that impact your business (like GRI or peak season surcharges)
  • At least annually

 

How to negotiate with your carrier confidentially:

 

1. Know Your Data and Its Impact

The goal is not to get fixated on one aspect of your agreement and miss out on other opportunities for savings. And with the proper data analysis, that won’t be a problem. Sifted helps you understand how your shipping is impacted and how to weigh each agreement component carefully.

2. Leverage Your Advantage

You want to appear attractive to carriers so they desire your business.

Come into the negotiation knowing your shipping profile and data calculations, as well as they do. Then, approach them with ways to do business together. Good carrier/client relationships will always help foster the best support for shipping efficiency and reduced expenses.

 

It may be a carrier’s market out here, but data is still king of the land. With the right analytics and understanding of the specific impact your agreement has on your spend, you’ll walk into any carrier negotiation feeling empowered.

Bottom Line: Accurate data and tactical planning make every line item an opportunity to improve your parcel rates. Because everything about your carrier agreement is negotiable when you know what to ask for.

 

Enter Sifted Logistics Intelligence

 

Is this feeling a bit complicated and overwhelming? It’s because it is. And you’re not alone.

By partnering with Sifted, we do the heavy lifting for you. Remember when we said raw data with no interpretation is useless? From crunching numbers, modeling impact (peak season surcharges and the 2022 GRI) to having a shipping pro guide you through the areas you need to negotiate, Sifted delivers actionable insight from your data.

Walk out of your carrier negotiations feeling confident that your business is accurately represented in the market with logistics intelligence.

Sign up for a risk-free demo today!

Topics: Contract Negotiation, Contract Optimization, Shipping Profile

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