Shipper & Carrier Agreement vs Contract: What’s the Difference?

by | Dec 14, 2020

3 min read

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One conversation that comes up over and over in my chats with shippers is about their carrier contracts. And most shippers are surprised to learn that their deal with their carrier is not a contract at all — it’s an agreement.

What’s the difference? An agreement is less formal and binding — both of you can make changes at any time. A contract has locked-in terms, start and end dates, and other commitments. An agreement is a formal understanding that you’ll work together, barring certain issues and events.

What is a carrier agreement?

A carrier agreement is a documented promise between a shipper and a carrier that the shipper will use the carrier’s services in exchange for a discount on those services. A shipper of any size will typically have an agreement with at least one carrier to reduce their shipping costs.

What is in a carrier agreement?

A typical carrier agreement will contain the rates for carrier services, including any discounts and minimum charges that the shipper can expect. It will also contain language from the carrier restricting certain practices and activities. They are usually highly complex with many caveats and conditions that will affect every package you send differently, so it’s crucial to make sure you understand all the details.

How often should you optimize a carrier agreement?

While a full optimization is only needed once a year, you should be tweaking your carrier agreement in response to carrier pricing changes four to six times a year. By doing this, you’ll keep the value of your discounts as close as possible to what you optimized.

2020 has brought historic (and rapidly occurring) changes for shippers to contend with, including suspended service guarantees and a double whammy of peak surcharges for both pandemic-related shipping and the 2020 holiday season. Not to mention an overrun shipping network.

How have these changes affected your shipping spend? Is your effective discount still what you thought it was? Do you know what your effective discount is?

The fact is that your carrier can change your pricing at any time because, again, you have an agreement, not a contract. But that means you can ask for changes at any time as well.

How should you approach your carrier about adjusting your carrier agreement?

Don’t make a move without all the information you need to make a strong case. Ensure you have your latest data and trends in hand — not last quarter’s or even last month’s.

Then make sure you know how it impacts your spend and what needs to change to get your pricing closer to what you optimized. Contact your rep and work with them to adjust the agreement to reflect what’s happening in your business (and theirs) today.

Careful observation of your data keeps your spend down

Smaller shippers are often too overwhelmed by the daily grind of running their business to keep up with their shipping data, while larger shippers might find that the sheer volume of their data makes it difficult to work with and interpret. But to maintain a strong discount and keep your shipping spend down, it’s imperative to understand your data — and be able to act on it — at all times.

Before you optimize, make sure you have all the information you need about surcharges. Find it in our eBook, 5 Budget-Busting Surcharges & How to Lower Them.

Topics: Carrier Optimization, Contract Optimization

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