After months of contract negotiations between UPS and the International Brotherhood of Teamsters, the union’s chief negotiator announced that the union had reached a tentative agreement.
The UPS contract update offered a starting wage of $13 an hour, with no extra raises for current part-timers. This is despite the fact that going into bargaining, the biggest demand from the overwhelmingly part-time inside workers was for a $15 starting wage, with catch-up raises for people who’ve been underpaid for years. Though 54% of UPS workers voted “no” to prevent the tentative agreement from being ratified, Hoffa’s Package Division Director, Denis Taylor created massive confusion by announcing that the UPS contract was ratified.
While the UPS contract update debacle is not yet over, it seems UPS seeks to recoup its increase in wages from shippers. The carrier announced a 5.9% general increase rate for 2019 and increased several surcharges. Below are highlights from UPS’s new rates.
- Over Maximum Limits charge increased $200.00 for packages that weigh more than 150 lbs., exceed 108 inches in length, or exceed a total of 165 inches in length and girth combined.
- Additional handling surcharges increased by nearly 19%, depending on the type of additional handling incurred (length, width or based on packaging).
- Third party billing fee, increased from a 2.5% fee to 4.5% – an 80% increase year-over-year.
- Large package surcharges increased for commercial delivery addresses, rose from $80 to $95 – a 19% increase. Large package surcharge for residential shipments rose from $90 to $115 – a 28% increase.
In a world where free shipping determines who consumers shop with, these new rates may lead to high shipping costs and ultimately cart abandonment. Therefore, to retain your customers and remain competitive you need to renegotiate your UPS contract. Since UPS contracts are complex and complicated, here are five contract negotiation tips to ensure you get the best rates from UPS.
5 Steps to Keep Costs Down
1. Review Surcharges
While surcharges make a significant part of UPS’s revenue, the good thing is that they are negotiable. The first step to prevent surcharges from eating away your profit is to be aware of the different types of surcharges UPS has, and understand how these surcharges impact your shipping costs.
Carry out a freight audit to understand how much you are paying for surcharges, what those surcharges are, and when they are being applied. Look out for surcharges that have the greatest cost impact on your costs and target them for waivers or reductions. If any surcharges are unclear, ask for your carrier rep for clarification.
UPS surcharges are often added to your invoice after the shipment has been made, so they can be difficult to monitor. So to keep tabs on your surcharges, review your shipping invoice to see how many additional components your shipping bills contain, identify surcharges that do not apply and filter them out when negotiating your contract. In view of the fact that tracking your surcharges yourself can be time-consuming, consider outsourcing this task to a third-party logistics provider.
2. Have A Benchmark
While you cannot prevent carrier reps from talking about how great UPS rates are, you can gauge how good the terms and structure of your contract is by benchmarking. Benchmarking allows you to compare your contract components against your peers and gives you an idea of what a fair rate is. This prevents you from leaving money on the table and increases the likelihood of negotiating the lowest rate possible.
Although UPS benchmarking information is not made readily available to shippers, you can find out what kind of pricing or discounts your peers have negotiated by having conversations with peers in your industry, using feedback from carriers, or contacting third-party logistics firms offering benchmarking information and consulting.
The discounts UPS gives are largely based on the carriers’ analysis of a shipper’s profile and other factors that are directly tied to the carrier cost drivers. So use data analytics to identify shippers in your industry that you share similar shipping profiles with and use them to determine the right benchmark. Also, select specific Key Performance Indicators to benchmark to ensure the right questions are asked and that the relevant measurements are used.
3. Know Your Shipping Profile
To remain profitable, UPS relies on advanced analytics and artificial intelligence to analyze your shipping profile and determine what discounts to offer you. However, you can outsmart the carrier by having more knowledge about your shipping profile than UPS does and using your insights to find opportunities for negotiation that match your shipping profile.
When building your shipping profile, use advanced analytical tools to gather data points such as weight distribution, delivery density, and surcharge spend. Also, ensure your data is accurate and complete, and track your data sources in real time to create a detailed portrait of your company’s shipping habits. To translate data points within your carriers’ invoices, pricing agreements on a granular level, use advanced analytical tools. This will enable you to visualize your data, have a 360-degree view of your shipping, and identify which aspects of your contract aren’t working for your business.
Once you have a clear picture of your shipping profile, find out what factors UPS considers when determining how far they can move on price and tailor your negotiation in a way that shows UPS your shipments are valuable. For instance, size doesn’t always matter to UPS. The carrier is more interested in how your packages travel through their network and how cost-effectively they are able to get them from point A to point B. So if your shipping profile shows your location matches delivery routes and critical distribution hubs, you can negotiate on price.
4. Use Other Carriers As Leverage
Carriers classify pricing requests into one of three customer categories:
- Retention: The current carrier keeps the vast majority of the available business.
- Penetration: The carrier already has the majority of the business but has the chance to gain more volume.
- Conversion: A new customer where the carrier has little to no presence.
Since loyalty often goes unrewarded in carrier-shipper relationships, you need to make UPS work to retain your business. And this means acting like a conversion customer. Because conversion customers are prepared to move their volume from one carrier to another, carriers give them large discounts as means of enticing them to move their business. In view of the above, leverage alternative delivery providers such as USPS, and regional carriers when renegotiating your contract with UPS. Having multiple carriers on your bid gives you leverage when negotiating and can create the necessary pressure to shift UPS into business acquisition mode and get you the best rate for your shipments.
You can request for quotes from carriers or use shipping comparison sites to find what alternative delivery providers charge for shipments and leverage the variance to negotiate a stronger deal from UPS. For instance, you can ask UPS to match FedEx fuel surcharges or wave your third-party billing. While UPS might not immediately be able to match some of the services or network alternative carriers have, you can get UPS to provide special pricing to offset any perceived service disadvantage. When using this negotiation strategy, keep in mind that you may not be able to get an apples-to-apples comparison. So look at the full picture of each contract and assess which will be the most beneficial to your business.
5. Get External Help
While a DIY approach is a good idea for crafts, it is not the best strategy to adopt when renegotiating your contract. Carriers are trained to sell shipping agreements that maximize profit and shift focus to value-add services that don’t apply to your shipping profile. So, having an employee without a sound background in contract negotiation handle your contract won’t help much in unlocking a reduction in your shipping costs.
Rather than leaving your contract renegotiation to your employees, consider bringing in a third-party consultant to help with your negotiations. Armed with industry experience, consultants negotiate dozens of contracts yearly and can help you to identify the best parts of your agreement to target: specific surcharges, or price floors. 11% of the top parcel shippers in the US have hired supply chain consultants to negotiate their FedEx, UPS, DHL contracts. And these shippers report that parcel consultants reduced shipping costs as much as 49% lower from what the company had been able to negotiate on its own.
When selecting a consultant, look for one that uses a data-based approach in analyzing parcel agreement and freight spend. Also, consider a consultant with access to special modal pricing that can help you select a new carrier, execute a new contract and validate the accuracy of your new contract if you decide to switch carriers.
Don’t Leave Money On The Table
Aside from the above tips read the fine print, review your maximum spend and have a strong relationship with your carrier rep. Keep in mind that negotiating a profitable contract is just the beginning. Ensure UPS keeps up with your new contract terms by reviewing every invoice to make sure rates and fees are correct and that every package is delivered on time. If you cannot handle your contract renegotiation, Shipware can review your parcel and freight invoice and uncover where you are overspending and auto-identify incorrect surcharges, using our invoice audit recovery platform.