A carrier agreement can feel like an iceberg; the base rates you see on the surface are just a small fraction of the total cost. Hidden beneath are complex surcharges, accessorial fees, and dimensional weight rules that can dramatically inflate your shipping spend. Simply securing a higher discount percentage won’t protect your bottom line if these underlying fees aren’t addressed. To truly optimize your costs, you need to look deeper. A thorough contractual parcel renegotiation involves a detailed audit of your invoices to identify exactly where you’re overspending. In this article, we’ll break down the most common hidden costs and provide a clear roadmap for negotiating concessions on the fees that hurt your business the most.
For anyone operating in the rapidly expanding world of e-commerce, shipping and transportation play a vital role in the overall scheme of your business and can, to a large degree, determine success or failure. You need your products shipped from the manufacturer to your warehouse or distribution center and you need to be able to deliver those products to your customers and expect them to arrive in a timely manner. This co-dependent relationship is significant, especially when you consider the fact that shipping accounts for up to 45% of a retailer’s operational budget. Because of this, accepting the status quo relative to carrier mix simply because it’s easier than considering a change or because they have the lowest rate might end up hurting your bottom line in the long run. If you own a business or are in position where you’re responsible for shipping and logistics, then it may behoove you to re-examine your current parcel pricing and carrier selection criteria to ensure that it is what’s best for your company Parcel contract optimization and negotiation can be a tricky subject to efficiently handle. Doing your due diligence in order to better understand parcel carriers and the language they use in their pricing agreements will help you come to the negotiating table with more leverage and a more robust set of bargaining tools at your disposal. Below, we will discuss at length how you can master the art of parcel contract negotiation in supply chain management.
Tips for Renegotiating A Parcel Contract
Perhaps you are satisfied with your parcel carrier, the service they provide to you and the agreed upon pricing terms. But, then again, maybe you’re not. Whether you are or not, it is crucial that you are fully aware of what was agreed to when you signed your current agreement. Unless you have language in your parcel agreement or in a subsequent addendum to that agreement that locks you into an agreed upon set of contract terms for a period of time and prohibits you from terminating the agreement prematurely, you can re-negotiate with your carrier at any time. Remember, everything in that prior agreement is negotiable.
Delving Into The Parcel Contract
Assuming that you already have an existing parcel contract and desire to re-negotiate, the first step should be to go through every aspect of your agreement with a fine-toothed comb. If you do not understand the language, enlist the help of someone who does. Get feedback or opinions from contacts in the industry with whom you feel comfortable to discuss such details. When delving into the contract, create a checklist so that you can see whether your carrier is complying with the terms of the agreement and is living up to their end of the bargain. Do your best to understand carrier fees that are often hidden within the invoice. Referred to as Value Added Services, Optional-service fees or surcharges, these are simply additional accessorial charges that a carrier adds on top of the transportation fee which can be as high as 50% of the agreed upon base rate. These additional charges include residential delivery charges, Delivery Area Surcharges, Additional Handling Charges, and weekly pick up fees as well as a long list of others. If you see that you are getting hit particularly hard with fees by your carrier, you can negotiate a parcel contract with the carrier to either provide discounting (or deeper discounting) on some fees or, in some cases, get them to drop the fee altogether.
Explore Alternative Carriers
Shippers should avoid becoming too reliant on their current carrier or carrier rep. Carrier reps want to earn larger commissions and you want to reduce your company’s shipping costs; these two goals do not generally align. Carrier reps receive compensation for selling to you at the highest possible margin. Depending on your rep to go to bat for you internally during contract renegotiation could be a mistake. Another mistake many shippers make when negotiating is failing to bring alternative carriers to the table. The idea is similar to that of salary or wage negotiation. If there is no threat of you taking your skills elsewhere, where is the incentive for your boss to give you a raise? The same concept applies to negotiating shipping contracts. If there is no threat of you moving your volume to another carrier, what is your current carrier’s motivation to lower their costs? As a matter of fact, shippers that regularly utilize multiple carriers often achieve better pricing.
Carriers regularly 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.
Conversion customers, those who are prepared to move their volume from one carrier to another, are given the largest discounts as means of enticing them to move their business. Often loyalty goes unrewarded or unnoticed, so it behooves you to unsettle your current carrier and make them work to retain your business. If you do not wish to use one of the big two private parcel companies, FedEx or UPS, or if you wish to gain leverage when negotiating with either, it would be wise to at least consider alternative carriers. The US Postal service is a viable option, primarily if you regularly ship lightweight, non-urgent parcels to residential addresses or if you’re paying dimensional weight pricing with your current carrier. USPS shipping and package services, in fact, saw 4% growth last year with parcel return and select parcel growth nearly hitting 20% YOY. There are a host of regional carriers like OnTrac, Spee-Dee Delivery, Pitt-Ohio Ground, LaserShip, Dicom, Lone Star Overnight and others who offer excellent parcel delivery options, often at lower shipping rates and faster transit time than the national carriers. Another option is a parcel consolidator such as DHL Ecommerce , Blue Package, or Newgistics. If the majority of your shipping is done within the geographic footprint of a regional carrier or if your package characteristics and product type fit the consolidator mold it may make sense to consider one of these options. Even if you do end up selecting one of the national carriers, using benchmarks and rate quotes from smaller carriers can give you added leverage when pursuing UPS or FedEx for shipping contract renegotiations or DHL contract negotiations. Lowering the cost profile of your business via, pickup consolidation, package tender material improvements, online self-tracking services, automated tender, package optimization and changes to pick-up schedules and delivery routes. By doing this, you can save yourself and the carrier money. If you want to learn more about how to negotiate shipping rates with FedEx or tips for UPS contract negotiation, read our linked resources.
Stepping Into The Arena
Once you have exhaustively researched your company’s shipping goals, needs, and current costs, you are now prepared to enter into your carrier contract negotiation. That said, it would also be wise to consider your temperament and how aggressively you intend to approach the discussions. Many view negotiating as a boxing match of sorts, a contest of wills where each side exchanges blows until one gives in. However, this is not a wise approach to parcel contract negotiations. Remember, this is not a fist fight. Rather, it should be a cordial exchange where two parties meet with the goal of crafting an agreement that can provide mutual benefit. The way you approach negotiations can have far-reaching impacts on your future working relationship with your contract carrier. You must be able to deal with uncertainty, especially in such a volatile supply-demand industry where the scales in the balance of power between shipper and carrier are continually tipping one way and then another. Knowing that this pendulum can and likely will swing each way, it is vital that you keep in mind that there is benefit here for both parties. If you approach the bargaining table with a chip on your shoulder and make unreasonable demands, odds are that the discussion will not result in the desired outcome. While your primary goal should always be what’s in the best interest of your company’s bottom line, negotiation requires a give and take; it necessitates concessions being made by either side. Remember, cost is not the only consideration during contract discussions There are other factors to consider such as the viability of your working relationship with your carrier rep and satisfactory pickup and delivery times.
Value Proposition
While you should approach carrier contract negotiations with an open and flexible attitude, be wary when the carrier attempts to divert your attention from the matter at hand (the agreement) and toward their “value proposition.”. A good carrier sales rep will want you to focus on the things that they can do for you from a service perspective that other carriers can’t. The goal is to show you how they add “value” beyond the rates. The carriers absolutely provide a valuable service, one that your business cannot live without. It is absolutely critical to understand the level of customer service you can expect from a given carrier, how their technology may or may not integrate with yours and the degree of collaboration that they may offer relative to efficiency improvements. But it is important to remember that these things are largely independent of pricing and that if you are willing to do your homework, maintain a firm negotiating position and understand carrier negotiating tactics, you can take steps to land a great parcel contract deal.
Shop Around
Similar to the advice above, after your meeting, it is wise to treat parcel contracts like you would any other purchase. Odds are, you did not walk onto a car lot, select one and buy it on the spot. Rather, you did your research online about what is the best type of car for you, you spoke with friends who had that car or brand and got their input. After doing that, you likely looked at blue book prices, at online vendors and then went around town to either used or new car lots. The same should go for your parcel contracts. Reach out to any and every carrier who might be able to help you. Do not settle for a carrier just because you are busy, or it would check something off your long list. Prepare an RFP (request for proposal) and share it with other carriers. Compare the prices and services being offered with those received by other businesses similar to yours. Reach out to associates in the business and ask them who they use and why they chose them. Again, being cautious and approaching this process in a calculated manner will aid you and your company.
Make Time For Carrier Meetings
The bond you create with your carrier does not form immediately. Like any relationship, it takes time and effort to nurture it so that it grows and develops. Make time to meet with your carrier rep and allow them the opportunity to demonstrate additional value. All too often shippers only reach out to reps when there is an issue or when they need something. One-sided relationships such as this do not prosper in the long run, nor does it give your rep any incentive to help you cut freight costs. There is plenty of value to be found in scheduling routine meetings where they can help you leverage technologies, value-added services, and best practices, to make your operation run even smoother and more efficiently. We all want to get the best deal possible on any product or service on which we spend our hard-earned money. When it comes to parcel contract negotiation, the sentiment is the same. To prepare yourself for negotiations or re-negotiations, do your research. Come into the negotiations knowing what you ship, when you ship it, and how much you ship. Understand, to the best of your availability, carrier contracts and pricing agreements as well as the impact of hidden fees and surcharges. Research alternative carriers and be prepared to bring them to the negotiating table. Speak to colleagues and associates in your space prior to beginning carrier conversations and seek their input. Proper preparation can result in a big win for you and your company.
Frequently Asked Questions
My contract isn’t up for renewal. Can I still renegotiate my rates? Yes, you almost certainly can. Unless your agreement has specific language that locks you in and prevents early termination, you can approach your carrier to renegotiate at any time. Think of your contract as a living document. If your shipping needs have changed or you’ve identified areas where you’re overspending, it’s always a good time to open a conversation.
My carrier is offering a bigger discount on base rates. Isn’t that a good deal? It might be, but it’s often not the whole story. A high discount percentage can be misleading if you’re still paying a fortune in surcharges and accessorial fees. These extra charges, for things like residential deliveries or additional handling, can make up a huge portion of your final bill. A slightly lower base discount paired with significant reductions or waivers on these specific fees could actually save you much more money in the long run.
Do I actually have to switch carriers to get a better deal? Not necessarily, but you have to be genuinely willing to. The goal is to create a competitive environment. When you get quotes from other carriers and present them during negotiations, you show your current provider that you have other viable options. This gives them a powerful incentive to offer better terms to keep your business. Sometimes the credible threat of leaving is all it takes.
My carrier rep is really helpful. Can’t I just trust them to get me the best rates? While it’s great to have a good working relationship with your rep for service issues, their primary goal is different from yours. They are compensated based on the revenue and profit they generate for the carrier, which means their objective is to keep your rates as high as possible. You need to be the one driving the negotiation and advocating for your company’s financial interests.
What’s the single biggest mistake shippers make when negotiating? The most common mistake is coming to the table unprepared. This means not having a deep understanding of your own shipping data, especially where you’re getting hit with surcharges and other hidden fees. Without this information, you can’t identify the specific concessions you need. If you don’t know exactly what to ask for, you’re unlikely to get a deal that truly benefits your bottom line.
Key Takeaways
- Look beyond the base discount: A high discount percentage means little if you’re overpaying on surcharges and accessorial fees. Audit your invoices to pinpoint exactly where your money is going, as these hidden costs are prime targets for negotiation.
- Create leverage with real competition: Don’t rely on loyalty to get a better deal. Actively seek proposals from other carriers, including regional and alternative options, to show your current provider you are prepared to move your business for the right terms.
- Negotiate for a partnership, not a fight: Approach discussions as a collaborative effort to build a mutually beneficial agreement. A respectful, give-and-take approach fosters a stronger long-term relationship and often yields better results than making aggressive demands.