Parcel Negotiation Basics
Parcel negotiation is the time of the year when you enter into a negotiation with a parcel carrier. It could be with a carrier like UPS or FedEx. What you're trying to do is get the best of what you can get out of the carrier from a rate perspective.
Within that rate perspective, you've got several key components. Chief among these are the rates that you pay to ship a package through their system or their network. Not only do you have the service-level rates. There are also the surcharges and/or accessorials.
You want to make sure that you understand and keep a keen eye on that when you're going through the negotiation. This ensures that those surcharges and accessorials aren't more than you expected. It also makes sure that they aren't higher than before the actual negotiation.
Things to Keep Your Eye On
The negotiation is an opportunity to pay less tomorrow than you are today. So when you have a parcel negotiation, there are a few things you want to make sure you keep your eye on. It's important that you don't overlook key pieces of language in your contract. One of the main ones to look for is a guaranteed service refund waiver where you don't currently have one today. It is a small bit of language in the contract. But if you happen to overlook it, it can have a huge impact.
One specific carrier that puts that in every contract right now is Federal Express. They put in a guaranteed service refund waiver language in almost every contract. This is the case with the contracts we review. It's not the account manager's fault. A lot of times the pricing department actually puts it in. The account manager doesn't understand that it's there. You may not understand that it's there either. You're not looking for it. The account manager is not pointing it out.
The other one is the change in surcharge discounts. This is whether it's from a dollar off perspective or from a percentage off standpoint. You want to have a percentage off from any accessorial discount, not a dollar off. This is because that percentage impact gets less and less as that contract goes on. So a few of the oversights are the language in the contract. The other is ensuring that the discounts you're getting are the discounts that you want.
How Lojistic Can Help with Parcel Negotiation
We get this question a lot where customers ask, "You know, why can't I do this my own? I can garner or recover the same type of savings as you purport to be able to grab for me." And that's true. You might have the opportunity to go after it yourself. But a third party negotiator or consulting firm like Lojistic can help you in any case. This is because we would have different pieces of analytics for negotiations. Besides the analytics, we also use different strategies and tactics. These depend on several key areas of negotiation. Even small parcel negotiations can include the analytics or the scientific side.
Then, added to that is the emotional side. Based on our wealth of experience here, using the right kind of negotiation is important. I have over 27 years of experience in the parcel negotiation field. So there's a certain time to use the analytics and the scientific sides. There are important times when you should use the emotional side.
And the emotional side is one that's kind of out there. It's what keeps the account managers at the carriers awake at night. It's what scares them to the point of, "Oh, my gosh. I need to write a good story to my pricing department or to help this customer get what they want or what they need." It's also to a point that keeps the account manager motivated to win your business or to grab more business. So you can definitely do the negotiation yourself. But there are still pieces of the negotiation where you will fall short. This is because the experience level isn't there.
Best Times for Parcel Negotiation
A lot of customers ask when is the best time to review a small parcel contract or enter a small parcel negotiation. And our answer is usually the same. If your contract is from 15 to 18 months old, it's usually a good time to look at what's in the contract. It also helps to be mindful of whatever is in there is what you need. What I mean by that is being mindful of the surcharges and accessorials that come up every year. They may be new or the carrier happens to increase the surcharge by let's say 35%, which is not uncommon.
This is especially when you take a look at the most recent rate increase that FedEx and UPS employed. Both of those, the average general rate increase was 4.9%, but that's the tip of the iceberg. When you look below the surface, a lot of the accessorials and surcharges were 3%, which is great. But some of the bigger impact ones went up 30% or 35%.
So a good time is at least 15 to 18 months. Then usually around the beginning of the year is a good time of year to enter a parcel negotiation. This way, you are aware of the general rate increase and new or increased surcharges.
Author
Bryan Van Suchtelen
Bryan Van Suchtelen
Corporate Director of Parcel Rate Services
Prior to joining Lojistic in 2015, Bryan enjoyed a 26-year career with UPS where his roles included Pricing, Field Sales and Director-level Sales Management of some of UPS’s largest customers.
At Lojistic, Bryan leverages his wealth of experience/expertise to identify and execute supply chain cost management solutions for parcel shippers of all sizes. Bryan has helped his customers reduce their shipping spend by tens of millions of dollars.