Editor's Note: This post has been updated with new links and content.
Original Publication Date: December 18, 2018
If you’re reading this, you’re likely looking for answers to some very common questions:
- How do your competitors afford to ship at free/reduced rates?
- Is it possible, at this time, to lower your shipping costs? (hint: yes)
- Is your UPS or FedEx contract rates competitive with other shippers like you?
- How should you approach drastically improving your UPS or FedEx contract rates?
When it comes to your shipping spend, what you don’t know CAN hurt you! So if you’re facing the task of reducing your shipping costs, or just want to make sure you’re getting the parcel rates you deserve, we’ve assembled 10 Tips for Negotiating your BEST UPS and FedEx Contracts:
Know Where you Stand Now
Do you currently track Key Performance Indicators (KPI’s) within your transportation, such as; average cost per package, average cost per pound, average billed weight, true effective discount, etc.? If not, you should start!
This information is key to understanding how specific changes in your contract will drive meaningful savings. It’s easy to say you’d like to “cut costs by 10%,” but the reality is that your parcel spend is distributed over 100+ points including: transportation charge(s), fuel, dozens of possible surcharges, invoice adjustments, invoice errors, etc. Understanding how this shakes out for your company’s parcel spend provides you with invaluable insight going into a carrier rate negotiation. Get a clear understanding of all the points that comprise your parcel spend by creating a free Lojistic account.
Research and Analyze the Current Market
In order to manage a successful parcel negotiation between UPS and FedEx, it’s important to ask yourself two questions:
- Do you know how your UPS or FedEx contract rate compares to shippers with similar profiles: spend, service levels, average weight, dims, zone density, seasonality?
- Do you know what is currently driving competition between UPS and FedEx, and what they are doing to combat each other’s pricing?
This isn’t likely, and your best bet is to partner with a third party to perform this type of analysis and cost modeling. But having this insight provides you with necessary information to determine what the market is likely to yield for your company in the way of savings.
Set S.M.A.R.T. Goals for your Contract Negotiation
Your desired outcome from a UPS and FedEx parcel negotiation should be:
- Specific: Have a clear value (percentage and dollar amount savings) for what is being sought in your carrier rate negotiation.
- Measurable: Understand how you’ll calculate the value of any new pricing, and measure future savings.
- Attainable: Your savings goal should be realistic, accurate, and appropriate for a company with your specific shipper profile.
- Relevant: Make sure that the contract improvements you’re pursuing are relevant to your transportation KPI’s.
- Timebound: Set a realistic timeline for your parcel negotiation and understand factors that could hinder progress.
Formulate a strategy
Each UPS and FedEx contract negotiation process is unique, as it should be! This is because the contract improvements you are pursuing are specific to your shipper profile. It’s important to know which areas of your contract to address first, which concessions the carrier can/should make, and which areas you can budge on without negatively impacting your company.
Use Analytics in every stage of the UPS/FedEx contract negotiation
In a successful parcel negotiation process, you will receive multiple pricing proposals from each carrier. It’s important to thoroughly examine every proposal in order to determine the real-world impact it will have on your operations and spend. Knowing how an offer will affect average cost per package, per pound, per zone, per service level, are all important. Most importantly, be able to calculate the annual savings (% and $) an offer provides to your company and don’t rely on what the carrier claims it provides.
Provide specific, targeted feedback in each stage of the carrier rate negotiation
Your carrier rate contracts are complex. Use analytics to provide specific, detailed feedback on areas the carrier needs to improve. The truth is, your carrier rep likely doesn’t know your shipping profile as well as they should. This means they also don’t know which changes will have meaningful impact on your business. Their job is to simply tell a story to their own pricing department in hopes of approving better pricing for you, help them tell that story with specific feedback on the areas that are still lacking in your contract and why they matter to your business.
Create a competitive environment
There are two main aspects to a carrier rate negotiation:
- Data driven negotiations
- Emotional negotiations
The purpose of the Emotional aspect of this process is to create a realistic fear of losing the business for your incumbent provider while also creating a realistic hope of obtaining new business for the non-incumbent. This isn’t as simple as threatening to leave your current carrier, though. Through detailed feedback and strategic messaging, this process will actually strengthen your relationship with the current provider while creating a new working relationship with other potential suitors. They key is knowing what makes the carriers tick, and what gets them motivated to deliver on what you’re asking for.
Know what to ask for, how to ask for it, and when!
Just like telling a great joke, delivery is EVERYTHING! And giving away the punchline can be detrimental to your desired outcome (a good laugh, or in your case massive savings!) It’s important to know what concessions you’re pursuing, but just as important is knowing how and when you present this feedback during the negotiation. Some contract improvements should come before others in order to avoid putting the carrier on the defensive too early in the negotiation.
Keep your parcel carriers honest!
When new pricing is implemented, the risk of inaccurate billing skyrockets with UPS and FedEx. Monitoring every shipment post-implementation will ensure you actually get what you worked so hard for. Re-rating shipments to contract is tedious, but is best practice in order to prevent inaccurate billings from the parcel carriers.
Watch for additional savings
Parcel contract pricing is not a “set it and forget it” part of your supply chain. Your business changes, your shipping characteristics change, the carrier marketplace changes. Keep a constant eye on new opportunities for savings, which can often arise as early as 6-9 months into a new carrier contract. Aside from monitoring your own shipping data, watch out for updates from the carriers or industry articles that may shed light on changes that could impact your parcel spend.
Every negotiation process is unique, but following these 10 Steps will provide you with the foundation needed achieve the best possible outcome for your company.
Lojistic can help you achieve the best-in-class carrier rates, and it starts with creating a free Lojistic account. You'll be able to quantify your opportunity to save and you'll be equipped with all of the information you'll need.
If you're interested in getting better UPS and/or FedEx rates, let's chat!