Editor's Note: This post has been updated with new links and content.
Original Publication Date: December 2, 2011
Today we’re discussing one of our favorite topics, shipping rate negotiation tactics and negotiating carrier agreements. Let’s begin with how most companies approach carrier negotiations.
Common Approaches to Shipping Negotiations
Lots of companies just call up their carrier and say something like, our costs are going up and we need better rates. Or they'll call the carrier and say, I just got a proposal from your competitor and I need you to match it.
Both of these are cookie-cutter approaches that businesses use with other vendors. There isn’t much data, or science, or planning behind it.
Factors in Shipping Rate Negotiation Tactics
Unfortunately, because of the way carriers charge for packages now, the marketplace isn’t as simple or competitive as it could be.
Based on the data, packages today aren’t just shipped from zone two to zone six via ground for $10. There will be, on average, three to five different charges packages get hit with along the way.
Now you've got several different charge types and thousands of rows of data on any given invoice, depending on the size of the shipper. And again, each tracking number probably has at least two or three, sometimes up to five different charges associated with it.
Another important factor is that every single agreement is customized, even if two companies are literally next door to each other and ship the exact same widget to the exact same customer.
That said, there is what we call ‘briefcase pricing,’ where an account manager might be able to work a certain agreement out. But it’s usually based on that customer's spend if nothing else.
Resources for Small Parcel Shippers
Buyers trying to negotiate rates in other industries use resources and data to help level the playing field. Car buyers, for example, turn to resources like TrueCar or KBB to do research.
The freight industry has resources like that too, especially for small parcel shippers. Companies like Lojistic and others can arm customers with the information they need to make the right decisions. By pushing the right buttons and pulling the right levers, users can get the custom pricing that they need.
Aside from that, however, there are few standardized resources or forums where shippers can go to determine their pricing -- if any.
Applied Negotiation Expertise
Negotiation expertise and experience can translate from other industries to the small parcel industry at a high level. But you'll still need to fully understand the data behind your supply chain.
On the small package side, understanding what impacts every single charge is essential for negotiations. Having negotiating skills helps, but if you don't really understand the data or everything that goes into the charges behind a package, then you're only going to get so far.
In other words, it doesn't matter how good of a negotiator you are if you don't know what you're negotiating for.
Relevant Industry Experience
We often work with companies that say they’re great negotiators, but even then, they’re probably negotiating with their carriers once a year at most.
In our experience, most customers wait until two or three years before they renegotiate carrier agreements. We have very few that do it every year.
Let’s return to the car-buying analogy. When you buy a car, the dealership is always going to have the upper hand because they are in the business of selling cars. That's what they do every day, and you as a consumer buy cars very infrequently.
And to mix metaphors a bit, if you know how to negotiate a carrier agreement, that doesn’t necessarily mean you’ll have the upper hand at a car dealership. There will always be specific elements that don’t quite translate.
Key Components of Shipping Rate Negotiation Tactics
There are really two sides or key components in a shipping rate negotiation. You've got the science part, which is knowing all the data and everything that goes into the modeling that we’ve been referring to. All the characteristics for each package and movement.
In conjunction with that, though, is the art or emotional side of the negotiation. And if you've got the data side down 100%, this is usually overlooked. This is what gets the carriers to sit up straight in their chair and understand what you're looking for and why you're looking for it. You put those two together and you've got a complete negotiation.
You can have all the data that you need for a successful outcome. But there could be something that happens specific to the relationship with your carrier, that can impact the outcome either favorably or unfavorably, based on whatever it is that happens.
Get a Best-in-Class Carrier Agreement
If you’re trying to negotiate a best-in-class carrier agreement, the most important takeaway is going in with a plan backed by your data. Understanding that, and everything driving your supply chain, can lead to the best negotiation you’ll ever have.
Negotiating with carriers is unique because a lot of shippers think that they only have two choices, UPS and FedEx, when shipping small parcels. And because of that lack of competition, shippers can feel like they don’t have leverage at the bargaining table.
But going in with a customized plan is the best chance you have for a favorable outcome.
For more information on how you can join the thousands of businesses currently using Lojistic to control and reduce their shipping costs, please click here to contact us.