Editor's Note: This post has been updated with new links and content.
Original Publication Date: January 18, 2016
Everyone's heard of Newton's Universal Laws of Motion. Today we’re discussing Lojistic's laws of parcel negotiation.
The Three Fundamental Laws of Parcel Negotiation
Like Newton’s laws, we’ve found that there are also three universal laws of parcel negotiations.
And while they might not warrant a Nobel Prize, they may help you reduce your shipping costs.
Here they are:
- Know thyself.
- Everything is negotiable.
- Prepare for the future.
1. Know Thyself
Know thyself means that you know what you need to know about your supply chain and small package movements, specifically with UPS and FedEx.
If you think about it, UPS and FedEx know everything there is to know about your packages. They're basically the Google of the shipping industry.
And if you don't have as much or more information than they do, you'll be at a disadvantage when you're negotiating.
Now, both carriers provide your data back to you, including the billing data that they provide. You can manipulate that data so that you understand every charge on every package that goes out your door.
And if you don't have the ability to look at that data, analyze it, and generate reports so you can understand it, it's always good to lean on somebody like Lojistic.
Just looking at Excel sheets can be overwhelming and ineffective in helping you understand your shipping characteristics.
The right partner can take all your data and spit it out in easily understandable dashboards or reports so you’ll really understand every bit of package information.
Understanding your characteristics at the same level that your carrier does arms you with the information you need to negotiate. You need to understand what characteristics are appealing to a shipper and which aren't to leverage those characteristics in your favor.
2. Everything Is Negotiable
Another universal law of parcel negotiation is that, well, everything is negotiable.
- Language in the contract
- Service level discounts
- Surcharge discounts
- Rate increases and more.
It's mind-boggling sometimes. We’ll mention a discount on a surcharge that a customer should have but they don't, and they’re blown away because they didn't think they could get a discount on that surcharge.
Sometimes their carrier reps have told them that a surcharge can’t be discounted, but some surcharges or components are more negotiable than others.
Minimum reductions, for example, especially on the ground side, can be huge. Rate increases are another holy grail, as are fuel surcharges.
Again, you want to understand your characteristics to the point where if you're asking for a certain surcharge, you know the impact of that surcharge on your overall spend?
Hypothetically, you might ask for a discount on address corrections, but you don't really have that many address corrections to begin with. In that scenario, you're going after pennies and stepping over dollars.
That's one of the reasons really why you want to know yourself and consider every piece of your supply chain, and the charges that impact your transportation costs.
One more time, anything within a carrier agreement is negotiable. But you also have to understand the carriers’ ability to move in each of those areas. It’s not all common knowledge, but at the end of the day, everything's negotiable.
3. Prepare For the Future
The third law of parcel negotiation deals with what's coming up.
Depending on when you negotiate your contract, changes in the market like rate increases, surcharge changes, and other updates might be likely. And changes might be happening within your company as well.
Let’s say you’re launching a new product that will completely change your characteristics, either positively or negatively, because there's certain package characteristics that carriers like, and others that they don't like. They don't like shipping pillows, they don't like shipping fake trees.
Understanding what's going on within your world and how that could impact your supply chain is a big piece. Making sure you understand what the future looks like allows you to communicate that effectively to your carrier and plan for changes.
Maintaining Carrier Relationships
So often shippers do things that essentially shoot their future selves in the foot. For example, shippers might burn a bridge with a non-incumbent carrier and then need that carrier two years later.
In other words, understand what you're doing today and how it will impact tomorrow. Because there are only two big carriers, UPS and FedEx. What you're doing today can impact the relationship you have with one of them later.
Agreement Structures, Accessorial Discounts, and Early Termination Language
Another common issue is the way agreements are structured. That can have a negative impact on a shipper’s future.
For example, let’s say you have accessorial discounts that expire after a certain timeframe, or accessorial discounts at a flat dollar amount as opposed to a percentage discounted. This will diminish the effectiveness of that discount over time as the rate increase comes into effect each year.
Early termination language is another big one. It may make sense in your mind to sign that now, but what if your carrier next month rolls out some midyear rate increase that has a very dramatic, negative impact on your business? Now you've just locked yourself in a three-year deal because you signed early termination language.
One of the best things you can do is maintain that cordial relationship with your carrier, whether it's your incumbent carrier or the competitor. And the competitor is the big one because you'll want to bring them in at some point to ensure that you can level the playing field when you need to. So those relationships are another big piece.
After all, in the small parcel industry, there's really only two options. If you end on a bad note with the non-incumbent carrier, they're gonna remember that and it will be difficult to re-engage with them in the future.
For more information on how you can join the thousands of businesses currently using Lojistic to help monitor, manage, and reduce their shipping costs, please click here to contact us.