Applying Newton’s Laws to Parcel Negotiations

Applying Newton’s Laws to Parcel Negotiations

As any high school science student can attest, in addition to explaining why apples fall out of trees, Sir Isaac Newton proposed three universal laws of motion. Someone with more abbreviations after his/her name can do them more justice to them than I, but here is a quick, although less than eloquent, summation:

1 - An object in motion will keep going like the Energizer Bunny unless its batteries run out. If it’s not moving, insert fresh batteries.
2 - Big things require more effort to move than little things.
3 - If you push something, it’s actually pushing on you just as hard but in the reverse direction.

If you’re imaginative, you might be able to draw a parallel between his first law and negotiating with UPS or FedEx, but it doesn’t take much to draw parallels with the last two – both carriers are heavyweights and it takes a bit of effort to move them. Also the harder you push, the harder they push back. Coincidentally enough, there are also three universal laws of parcel negotiations, and while they might not warrant a Nobel Prize, they just might help you reduce your shipping costs.

So in the spirit of celebrating the 329th anniversary of Sir Isaac’s laws, I present to you “Matthews’ Laws of Parcel Negotiations”:

1) Know Thyself

UPS and FedEx know EVERYTHING about you. They are the Googles of shipping. Think about the information that you give to them daily: Your customers’ names and addresses, your vendors’ names and addresses (if you dropship), accounting details in the form of reference or PO#s, the value of your products (if you declare the value). Depending upon your degree of integration with either carrier, you may be sharing even more than that. This isn’t meant to scare you. All of that information is vital in order to provide superior service to you and your customers. It also provides your carrier with an advantage when you negotiate your carrier contracts with them. They know which services you use, how much your packages weigh and their dimensions, which surcharges get applied and their frequency. They know, to the penny, how much you spend on each of these and once their pricing teams get a hold of this info, they know exactly how much it costs them to service your account.

So how much do YOU know?

If you’re typical, you have a decent idea as to amount you spend weekly/monthly, a rough idea as to the service-level mixture you use, and perhaps the impact of some of the more painful surcharges. Now contrast this with what the carriers know. Although it sounds like the carriers have an unfair advantage, it doesn’t have to be that way. ALL this information, except for the carriers cost-to-serve, is available to you in your invoices. You just need to know how to access it and compile it into something useful. Do it and know thyself as well as your negotiation counterpart.

2) ALL Things Are Negotiable

Although the frequency is lesser now, I’m still amused at the number of times I hear a shipper express surprise when I mention discounts on surcharges. “I was told [carrier] NEVER discounts the [painful surcharge]” is a statement that I’ve heard countless times. Truth is - ALL things are negotiable, but there is a corollary to this law: Some shrines are more sacred than others. Knowing which surcharges are more likely to be discounted and by how much will come with experience, but the first place to start is to have a good understanding of which surcharges most greatly impact your shipping expense.

3) Prepare For the Future

If your company has been in business for any length of time, it’s likely that you’ve engaged in more than one negotiation with your parcel carrier(s). It’s also safe to say that your current pricing agreement won’t be your last. Even though you may be preparing to or have just wrapped up a wildly successful carrier negotiation, it’s not too early to set yourself up properly for the next one. A couple of tips to make sure the next time will be as successful as the last time:

  • Don’t share contracts – If you’re sharing a competitor’s proposal with the other, they will assume that you’re sharing theirs as well. Improvements will be incremental at best with each carrier offering slightly better discounts than the other. Eventually someone will walk off the court before a truly great agreement can be reached. It also sets an expectation that you will do so again in the future. When asked to provide competitive proof, politely decline.

  • Focus your efforts on securing improvements that won’t be withdrawn or scaled back later – Service level discounts will virtually never decrease. If you’re receiving 50% off of overnight services on your current agreement, you’ll never get a proposal for 49% (unless your shipping levels decline). Other discounts might not be so permanent. A rule of thumb is to look for language which specifies a duration for the discount or language which scales back the discount over time.

  • Reject any early termination language – High five! You just negotiated the most incredible agreement of all time! The carrier is licking its wounds and crying about how they’ll barely make any money on your account. It’s only fair that you agree to stick with them for the next three years, correct?? Wrong. Both carriers will raise their rates at least 3 times during that time span in addition to finding new ways to wring more money out of each shipment (dimensional changes or 3-party billing surcharge to name two recent ones). If they’ll freeze your net rates for the same duration of the early termination period, fine. If not, tell them to take a hike.

  • Maintain a cordial relationship with the “losing” carrier – Competition in the parcel marketplace is vital since the number of players is limited. Alienating the only other source of competition is the sure-fire way to ensure your next negotiation will be anything but competitive. Giving both carriers a fair shot now and being gracious to the losing bidder is the best way to ensure that they’ll both swing for the fence next time. We all wish to be treated fairly. Not only is this the right thing to do professionally, it’s the right thing to do period.