The Art and Science of Negotiating a “Best in Class” Carrier Agreement


The Art and Science of Negotiating a “Best in Class” Carrier Agreement

“I’m a really bad negotiator”, said no one ever.  Especially in logistics. Case in point, I was on a sales call last week and the gentleman responsible for negotiating the existing UPS and FedEx contracts for his company was VERY confident in his shrewd negotiation skills.  “My new parcel rates are amazing. I just negotiated a 9% savings with my incumbent parcel carrier” he proudly shared. “I just pitted them against each other and created a competitive environment. You know, ‘Negotiation 101’.”

Unfortunately for this gentleman and the company he worked for, his “Negotiation 101” approach resulted in a shortfall of approximately 18% or $220,000 in additional savings annually.  Why? He applied a generic, cookie cutter negotiation strategy with his shipping carriers. Look, I may be decent at negotiating with my wife but that doesn’t mean it translates to buying a house.  There are nuances to every industry and regardless of what type of business you or anyone else is in, the vendors providing products/services in any given industry will ALWAYS have the upper hand. Period.

Consider, for example, buying a car.  You don't think the dealer has the advantage?  Think again! They’re in the business of selling cars.  It’s what they do all day, every day. Regardless of whether or not I’m a good or even great negotiator, I lack the tools necessary to tip the scale in my favor because I’m not in the business of buying cars.

This concept couldn’t be more relevant in the world of small parcel contract optimization.  As it relates to negotiating parcel shipping contracts with UPS and FedEx, there are two critical components to securing “best in class” carrier agreements.  I refer to them as the “Art” and “Science” of carrier contract negotiation.

On one end of the spectrum is “Art”.  This is the emotion driven component. It includes things like the overall negotiation strategy, positioning, timing, negotiation environment and internal carrier dynamics.

On the other end of the spectrum is “Science”.  This is the data driven component. It includes things like technology & analytics, shipping characteristics, benchmarking and cost modeling.

If you aren’t leveraging both successfully, you’re guaranteed to fall short.  Let’s say you’re armed with all the data in the world and you know exactly what pricing your parcel carrier is capable of offering because you have a deep understanding of your shipping characteristics and carrier operating margins.  Now, what if someone in your company innocently tells your incumbent parcel carrier offline that you despise the non-incumbent and would never actually consider using them? That’s a surefire way to kill a negotiation before it even gets off the ground!

On the flipside, let’s say you’ve developed the most elaborate, well-planned negotiation strategy.  You’ve created the ideal environment. The problem is, you don’t know what exactly you’re negotiating for.  You have no idea where the end zone is because you lack the data and analytics to support your negotiation efforts.  You might shave a few points off the top, but you’ll likely end up like the fella I described earlier.

Creating the ideal negotiation environment requires an understanding of the nuances related to carrier contract pricing.  And without leveraging both the “Art” and “Science” effectively, your parcel carrier agreement will inevitably fall short, resulting in something other than a “best in class” agreement.  Like so many other examples in life, it’s know what to ask for and how to ask for it. Go get ‘em!