You'll find revenue-based incentives in most small parcel shipping contracts. UPS uses the term Portfolio Tier Incentives. FedEx refers to them as Earned FedEx Discounts. Basically, they amount to nothing more than a quantity or volume discount. Some shippers don't like revenue-based incentives; yet, managed properly, they can be fairly advantageous.
Carriers like them because in decades past, incentives were either based on zones or weights. In some cases, they were applied to the level of service you had. This was not the ideal situation for carriers. A small parcel shipper could award a carrier only a minor piece of his parcel portfolio and still qualify for UPS or FedEx discounts aimed at the whole portfolio. This "incentive hole" had to be filled, which gave rise to the revenue-based discount.
Various models of the revenue incentive are currently in use, but they're all driven by the same need--if you ship your entire portfolio with us, you get the optimal discounts. As your business expands, so do the discounts. Shrink your business with the carrier or downsize your business and your discounts will likely shrink. UPS and FedEx discounts will typically account for whether you are a large or small parcel shipper.
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Revenue-based incentives for FedEx discounts, for example, are usually calculated using annualized gross transportation charges over a rolling 52-week average. They typically include only Ground and Express service levels, but they can include other modalities. Accessorial and surcharges are usually not included in the rolling average calculation.
UPS uses gross transportation charges, residential surcharges, and delivery area/extended area surcharges. They can include modalities other than small parcel. They often use a rolling 52-week average, but they have also been known to use 13-week rolling averages as well.
Author
Rich Harkey
Rich Harkey
Senior Strategy Manager
Rich Harkey is a results-driven professional with extensive experience in the logistics and supply chain industry.
As the Senior Strategy Manager at Lojistic, Rich leverages over three decades of expertise to help businesses improve their shipping strategies and reduce costs. With a deep understanding of the requirements of shippers and the operational intricacies of carriers, he excels in everything from optimizing business rules and managing carrier invoices to negotiating carrier contracts.
Rich's comprehensive knowledge of the logistics industry, combined with his strategic insights and passion for data analysis, has enabled thousands of companies to gain visibility into their shipping expenses, driving impactful results.