Most small parcel shippers are overpaying their carriers, and chances are, it’s by a lot. But there are things that can be done to get more competitive rates and prevent this from happening. For example, small parcel shippers who prepare properly for their agreement negotiations will usually come away with the best results (and the lowest rates).
Here are five tips for preparing to negotiate your next small parcel agreement.
Understand Your Data
Technology has made shipping data more accessible than ever. Without knowledge of your shipping history, it’s hard to paint a picture of your exact shipping requirements. This is important because the more information you provide a carrier about shipping patterns, accessorials, special requirements, and volumes, the more accurate (and lower) your rates will be. Lacking this data, carriers will automatically default to offering you a higher rate simply because they have no idea what to expect; carriers need to protect themselves.
Understand DIM Weight Pricing
UPS and FedEx both now use Dimensional Weight Pricing for some packages, which takes into account the amount of space the package occupies on a truck in relation to its actual weight. This enables carriers to charge more accurately for the actual cost of delivering the package. The DIM calculation can still be negotiated in carrier agreements, though, just as with all other costs and fees. The most important figure to understand is the divisor value, so remember this: a higher divisor means a lower cost. There is a chance your last agreements were negotiated before this change came into effect, so it is important to know how it has impacted your costs.
Send Out an RFP
Whether you are happy with your current carrier or not, an RFP will show you where market rates are at. A comprehensive RFP explains your business requirements clearly, so carriers know what to expect, but also so they’ll have clear expectations of how their performance will be measured. A well-thought-out RFP also enables a company to compare carriers in an apples-to-apples way.
Look at Your Billing, Closely
Invoices provide clues on where you can cut costs. Examining small parcel invoices from your current carriers for the last six months will highlight the areas where you are spending the most so you can concentrate your negotiation efforts there. If you are charged often for a liftgate service, for example, look for the carriers who charge the least for that accessorial. This will help cut costs in both your accessorial surcharges and your overall spend.
Think Long Term
While you should be negotiating for your needs now, don’t forget about how your needs might change in the next few years. Launching new products or adding distribution points will affect your lanes and volumes. These changes can also affect weights, package dimensions, and other key volume data, which influences pricing. Be sure these projected changes are reflected in your agreements, so you are getting the best pricing for where your business is going, not where it’s been.
When it comes to small parcel rate agreement negotiations, your approach makes all the difference. Taking the time to prepare properly will ensure your company secures the best rates possible. But remember, the small parcel carriers’ salespeople have a team of expert negotiators working behind the scenes. For many shippers like you, it is worth discussing the services of a company like Transportation Impact. We can tell you what your rates should be and guarantee your savings in advance. Contact us to learn how.