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Getting the Best Shipping Rates: Operating Ratios Explained

Preparation plays a vital role in how well a company negotiates its small parcel shipping contracts.

It’s important to know there is a big range in the rates carriers are able to offer their customers, and it’s up to you to go and get the best. Making a plan and preparing thoroughly are the first steps to getting the best possible pricing for your company.

Here are five things to do in advance of your first conversation with any carrier sales reps for your next small parcel contract negotiation — and one post-negotiation task to make sure you don’t pay a cent more than you should.

1.      Get your data together

The more specific information and data you can provide about your shipping history, the better. When you provide imprecise data about key details like shipping patterns, volumes, or accessorials, the carrier is forced to err on the high side and you end up with higher rates. Remember: Quality of input = quality of output. 

2.    Take a professional approach

A well-prepared RFP indicates you are serious about the negotiation and in a position to thoroughly evaluate the carriers’ pricing. The major small parcel carriers are known for making it hard to compare rates and clearly analyze their pricing in a way that allows you to be confident in your decision. Having a process to gather and analyze the submissions from the carriers keeps you in control. 

3.      Let the carriers compete for your business

FedEx™ and UPS™ are both great companies from a service standpoint, so it can be a mistake to assume you cannot use both for all types of service levels. This point is to be ready to play them off each other and not let either one convince you its services are overall better or different. 

4.      Think about the future

As well as your current shipping patterns, also make sure the carriers understand how your business will change in the next 12–36 months. For example, if you are opening new facilities, it will affect your lanes and volumes. Adding new products can change weights, package dimensions, and other key volume data — all of which directly impact pricing. 

5.      Level the playing field

Most shippers are at a disadvantage entering a small parcel contract negotiation because the carriers can easily look at your shipment volume and know their cost to service your business — but you can’t. One way to level the information playing field is to partner with an expert who understands the carriers’ operating ratios (how much it costs them to carry your parcels) and how far your rates can be pushed while still allowing the carrier to remain profitable and keeping your relationship with the carrier intact. TransImpact pioneered this form of negotiation almost fifteen years ago and remains a leader in the field. 

6.      Stay diligent

The work is not done once the contract is signed. If you are not already, start auditing your invoices to make sure the carrier lives up to its end of the contract. Carrier billing errors and service failures can mean you end up paying up far more than you should. Partnering with a company that monitors your invoices is a simple and cost-effective way to get that money back.

Your approach is everything when it comes to small parcel contract negotiation. Thorough, diligent preparation will take you a long way towards getting the best rates possible for your business.

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