Shipping costs are a critical business expense, but they can feel out of control and inevitable. With high rates, fuel costs, and a proliferation of surcharges and accessorials, reducing shipping rates through parcel contract negotiations is crucial.
While carrier representatives often tell businesses that certain terms are non-negotiable, virtually all aspects of a parcel contract can be negotiated. Click Here for some tips for navigating the negotiation process:
1. Know Your Shipping Needs
Even e-commerce industry experts can struggle with understanding the complex terms and pricing structures of small parcel contracts. This is why it’s critical to perform a thorough shipping audit prior to undergoing contract negotiations. Having hard data at hand — such as the impact of service levels, zones and package characteristics – gives you valuable leverage during negotiations with your carrier.
Don’t forget to take the time to analyze your peak surcharges, too. These flat fees can add up and significantly impact your total shipping costs, especially during busy times.
A successful FedEx or UPS contract negotiation can save e-commerce businesses money and boost overall shipping efficiency. However, the right approach is crucial in maximizing your savings. Focus on the items that are most important to your business and prioritize lowering costs in areas where you can make an impact. It may not be possible to achieve everything on your wish list, but identifying low-hanging fruit can still help you secure significant savings.
2. Focus on Rates and Discounts
When negotiating with shipping companies, it’s important to focus on rates and discounts. These are the elements of your contract that directly affect your bottom line. You want to make sure you’re getting a fair rate and not being overcharged. Before heading to a meeting, do your research and find out how competitors are charging for the same services.
Leverage data insights to help you uncover cost-saving opportunities during negotiations and optimize your carrier contracts. This includes identifying and focusing on the key areas of your agreement that have the most impact on your parcel budget, such as service levels, zones and package characteristics.
You can also negotiate terms beyond the base rate, such as residential delivery surcharge discounts, caps on accessorial fees and priority handling during peak periods. These types of performance-based incentives can significantly reduce your overall shipping costs. Also, remember to negotiate the calculation threshold for dimensional factors, which is one of the biggest drivers of your overall shipping costs.
3. Leverage Data Insights
One of the most crucial elements of a successful e-commerce business is optimizing shipping costs. This means not only negotiating rates and discounts but also exploring other critical factors like service conditions, like guaranteed delivery times and special services. To do so, leveraging shipping data reports is key. By understanding your own shipping patterns, the effect of your zone structure and package weights, negotiated rate structures, and tier thresholds for revenue-based incentives, you’ll have the insight needed to negotiate a fair contract.
A well-planned and executed renegotiation of your parcel contracts can unlock significant shipping cost savings, improved carrier service quality, and greater flexibility for your supply chain. By mapping out your shipping needs, conducting a full shipping audit, seeking third-party expertise, and leveraging technology for ongoing analysis/optimization, you’ll be well-equipped to secure favorable terms during negotiations. This, in turn, will boost your bottom line and enhance your customer experience. Click here to learn more about our renowned parcel audit and shipping management solutions.
4. Seek Third-Party Help
A third-party solution provider that specializes in parcel contract negotiations can help you identify cost-saving opportunities and streamline logistics operations. By analyzing shipping data, providing recommendations for better contract terms, and conducting negotiation services with carrier representatives, they can maximize your savings.
Effective negotiations unlock significant cost savings and improve service quality for your e-commerce business. Whether you’re seeking a lower rate structure, securing tier discounts, or negotiating peak/demand surcharge discounts, you can achieve optimal contract terms that save money and support your business goals.
However, misconceptions around the process can hold you back from achieving the best results. Using a third party to provide accurate pricing benchmarking offers transparency and levels the playing field in negotiations. These experts can help you negotiate reduced residential delivery surcharges, caps on accessorial fees, and other critical features that improve service quality while reducing your shipping costs. They also have the specialized knowledge to navigate legal considerations in contract formation, liability allocation, and insurance requirements.
5. Take Your Time
Efficiently managing shipping costs has become a top priority for ecommerce businesses. This requires a holistic approach to parcel contract negotiation that includes ongoing monitoring and optimization of rates, fees, and terms.
Carrier pricing changes a few times a year, and ecommerce companies can – and should – review their contracts to ensure they are getting competitive rates. This is where third-party experts can make all the difference.
Effective parcel contract negotiations take time, but they can save companies money and improve their service quality at the same time. By focusing on their unique shipping needs, running data reports, and seeking out third-party expertise, ecommerce businesses can find the best balance between cost savings and service quality and secure parcel contracts that work for them. Then they can focus on what matters most – ensuring their customers receive their products in good condition.
6. Be Flexible
Many business owners believe that their carrier contracts are non-negotiable, but this isn’t always the case. Effective contract negotiations can result in significant cost savings and improved service quality for ecommerce businesses.
During the negotiation process, you will need to run data reports, shop around to multiple carriers, and wait on approvals for special rates. These steps can take weeks, if not longer, so it is important to have flexibility.
For example, you can negotiate minimum charge reductions, negotiated base rate caps, and peak surcharges to help reduce your shipping costs. You can also request specific services such as on-time delivery guarantees and clear remedies for service failures. In addition, a third-party can help you uncover more cost-saving opportunities by leveraging shipping data analytics during negotiations. This can help you streamline logistics operations and maximize your return on investment. Ultimately, the more flexible you are during small parcel contract negotiations, the more successful your results will be.
7. Be Honest
It’s important to be honest when negotiating a parcel contract. Providing a false picture of your shipping volume and forecasted growth could lead to higher rates than you need or service levels you can’t deliver on. In addition, being upfront with your carrier about the needs and expectations of your customers will help foster positive relationships that make it easier to secure a contract that benefits both parties.
Before you dive into a negotiation, thoroughly analyze your shipping data, including current shipping volumes, parcel spend, rate and service level comparisons, and weight distributions. This insight will empower you to present decisive reasoning during negotiations and uncover optimization opportunities. For example, many shippers are unaware they are charged for dimensions (also known as DIM weight), which often pushes them into more expensive tiers. By auditing invoices and analyzing this data, you can save yourself more than just a few percentage points off your base shipping fees.
8. Ask for Refunds
Ensure you get the most out of your parcel contracts by asking for refunds on overcharges during contract negotiations. This is especially important during peak shipping periods, when carriers are notorious for increasing rates and suspending their money-back guarantee due to the high volume of shipments.
In addition, negotiating caps on accessorial charges can mitigate additional costs and keep shipping expenses in check. For example, reducing residential delivery surcharges and demanding discounts on surcharges during holiday seasons can save your business thousands or even millions.
Effectively negotiating small parcel contracts can lead to significant cost savings and improved service quality for your e-commerce business. However, navigating these complicated carrier agreements requires heavy preparation and deep market insight. For best results, consider working with a third-party solution provider that combines negotiation expertise with data analytics and optimization tools to uncover hidden opportunities for better service terms, waivers of accessorial fees, and discounted rates.
9. Be Flexible with Terms
The unforeseen fees of ecommerce shipping often appear non-negotiable, but a little bit of effort in negotiation can reduce these costs for businesses. Negotiating terms like earned discount tiers, service level guarantees, dimensional factor calculation thresholds, specialized handling requirements, bundling options, insurance coverage and other service-based incentives can all lead to cost savings that can improve customer satisfaction and business success.
Becoming better at parcel contract negotiations can also help businesses offset unexpected carrier rate increases, recoup overcharges and save on additional accessorial fees like fuel surcharges, dimensional factors, base rate surcharges, minimum spend thresholds and peak/demand surge fees. Working with a third-party partner to provide accurate pricing benchmarking can offer transparency and level the playing field in negotiations, as well.