Every year brings new developments and challenges to the shipping industry – negotiating carrier contracts offers an avenue for increasing your overall savings.
With shipping prices rising and carriers feeling the pressure of customer expectations, it’s important to be informed when entering contract negotiations for 2022. Your contract negotiation is an opportunity for you to review existing agreements, discuss concerns with your carrier, and renew your contract based on what’s best for your business.
Here’s what you need to know to successfully navigate your contract negotiations in 2022.
The shipping industry has certainly seen an enormous rise in demand in the last two years. Let’s take a closer look at a few of the major factors influencing today’s carriers.
A Post-Pandemic World
When the world shut down in 2020, most consumers turned to online retailers as a source of essential items and supplies. In an article from Logistics Management, John Haber, president of the parcel business unit for Transportation Insight, stated that pandemic-related increases in ecommerce are starting to level out: “At its peak, e-commerce represented 16.1% of U.S. retail sales in the second quarter of 2020, but it has since leveled off to around 13% as of the third quarter of 2021.” Although the surge in ecommerce demand has tapered, customers are still expecting a full range of products available for fast delivery. This puts extra pressure on carriers to improve their parcel delivery services and last-mile logistics.
Today, shipping is largely dominated by UPS and FedEx. These two carriers have increased their prevalence as mainstream options in the industry and have a substantial sway over industry-wide pricing. Because UPS and FedEx are essential carriers for businesses nationwide, they can afford to increase their prices to ensure customers to pay a premium for shipping. In the same Logistics Management article, John Haber mentions that price jumps may be even greater than anticipated: “Even though FedEx and UPS announced an average annual rate increase of 5.9% for their services in 2022, the actual rate increase for many shippers is actually higher, around 10% depending on contract.” This price increase is partially due to labor and product shortages, but is also a result of increased surcharges for specialized services.
Like many business sectors, shipping companies are struggling due to labor shortages. Companies are finding it harder to hire and retain employees, and are relying on a workforce already stretched thin by the strains of the pandemic. Some companies like UPS are making up for the labor shortage by investing less in their operations, and increasing prices overall. Although increased prices are not great news for consumers working with large shipping companies, price surges open the door for smaller, locally-based companies to fill the gap.
Before we talk about specific contract negotiation tips, let’s take a look at general strategies to future-proof your shipping operations while navigating a rapid increase in demand.
Choosing your shipping carrier makes a huge impact on your business’s operations. According to Shipware, part of the SIB family of companies, the costs of shipping and transport often account for “more than a third of a retailer’s operational budget.” Since prices are always fluctuating, ensure that your contract stipulates that your carrier will charge you with consistent rates.
It’s also wise to diversify your carriers and establish relationships with more than one service. Logistics Management recommends paying attention to a carrier’s priorities regarding customer satisfaction. While many carriers might present a certain image in their marketing, oftentimes their main priority is with investors, not customers.
Don’t jump at the first contract that comes your way. Remember, you are an essential part of a carrier’s business! Shipware mentions that most customers end up taking deals without understanding the full implications of the contract: “in most cases, customers aren’t digging into the data and negotiating for price reductions that would benefit them the most.” Spend time familiarizing yourself with industry standards, understand your shipping profile, and go into your negotiation ready to pose questions, provide feedback, and present your offer.
Entering a negotiation can feel like a daunting task. Most contracts are dense and difficult to parse, but this doesn’t mean that contract negotiation is impossible. By breaking down your contract negotiation into actionable steps, it’s easier to come up with a plan and understand the details of your contract.
Understand Your Shipping Profile
Your shipping profile is essentially a summation of your recent shipping data. Your shipping profile should include information detailing:
Every business will have a unique shipping profile depending on their products and services. Entering a negotiation with a solid shipping profile empowers you to advocate for your specific needs based on shipping history and product type.
Review Current Agreement
Devote time to go over your current agreement before your negotiation meeting. This will help you identify areas that need to be adjusted when you propose a new contract. Shipware recommends screening for contract compliance and identifying key elements including “Pricing, Service Guide, Payment Terms, Automation, Confidentiality, Term, Termination, Offer Expiration and Prior Agreements.”
Additionally, be on the lookout for fine-print items like increased surcharges and guaranteed service refund waivers. Always maintain your right to a refund if the carrier doesn’t fulfill their delivery. This keeps carriers accountable and guarantees you receive quality service.
Research the Fees
Pay attention to your carrier’s pricing and note any possible fees. If you’re unaware of potential surcharge assessments, you may be hit with unexpected fees on your monthly bill. While some fees may be unavoidable due to the nature of your shipments, many hinge on technicalities that are easy to remedy.
For example, companies are often charged pallet fees if they use a carrier’s pallets. The solution? Invest in your own pallets and save money in the long run. Other fees might include CRD (cargo ready date) penalties if your shipment isn’t prepped by the agreed upon date, or courier and documentation fees.
Pay Attention to DIM Weight Pricing
DIM weight (or dimensional weight) pricing is determined by carriers based on box size optimization. The goal of DIM weight pricing is to optimize the space inside shipping containers by ensuring customers use appropriately-sized boxes for their shipments. Some companies will offer dimensional weight wavers or higher dimensional divisors as part of a renewed contract.
Submit an RFQ
RFQs (request for quotations, also known as RFPs) are documents detailing your contract proposal. They include information about your company, specifications about service requirements, and terms like contract length, warranties and renewal options. Your RFQ should be submitted to carriers for review before your negotiation meeting.
Bring a Competitor to the Table
Every negotiator knows that it’s never a bad idea to introduce some healthy competition into the mix. This is why it’s an effective negotiation strategy to mention other carriers during the course of your meeting. Ask questions about carrier’s rates and policies in relation to others. This may help you score a better deal, or avoid certain fees and charges. Mentioning other carriers may also be an effective way to provide feedback to your current carrier to improve future service.
Before you sign off on a new contract, take one last thorough look at the details. As Shipware advises, “You might find that the least expensive carrier is not always the one that you’ve chosen. Potentially, superior performance capabilities of one carrier may make it worth the extra overall cost.” Remember, you are the best judge of your needs.
Once you’ve signed your initial contract with a company, review your contract periodically. Make note of any upcoming renewal dates, and note pricing changes or additional fees that might be an issue in the future. This way, you can enter your next negotiation cycle ready to improve your rates.
We know it’s difficult to keep track of your shipments, and even more difficult to advocate for a refund when there’s a mistake or late delivery. That’s why we’re here to help your business hold carriers accountable when they don’t deliver on their guarantees.
SIB specializes in cost reduction analysis to help your business save money when it counts the most. SIB offers shipping cost reduction services for businesses working with UPS and FedEx. Once shipped, SIB will track your packages and collect any applicable refunds for inadequate service on your behalf. Through our cost reduction strategies, we help companies save up to 22% on shipping.
At SIB, we provide high-quality services totally risk-free. Instead of charging you a fee, SIB takes a percentage of any savings gained from our services. This way, you don’t need to spend money to save money. Contact us today to get started with your savings!