Negotiating a carrier agreement is a highly nuanced, complex process; but for businesses spending a large amount (> $100,000/year) on shipping, negotiating agreements becomes crucial for efficient and economical shipping. Has your business hit these thresholds? Or are you planning on big growth in the new year? We are laying out three questions you should consider before diving into the negotiation process.
When is the last time you changed carriers or negotiated your agreement?
Before going to the market and considering changing carriers or negotiating your agreement, you have to consider any risk associated with switching/negotiating as well as if there is a qualifying, credible event that would justify your switch/negotiation.
As a rule of thumb, businesses should consider a carrier switch or negotiation when there is a credible opportunity, either on the carrier side or on your business’s side. On the carrier side, this could look like an annual rate increase (GRI) or when a new surcharge is implemented that heavily affects your costs.
On your side, this could look like your business releasing a new product that has different shipping parameters from your other products, you sourcing or shipping products to and from a new location; or a new business partnership, merger, or acquisition.
OR as a general principle, revisiting your contract every 4-6 years is a way to maintain a competitive contract while keeping you and your operation credible.
Are you relying on benchmarked information to negotiate your rates?
It is unwise to define what ‘good’ looks like for your business by benchmarking your rates or agreement to the rates or agreement of a similar company. There are numerous factors that go into how carriers structure the rates they offer you, and every single detail of your shipments as well as the delivery process is taken into account.
For example, the type of delivery and the number of stops greatly influences your rates. A small, light package that is being delivered to a residential address will cost more than a heavier, more profitable package for the carriers, that is being delivered to a commercial address that will likely have multiple deliveries to the same suite or building.
Benchmarking not only leaves potential better rates for you on the table, but also is simply a misrepresentation of your business’s unique shipping profile.
How many and what carriers are you currently working with?
It’s known that the major carriers that offer nationwide coverage are FedEx and UPS, but regional carriers are expanding and growing in popularity. With this, take a look at how the major carriers have performed for your business in the past year and consider if changing carriers, or adding a mix of smaller carriers may be smart for your operation.
For example, if you sell a product and the majority of sales are to customers in a particular geographic region, a regional carrier may be a great option.
With building a beneficial mix of carriers, it is crucial to also consider the barriers to switching. What technology processes will have to be changed, how long will implementation take, how will the delivery experience change for customers.
What do your customers care about?
As mentioned earlier, the rates that carriers offer you take into account their cost to serve you; and your choice of carrier changes the delivery experience for your customers. The delivery experience should be a consideration in your carrier choice as the pendulum can swing both ways in terms of the cost and type of delivery experience.
Perhaps your ship low value plastic goods and your customers’ main focus is costs. They are looking for a bargain on both the item and the shipping. Perhaps they are willing to wait a couple of days extra to get the product in trade for lower shipping rates.
On the other hand, perhaps your ship luxury clothes, shoes, and handbags. Your customer has already paid hundreds or even thousands of dollars for the product itself, making the cost of expedited shipping seem like a much smaller percentage of the value of the good they purchased. Therefore, these customers may want their package delivered safely to their front door with a signature required in a custom box within two days of purchase.
Negotiating your carrier contract can be overwhelming, but with the right tools, the right experts on your side, and key information specific to your customers and shipping profile; negotiation will result in a highly beneficial outcome.
For more information and a more detailed breakdown on negotiating carrier agreements, tune into Tee Up: Logistics Insights podcast episode on everything carrier agreement related here.