min read

Contract Engineering: What, when, and why

A conversation topic that comes up over and over in the transportation industry is carrier agreements. These agreements can be complex. Businesses should keep a close eye on their agreements and renegotiate when it makes sense based on their shipping characteristics. This will help a business reduce shipping spend and, in some cases, expand reach, adjust distribution strategy, or diversify the carriers being used.  

What are carrier contracts?

Carrier contracts, or carrier agreements, are arrangements made between a shipper and shipping carriers, like UPS, FedEx, and USPS. These contracts often are made to exchange a certain amount of shipping volume for reduced shipping rates.  

This benefits the shipping carrier by establishing a relationship from which a certain number of transactions can be expected. The shipper benefits from the lower cost of shipping. It can be a big win-win situation!

What is contract engineering?

Contracts with a carrier are generally written for a specific amount of time. Typically, contracts last between one and five years. If your contract is about to expire or there have been any major changes in your business’ size or scope during the contract, it may be time to reconfigure the agreement. A major change in your business that could call for contract engineering could range from launching a new product to facing the impact of the latest GRI, or a carrier-specific increase in shipping costs.

This is where contract engineering comes into play.  

Contract engineering is a must for any business that ships a high volume of packages and generally includes the following:

  • A comprehensive survey of the current carrier agreement
  • An audit of shipping data (including invoices, surcharges incurred, and impacts of rate changes, like GRIs)  
  • Forecasts of shipping fluxes (the launch of a new product, seasonal trends, etc.)
  • Actionable suggestions based on the business’ parcel characteristics  
  • Assistance in the carrier renegotiation process

What are the benefits of contract engineering?

There are many benefits to getting into a contract that fits a business's needs. At the forefront of the minds of many is the potential of a lower shipping spend. A carrier agreement can establish lower rates and sometimes lead to waived or reduced surcharges. These savings add up quickly.  

When to use contract engineering tools?

There’s no one-size-fits-all approach to when contract engineering is most beneficial and the timing of when to consider it for your business varies widely based on individual conditions. Common circumstances when contract engineering can be helpful include when a contract is about to expire, if a company has had a large growth stage during their contract, and if the size or reach of their distribution has changed.  

Ultimately, renegotiating a contract with a shipping carrier can help businesses to improve their bottom line and strengthen their position in the market. Unfortunately, reconfiguring a carrier agreement can be an unwieldy and complex process but using a contract engineering streamlines the process and strengthens the SMBs outcomes. iDrive Logistics offers a comprehensive contract engineering. If you are interested in learning more, contact us here: https://www.idrivelogistics.com/talk-with-an-expert

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