How to Engineer Carrier Strategy for Maximum Savings: Single, Switch, or Multi-Carrier ROI

There are a lot of levers you can pull when it comes to saving money on logistics and operations. You can change your packaging, switch manufacturers, change 3PLs, and even buy your own warehouse.

However, one of the most overlooked areas for savings lies in carrier strategy and carrier contract negotiation.

Different types of carrier scenarios

Let’s look at a few different shipping situations that come up when it’s time to renew contracts, and where we see the most savings.

Carrier loyalty: Single source today, negotiating with current carrier

Typical savings: 5-15%

In this scenario, a brand or 3PL is re-negotiating their existing contract with their current carrier. For example, you ship with FedEx and are negotiating with FedEx. Although there are still some savings to be made, this scenario typically yields the lowest amount of savings in the negotiations we’ve seen.

There is little risk to the current carrier, they know change is daunting and time-consuming, and they already have all of your shipping data. That means they know exactly how much you can afford to spend with them.

Carrier switch: Single source today, moving from one carrier to another

Typical savings: 15-23%

This is when you move from one carrier to another carrier, with the intention of remaining with a single carrier for all of your shipments. For example, you ship with FedEx, and are negotiating a move to UPS. In this scenario, since there is going to be a switch we usually see some higher savings to win the business.

However, since you’re going from a single carrier to another single carrier, you won’t have alternative options when facing steep surcharges or non-optimal rates for a particular zone, weight, dimension, or service level.

Carrier diversification: Single source today, moving to two or more carriers

Typical savings: Up to 30%

This is the scenario wherein we see the most savings. When done properly, you move from a single carrier and being locked in to their rates, to a plethora of choices. For example, you ship with FedEx, then add UPS, UniUni, and Amazon Shipping for various circumstances.

This is the ideal scenario, because different carriers excel at different types of parcel shipments. One carrier might offer fast and affordable ground shipping, whereas another specializes in next-day tracked shipping. One carrier might have better rates for different weight ranges, or for oversized packages. One carrier might be particularly expensive around peak, whereas others don’t charge peak surcharges.

With multiple carriers, you can choose the best option depending on your parcels, geographies, and the customer expectation.

How to prepare for and execute carrier negotiations

Now, in all of the situations above we do see savings. Whether you want to stay with your same carrier, stick to one carrier but a different one, or diversify your carriers, here are some key points to contract negotiation.

Set the stage with context

Paint a picture with the current industry climate and situation at your company. What are the macroeconomic conditions where you’re making your business case? For example, did you just bring on a new supply chain officer because your logistics costs were too high?

You might frame the situation to a carrier as “the brand has been underperforming, so our board replaced a few of our c-suite with a directive to improve EBITDA.”

Build a data-based business case

Analyze your parcel profile, including your shipment mix, volumes, service levels, geographies, and other characteristics.

Identify what the carrier values and dislikes about your business. For example, are your parcels the ideal weight and dimensions for their network? Do you provide consistent volume month-over-month, or do you spike in Q4 and have low volumes in other quarters?

Assess the carrier performance. Take note of any overbilling, missed rebates, or service issues. Have they missed a few pickups? Have they been responsive to your customer support queries?

Finally, understand the carrier’s environment. How is their sector performance? Are you facing any competitive pressure from other carriers?

Use all of this data to formulate your argument. The entire process of contract negotiation is 50% science and 50% art. You need to skillfully combine data analytics, marketing, current conditions, and story-telling to build your case.

Leverage the partnership

Ultimately, you want carriers to be your partners, not a necessary evil. Frame negotiations in a way that puts you and the carrier on the same side. For example, say that you need them to help you be more competitive, to carve away market share from competitors.

Discussions should always be collaborative, not adversarial. Make it clear you need their support to strengthen competitiveness, which will in turn benefit them as well.

Utilize competitive pressure

You may need to highlight the risks of staying uncompetitive, and infuse a perception of risk from their competition. Use firm and respectful language to show the stakes.

For example, you might say; “We’ve really enjoyed and appreciated our long-standing partnership. However, the following things have placed us at a competitive disadvantage in the marketplace. We need to drive savings in this area to continue to grow with you. We’d love nothing more than to arrive at commercial terms to maintain this partnership. If you cannot, you’ll be forcing us to look at alt solutions”

Rethink your carrier strategy to unlock further shipping savings

If you are looking to improve your margins and optimize your logistics, don’t sleep on your carrier strategy. Just moving from one carrier to two in a thoughtful and strategic way can net immense gains.

Use our tips above to negotiate with your carrier(s) when the time comes, and build out your ideal carrier mix carefully for the best prices, delivery speeds, and customer experience.

If you’d like help negotiating these carrier contracts, or finding the ideal carriers for your unique shipping scenarios, contact iDrive Logistics.