When multichannel marketers negotiate with parcel shipping companies, who has the advantage: carriers or shippers?
Current market dynamics make today the best time to bid your business. Recent earnings disclosures by FedEx and the United Parcel Service indicate a slowing or decline in their domestic parcel businesses, making them hungry for new business and willing to fight to keep existing accounts. Slow domestic growth rates in the transportation industry means promoting competition among parcel carriers is a winning strategy in managing your shipments for lower unit costs.
Carriers’ Upper Hand
However, initiating a competitive bid process in today’s parcel environment is a complex process where carriers have a distinct advantage that must be overcome to force transportation costs down. Is it the right strategy for you?
First, consider why carriers have the advantage when it comes to negotiating. They’ve made the rules and set the structures. It’s their game. Their complex rating structures and fees were born out of the carriers finding ways to make money by having the inside track on all costs involved. This gives them a better understanding of the “cost to serve.”
Consider the following contractual structures that have evolved in recent years:
1. incentive and penalty revenue tiers tied to volume commitments;
2. prices that are based on rolling volume averages;
3. zone-based pricing;
4. per-piece minimums;
5. “base-plus-tier” additive percentage structures;
6. bundling of different services for discount determination; and
7. increasing complexity of assessorial fees.
Of course, none of these seven structures were developed by a shipper. They’re all tactics geared toward protecting the revenue needs of carriers.
The Information Gap
Second, carriers have more data about each shipment than shippers do. Those scanning devices couriers carry are more than just a way to capture transit information and proof of delivery signatures. The information these devices gather provides valuable insight into the cost of delivery for each individual package. It shows the following: