Mistakes to Avoid When Negotiating Your Next Shipping Carrier Contract
Having negotiated thousands of parcel agreements over the past 22 years — on both sides of the negotiating table — I've seen countless shippers make negotiating mistakes resulting in overcharges into the hundreds of millions! I'm going to share several common mistakes I've seen so that YOU benefit in your next parcel contract negotiation.
* Poor preparation. One of the biggest mistakes I see repeatedly is shippers coming to the negotiation table unprepared. Very often carriers know more about a shipper’s distribution than the shipper. This isn't surprising since the carriers “own” your shipping data.
However, there are many useful sources of information you can use to prepare for a negotiation. At a minimum, analyze invoice or manifesting data to better understand your transportation and accessorial costs, services used, weights, dimensions, zones, international destinations, and other package characteristics.
Unless you do your homework, you might as well not show up to the negotiating table. Apart from losing credibility in the negotiation, you give the other side an unfair advantage.
* No benchmarking. An important component of preparation is the effective use of benchmarks. Benchmarks provide data points from other companies for comparative purposes. For example, imagine going into a negotiation knowing that you were being charged 20 percent more than three out of four shippers with similar spend and package characteristics. How much better prepared would you be when your carrier rep says, “You’re getting the best deal in our district”?
* No formal tool for procurement. Many parcel contracts are negotiated outside any formal process, often leaving money on the table as a result. Formalizing requirements and pricing requests in a request for proposal (RFP) or other bid process can lead to significant savings.
By their very nature, RFPs enhance leverage by creating a competitive bid environment in which both the incumbent and nonincumbent carriers see the same set of facts. The RFP process allows shippers to control the negotiation, request target pricing of both transportation incentives as well as accessorial concessions, and establish requirements including terms and conditions.
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.