Mistakes to Avoid When Negotiating Your Next Shipping Carrier Contract
* Overreliance on current carrier. Shippers need to realize that their need to reduce costs and a rep’s desire to earn higher commissions are conflicting motivations. Carrier reps are compensated, evaluated and promoted in part on their ability to sell your business at the highest margins possible. If you’re relying solely on your rep to act as your “advocate” within the carrier pricing departments, you're likely overspending.
One of the worst negotiating mistakes a shipper can make is to exclude the nonincumbent carrier from contract discussions. The single best way to reduce costs is to leverage competition. With no threat of losing your business, what's a carrier’s motivation to lower costs? In fact, shippers that routinely shift between and/or split their business with both carriers get the best pricing.
Carriers commonly classify pricing requests into one of three sets of customer types:
- retention, whereby the carrier gets the majority of the available business;
- penetration, where the carrier already gets business but there’s opportunity to gain additional volume; and
- conversion, where the carrier has no or little presence.
Guess which customers get offered the deepest discounts? Conversion customers (i.e., shippers that give a carrier the least business). If you primarily use only one carrier and it’s been years since negotiating your agreement, there’s a good chance your loyalty is being unrewarded. Remember, if your goal is to reduce costs, your best friend during carrier negotiations is often the other carrier.
* Ignoring the fine print. Many shippers spend too much time focusing contract negotiations on driving deeper incentives and ignore terms and conditions. Terms are equally as important as discounts in driving cost savings. Moreover, many incentives are mitigated due to terms like minimum shipment charges, general rate increases, accessorial charges, late payment fees and other contract gotchas.
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.