Don’t Overlook This Important Step Prior to Holiday Shipping
This time of year, e-tailers are finalizing preparations for seasonal sales spikes. Efforts have included everything from stockpiling inventories to bolstering the labor force. However, one important and necessary action many have overlooked will contribute to higher costs and lost profits.
Has your organization recently negotiated better shipping discounts with FedEx, UPS and other parcel carriers? If you haven't — and based on Shipware's research that includes most of you — it could cost your organization tens of thousands of dollars (or millions for larger operations) through the holiday season alone!
If you're like most shippers, two thoughts are stopping you:
- you believe you already have good discounts in place; and
- the holidays are already upon us — you don't have time to work out a new contract.
As an outside consultant who has analyzed parcel contracts every day for the past 25 years — on both sides of the negotiating table — you're likely spending more than you should. Nine out of 10 parcel contracts can be improved by 10 percent or more. This is based on direct experience having worked with hundreds of large shippers.
It's not too late to make changes to your parcel contract over the next three weeks to four weeks in order to have new, lower rates in time for Thanksgiving. The process can take as little as a few hours, and new, lower pricing can be coded in as little as a week!
So, how do you get FedEx, UPS and other parcel carriers to improve your pricing, and to do it quickly?
Use your business and pending volume as leverage. FedEx and UPS want your seasonal business. They're typically willing to concede small contract improvements than risk losing business to competition. And minor changes can have significant impact.
Before sitting down at the negotiating table, invest a few minutes to analyze your parcel invoice data to better understand service usage, expenditures, accessorial charges and other variables. The objective of this analysis is to develop a list of opportunities and priorities to be negotiated to generate the greatest cost savings impact.
Identify the number and cost of add-on fees for residential deliveries, extended areas, fuel surcharges, weekly service fees and other handling charges. There are more than 100 of these "accessorial" charges that comprise up to 30 percent of overall shipping costs.
Quantify which surcharges have the greatest cost impact on your business and target those for waivers or reductions. In addition to pursuing lower accessorial charges, of course, try for better overall discounts and contract terms.
An effective way to gain leverage is to meet with your carrier's competitor. Ask for competitive pricing and find out how quickly it would be able to install manifesting automation and scheduled pickups.
If that option isn't available, at a minimum search the web for available parcel pricing benchmarks to get a better sense of the range of discounts that others have negotiated and what might be available to you.
Armed with your distribution analysis, relevant benchmark data and a proposal from your carrier's competitor, schedule a meeting with your carrier sales representative.
Share with your rep the information learned from the parcel analysis, especially those areas of greatest spend and accessorial impact. Ask for his or her commitment to help achieve your cost reduction goals, even if only temporarily during your highest volume shipping season. Make the focus your company's bottom line and not the carrier's margins.
If nothing else, seek generic relief. For example, request a 5 percent overall rate decrease, even if only temporary during the holiday peak.
Most FedEx and UPS agreements include revenue-based incentives. FedEx calls them "Earned Discounts" and UPS refers to them as "Portfolio Tier Incentives." Essentially, the greater the threshold of spend, the higher the discount.
Your carrier may be willing to extend the uppermost discount for a "grace" period regardless of attained revenue thresholds. Your business gets the highest discounts for as much as half a year, and you don't have to renegotiate your contract.
In addition, UPS shippers can pursue a rebate — UPS calls it a "deferred tier threshold agreement" — in which UPS will write your company a quarterly check as a percentage of your overall net transportation expenditures.
And if your rep is still not taking you seriously? Start a trial with their competitor. Nothing gets their attention quicker than seeing packages routed to the competition.
A few words of caution: Don't rush into a bad deal that provides short-term relief but long-term rate increases. Also, avoid signing any agreement that includes "early termination" or other penalties.
As a negotiation "give back," consider temporarily waiving your right to file money-back claims for late deliveries. Service guarantees are suspended the two weeks prior to Christmas anyway.
In summary, as your business prepares for top-line revenue growth this holiday season, don't overlook opportunities to improve your bottom line. A $100,000 decrease in operating costs is the equivalent of $1,000,000 in sales for a company operating on a 10 percent margin.
As always, let me know if I can help!
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.