8 Ways to Use Parcel Carriers’ ‘Cost to Serve’ Pricing to Your Advantage

Just about every day, a shipper asks me what FedEx or UPS incentive they should be achieving for their specific spend level. But it doesn't work that way. While overall volume and revenue certainly play a role in pricing, the discounts you get from UPS and FedEx are largely based on their understanding of your distribution footprint and package characteristics, which are directly tied to the carriers’ "cost to serve" pricing models.

Package profiles that are relatively easy to handle are priced more competitively than those in which the carrier is likely to incur additional costs. Revenue management teams at FedEx and UPS have become quite adept at understanding just how much it costs the carriers to move a customer's packages through their networks.

While a shipper might not be able to make dramatic changes to its package characteristics, there are several ways to lower your cost profile in order to obtain deeper discounts from FedEx and UPS. Start by asking your carrier rep what changes you can make. In addition, here are several suggestions:

1. Limit the use of 1-800 call centers. The majority of call-center inquiries are to track packages. Minimize the use of this high-cost center by using online and carrier-provided software tools for package tracking.

2. Reduce claims. Ensure proper packaging to minimize damage claims.

3. Consider service guarantee waivers. Do you file for late delivery credits? Quantify how much you're actually getting back on an annual basis. It's probably not much. Some shippers find it advantageous to secure deeper incentives up front in lieu of the service guarantee.

4. Use third-party automation. How much is your "free" shipping system costing you? The more automation deployed throughout your organization, the higher the cost to serve. Plus, most of the carrier-provided systems don't allow shippers to rate shop with other carriers. The carriers also offer online tools to process shipments.