Carrier Contract Negotiation

What You Need to Know

As a business owner, you’re probably familiar with how much the cost of shipping affects your business. For most retailers, shipping and transportation costs can account for at least one third of the budget, which is why it’s imperative to research and understand every aspect of carrier agreements before signing to ensure you’re saving the most on shipping.

Navigating shipping contracts can, at times, seem a bit intimidating and even time consuming. Contract management, negotiation and renegotiation has the potential to be a lengthy process, however, most customers often go in thinking they have already negotiated the lowest price and sign contracts without digging deeper to see if they can save more.

This is not surprising – considering many carrier contracts are riddled with confusing language, underlying clauses and other minute details that go unnoticed.

Carrier contract negotiation is essential to keeping control of your business’s shipping costs, and as a valuable customer, you have the advantage to review and renegotiate with your provider so you continue to get the best prices.

We’ve put together a guide to help you understand the full process of negotiating and managing your carrier contracts.

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The E-commerce Shift

It’s no secret that our world runs on the Web. Online shopping has quickly become the preferred method of many consumers, with Amazon as the frontrunner. Amazon’s rapid ascent to the top of the business world has greatly affected the way shipping providers do their business. Each day 20 million Amazon orders are placed, with most needing to be sent out within a 48-hour timeline.

Even if your business is primarily brick and mortar, it’s important to recognize how the trend of online shopping and e-commerce has changed the game. More online purchases leads to more items needing to be sent out. As competing businesses focus more on fast delivery times and more compact packaging, all types of freight shipments are becoming more costly. Which, in turn, has made negotiating carrier contracts arguably more important than ever before.

Break Down the Contract Step-By-Step

Whether you’re negotiating a current contract or shopping around for a new carrier altogether, the first step is to review all pertinent information: fees, services, delivery times and schedules, and packaging options.

It’s helpful to ask yourself the following questions while negotiating your contract: Are there discounts or reductions in relation to surcharge or base payments? What are the services included? Are there any guaranteed refunds should there be a service issue?

Creating an airtight agreement with your sales rep is vital before moving on to any specifics within your contract.

Getting to Know the Fees

Whether you use FedEx, UPS, DHL or any other provider, learning what fees will be applied to your shipments can make or break your agreement. Oftentimes, a lack of understanding of hidden or standard fees can result in unwanted price increases that can throw off your budget.

These surcharges, or value-added service fees, may not show up in your initial contract. In order to get an accurate assessment of these fees, it’s best to consult your provider’s current guide so you can remain aware and avoid paying up to 50% over your original or proposed rate.

Some of the more common fees to look out for are:

  1. PALLET FEES – Pallet fees are best avoided by providing your own pallets, rather than using carrier-owned, or shipping out items that don’t need to be loaded onto a pallet.
  2. COURIER AND DOCUMENTATION FEES – Keep an eye out for these fees on your invoices. They may not always be included in transportation agreements.
  3. GENERAL RATE INCREASE (GRI) – Carriers update their base rates yearly, however, some companies fail to relay that information to customers until after their shipment has been booked.
  4. CARGO READY DATE (CRD) – Be sure you’re aware of the date you set with your provider for transport of goods. If your items are not prepared for shipment on that day, it can lead to delays and with that, more fees. To avoid paying hundreds more than originally planned, make sure you solidify the CRD before signing.

It’s More than Just the Price

Shipping rates and pricing may be the most important thing to consider when negotiating carrier contracts. Take into consideration the other factors that may impact the price of your shipments. Freight class, density of shipments and minimum charges are some of the things you’d want to optimize for your contract.

Efficiency of your provider is also vital to your negotiation. Perhaps your chosen provider isn’t as reliable as you would like, even though the pricing fits in your budget. A reliable carrier is certainly worth adding a few extra dollars onto your investment.

All of this information may seem like a lot, but that’s why we’re here! The expert analysts at LJM work hard to find even more savings in your current or proposed agreement. As former pricing managers, our analysts make sure you stay in the know and help you optimize your agreement so you can bring in more profits to your business.

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