Parcel Contract Negotiation

“Last mile” in supply chain management is a product’s last step of the delivery process from a warehouse to the customer. It’s how and when a package finally arrives at a shopper’s door. In addition to being a key to customer satisfaction, last mile delivery is also the most expensive part of the process. Customers are only willing to pay less than 2%* of what of that last-mile delivery cost. So what does that mean for the seller? The seller is left to absorb that cost. This may be necessary in order to retain customers, but there is way to lower that shipping cost by working with a parcel carrier to lower the cost of shipping through Parcel contract negotiation.

Parcel contract negotiation can be complicated, but the payoff is well worth it. Before you attempt to delve into this realm, there are a few things that need to be thought through. Understanding parcel carriers and their pricing agreement language is critical when it comes to negotiating. Being full prepared with knowing what you want and what’s possible will give you the leverage you need to begin bargaining with parcel carriers.
Below are tips to help you take control of your shipping spend through parcel contract negotiation.

Parcel Contract Comprehension

Begin with understanding your goals, needs and current costs. If you have an existing contract, the first step is to examine the agreement to identify
• Create a list of terms of the agreement, and assess whether your carrier is complying with everything that’s been promised. Knowing where your carrier isn’t meeting expectations will give you the leverage in negotiating,
• Understand all carrier fees. There can be hidden fees within the invoice which can be referred to as Value Added Services, Optional-service Fees or Surcharges. These fees are negotiable and subject to discounting, or even being eliminated altogether.

Know your Options

Carriers rely on shippers becoming too reliant on them. Keeping carriers on their toes by having an alternative option for getting packages delivered is smart business.

• Investigate carrier options beyond FedEx and UPS. In addition to the US Postal service, there are regional carriers and consolidators that can offer lower rates and faster service.
• Utilize multiple carriers to achieve better pricing.
• Use benchmarks and rate quotes from smaller carriers for added leverage when pursuing contract negotiations with the “big two.”

The Art of Negotiating

Approaching your parcel contract negotiation requires a delicate balance confidence, knowledge and diplomacy. The way you approach it will have lasting effects on your relationship with your carrier.

• Act in the best interest of your company’s bottom line, but be ready to make concessions.
• Look beyond just cost and consider other factors, such as the level of customer service from a carrier, how its technology integrates with yours and the collaboration they offer to help improve efficiency.
• Be ready to compare the prices and services being offered to businesses similar to yours.

We all want to get the best possible price on any product or service. And, like any negotiation, you need to be prepared with the insight to maintain a firm negotiating position and understand carrier negotiating tactics. Prepare yourself for parcel contract negotiations or re-negotiations by doing your research, knowing what you need and knowing what’s possible. With the right negotiating tools and knowledge, you’ll be prepared to optimize your carrier contracts, lower shipping spend and increase profits.

*According to Statista https://www.statista.com/statistics/973182/last-mile-delivery-average-cost/