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Reliability vs. Reality “Just the facts”

by LJM Group

Carrier contracts are confusing, intentionally. What you see in a contract is not always what you’ll be getting. While there is no “standard” Carrier contract, the complexity of contracts is used to a Carriers’ advantage. With varying combinations of factors that determine rates and discounts, the contracts are designed to charge prices that are higher than necessary, and of course in favor of the Carrier. And, once a contract has been signed, you’re locked in. This may sound like it gives you the upper hand and can be used to your advantage, but changes within the industry and within your shipping profile happen all year long, and a contract will remain the same unless the initiative is taken to renegotiate.

There are several key areas to pay close attention to that will affect what it actually costs you to ship.

General Rate Increase (GRI)

As you know, the GRI is the annual announcement from parcel Carriers regarding the impending average increase in their rates for the coming year. These rate increases aim to strategically increase margins for Carriers while driving shipper behavior to their advantage. They usually start at 4.9% at minimum before other factors are determined, but this year FedEx announced a 5.9% GRI, which will be the bare minimum for most shippers. Though shippers are aware that this yearly increase is guaranteed to happen, there’s not much they can do to prepare ahead of time, other than staying informed of their own shipping portfolio, hence having leverage for renegotiations.

Accessorial Charges

Individual parcel shipping rates can rise far more than the GRI. Accessorial charges are additional fees, including fuel surcharges, added to a shipper’s invoice for services performed beyond the standard procedures needed to pick up and deliver a shipment. The charges can be a fixed fee or time-based. These unknown and unpredictable fees will have a direct impact on a shippers’ bottom line because they are likely not budgeted for or figured into the cost of delivery.

Guaranteed Service Refunds (GSR)

A GSR insures the delivery of a parcel shipment within the designated service level with a money back guarantee if service is not met. If a package doesn’t arrive within the service level criteria, the Carrier is expected to reimburse the total or partial cost. These refunds are not automated. In fact, shippers first need to make sure their contract states eligibility of a GSR. They would then not only need to be alerted of the late delivery but would need to request the refund for each individual late delivery. March of 2020, UPS and FedEx suspended their money-back service guarantee due to the impact of COVID-19. In April 2021, they reinstated their service guarantee only on select services. Without the GSR, shippers are clearly losing out.

Base Rates

Base shipping rates are calculated by shipping zone, time of delivery and dim-weight. The further the distance between origination and destination, and the heavier the package the more it will cost to ship. This is one of the key aspects of a contract to consider when negotiating rates. Carriers have their published rates and will offer custom, but it’s important to know where discounts will be applied and which type best suits your company’s shipping profile. A Carrier may offer an attractive rate for zones with less volume and a less attractive rate for zones with higher volume, therefore close examination and a full analysis is always required. Remember, what you see is not what you always get.

While there is no standard calculation for determining shipping rates, and Parcel Carriers are always changing the rules, the best line of defense is to negotiate for your specific shipping patterns and constantly monitor your spend. While the Carriers may think they have all the control, always remember that knowledge is power. LJM Group’s Pricing Expertsknow the business better than any shipper. Available at your disposal, they will empower you with the insight and intelligence necessary to reduce your Carrier costs.

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