Small Parcel Contracting

Small Parcel Contracting

by LJM Group

For ecommerce companies, shipping small parcels to customers and managing small parcel contracting can be a challenge that outweighs the parcel size. It’s no secret that the cost of shipping small parcels continues to rise.

Over the past few years, UPS and FedEx have increased costs by approximately 5% each year, varying by delivery zone and weight. In fact, during the past 12 months there have been no less than 10 rate and surcharge changes.

Managing these small parcel shipping costs is critical because they directly impact a business’s bottom-line. Though it’s not as obvious to customers, these costs directly impact them as well, through the higher prices they pay.

What can you do to better manage your small parcel contracting?

Don’t miss the opportunity review and renew your contracts.

Many companies make the mistake of only reviewing contracts at renewal time. Just as Carriers change pricing a few times a year, ecommerce companies can, and should, review contracts just as often to make sure they are receiving the most competitive shipping rates.

Also, as part of parcel contracts, the quoted rates can change at any time—unless you negotiate.

Small parcel contracting can be complicated. For example, with at least 200 different fees that FedEx and UPS can charge, it’s difficult for shippers to understand what they are being charged, and when, and why.

As noted above, the Carriers may be permitted to change rates at any time, as part of your contract.

One especially troubling category of fees that you need to pay attention to when negotiating small parcel contracting is accessorial fees, otherwise known as fees for services beyond regular pick-up. These fees can include address corrections, surcharges based on delivery areas, large package surcharges, and something called “overmax,” a fee charged for package weights of 150 pounds or more.

Overmax fees have skyrocketed in the past few years by almost 675% — to an average of $850 for an individual package. Accessorial fees make up the largest percentage of the total freight cost in small parcel shipping, as high as 50%, and these fees can change often and quickly.

As shippers, you can’t control Carrier rate increases, but you can control your small parcel contracting. The solution is a three-step approach:

  1. Analysis: Obtain a thorough understanding of your Carrier contracts. Know what you’re being charged and what you want to be charged. Determine if you’re being overcharged.
  2. Strategy: Select a single or multiple parcel Carrier based on your unique and specific needs.
  3. Execution: Make sure contracts are optimized.

Prepare for parcel contract negotiations or re-negotiations by doing your research.

Understand what you need and what is possible. Start with a contract analysis and you’ll be on your way to optimizing your Carrier contracts, lowering your shipping spend, and increasing your bottom line.


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