Pro Tips for Negotiating your Carrier Contract
A friend of mine was ready to get a new car recently and was dreading it — managing all the details of the deal, going back and forth with the sales rep, and staying on high alert for anything shady. Ugh.
Most of us hate the car-buying process because it makes us feel out of control. The sales rep holds all the cards because they have more information about the deal than you. Sure, the internet has leveled the playing field, but the power structure is still way off.
Your contract with your carrier is not really that different than buying a car. You think about your contract once a year or so (or maybe you don’t even remember the last time you negotiated it), but your carrier rep is thinking about contracts every minute of every day. Meanwhile, your focus is on your business and your products. You’re always going to be at a disadvantage.
Negotiating your carrier contract
Carrier service proposals can be up to 15-20 pages of excruciatingly detailed figures and formulas that would overwhelm almost anyone. But by looking at some key areas, you can start to put yourself in the driver’s seat of the negotiation process.
- Minimum Tiers: Some shippers I work with sometimes seem downright obsessed with their pricing tier. “If I could just get to the next tier, my costs would go down,” they tell me. But most of the time, tiered pricing is not the cost saver they anticipate. That’s mostly because your rep is presenting you with tiered pricing that’s customized to your business — so they’ve already set up the tiers to benefit their bottom line instead of yours. This is a simple point to negotiate, but be careful — it’s not the only place you should be looking.
- Additional Handling Surcharges (Weight/Size/Packaging): We can’t really caution you about these pesky surcharges enough — they pile up in the blink of an eye. Depending on what you sell, they might very well be unavoidable costs, so take a hard look at the cause of these surcharges in your business and negotiate to lower them based on your typical shipment characteristics.
- Dimensional (DIM) Weight: Often confused with additional handling surcharges, this charge is hard to track for most shippers. In essence, the dimensions of your packaging can bump your shipment into higher weight tiers and cost you more. Carriers prefer small, dense boxes that maximize the number of packages they can get in each vehicle. So to make sure they don’t miss out on revenue, they have the formula to calculate the space a package will take up (called the DIM weight), and they’ll charge you the greater of your actual weight or your DIM weight. If you see a lot of this charge in your carrier reports, work to negotiate a lower rate.
- Delivery Area Surcharges: You can’t help where your customers are located, but you can negotiate the flat fee you’re charged when you’re shipping to one of the ZIP codes on the FedEx or UPS delivery area surcharge or extended area surcharge lists. Don’t get too excited, though — these lists grew by about 10% for 2020, so you might still end up paying more overall. Both UPS and FedEx also increased the cost of this surcharge for 2020 on top of adding more ZIP codes, making this an even more valuable point to negotiate.
3 more ways to negotiate with your carrier
Here’s the most important thing to remember about your contracts: You must understand your own shipping profile to effectively negotiate. How you negotiate should hinge on your unique business, your products, and the customer experience you want to provide.
After you look at the areas above and any others that affect your particular business, it’s time to do some big-picture thinking.
- Keep the net impact in mind. It’s easy to get lost in the hundreds of tiny details of a contract proposal or to be stubborn about getting a discount on a certain rate or charge. But don’t get too aggressive on one point because you might lose big on another. Keep the overall deal in mind and make sure you’re carefully weighing the impact of each contract component.
- Review often and shop around. If you don’t stay up to date on changes from your carrier or negotiate your contract annually, you could be paying too much. If you’ve been with one carrier for many years, see if you can get a better deal elsewhere. But make sure you’re using your own shipping data to evaluate your options, not just estimates.
- Find out what others are paying. You can’t Google what other shippers are paying, and you can’t rely on the GRI as an indicator either because rate increases affect every business differently. Your best bet is to find a tool to help you benchmark what shippers like you are paying so you can be sure you’re getting the best deal.
Much like you wouldn’t show up to a car dealership looking for a minivan and let them sell you a two-seater, it pays to know what you need before you negotiate your next carrier contract. If you arm yourself with data and better understand the ins and outs of the process, you’ll be better prepared to negotiate like a pro.
If you’re concerned you’ve been missing opportunities to save on shipping costs, check out our white paper, Five Big Shipping Mistakes Your Company Is Likely Making, for some more tips.