Just declared a pandemic by the World Health Organization, COVID-19 is affecting all of our lives in one way or another, even if we aren’t facing the disease directly — from canceled trips to postponed events to working from home.
Our economy is certainly being affected by the disease, but for companies whose livelihood depends on shipping, the challenges are even more daunting. Now is the time to plan and prepare to protect your business.
COVID-19 effects on your carrier contract
The law of supply and demand, as well as common sense about human behavior, suggests that big-box retailers of staple goods and household products will see substantial increases in sales, while smaller, specialty sellers will experience a decrease in orders because they lack the resources of the larger chains to acquire and distribute goods efficiently. As quarantines and seclusion sectors occur, these larger retailers might put even more of their resources behind online sales, enhancing their advantage.
In this situation, the smaller shipper will likely encounter even more of the challenges they already face today in competing with larger-scale companies. Fewer orders will mean fewer shipments and a lower carrier spend, in turn resulting in significant drops in their earned discount or volume incentives with their carrier.
Carriers often call these earned discount tiers your incentive discount tier because they’re designed to encourage you to maintain particular volume levels. We’ve already shared with you that pricing tiers aren’t necessarily the be-all-end-all of your parcel spend, but you can work with your carrier to limit the effects of COVID-19 on your tier status.
How to address COVID-19 with your carrier
There are several steps you can take to hold COVID-19 shipping costs down immediately and in the future.
- Contact your carrier now.
Be proactive and don’t wait for a line of other shippers to form. Get a plan in place to mitigate your risk. The carriers will respond much better before panic rules the day.
- For the remainder of 2020, request that your carrier freeze your earned discount tier to the discount tier that you worked together to target during your recent carrier contract negotiations.
During this time of economic uncertainty, shippers and carriers will need to work together to endure the complexities linked to COVID-19, but waiting is not to your advantage. When you ask for this, expect your carrier rep to push back and tell you not to worry. While panic isn’t necessary, this is an area in which you should hold firm. Insist that they consider locking in your discount for the rest of the year and suspending all possible shipment minimums tied to your discounts so you can have some certainty in your shipping costs. Even a small swing in your discount could blow your budget.
- When the crisis has passed, investigate new pricing structures with your carrier.
In a perfect world, shippers should look for pricing that eliminates pricing based on committed volume and let a free market prevail based on real-time competitive pricing and exceptional service standards instead. No one likes to be surprised when things go south, but being prepared helps with the anxiety and allows for planning.
- Watch for COVID-19 to become an exception.
Like natural disasters can cause carrier delays (service failures), COVID-19 could start affecting service levels. Will the carriers consider COVID-19 an allowable exception? It’s unclear at this time. Carriers could also suspend premium services that require drivers to interact with the public in affected areas, like signature-required service or white-glove delivery.There is an opportunity for goodwill to prevail here on both sides, but it will likely be contingent on the carriers’ ability to not act from a position of power as is too often the case in their approach to uncertainty. Watch for service issues carefully by ensuring you’re signed up for alerts via your carrier’s website.
Don’t panic — just prepare
The time to pause and contingency plan is now. Notice I didn’t say to put your emergency plan into action. The shipping world is already feeling the impacts of this pandemic — the National Retail Federation said they expected imports to drop 13% at U.S. ports. Spend the time now to imagine the potential impact of COVID-19 on your business and protect your bottom line by making smart decisions about your shipping.