Retailers and Shippers: Friends or Foes

It sounds counterintuitive, but reducing your shipping costs is in the shippers’ best interest. Lower shipping costs allow you reduce prices, your sales increase and so does your shipping volume. As a result, by giving you better discounts carriers increase their sales and total margins.

Shipping contracts negotiation is never a zero sum game. It is a great opportunity to understand the other party’s business and build a contract that addresses needs of both partners. Here is what you need to know to sign a win-win contract with your shipper:

Things that your Account Manager cares the most about
1. Shipping volume
Calculate your annual shipping budget, split it by shipping method (LTL, Small Packages, White Glove) and by carrier. Make it visual, prepare pie-charts for the last year and project a couple of years in the future.

2. Opportunity
Apply realistic (yet aggressive) growth rate and tell upfront what % of your budget you are ready to commit to a single carrier. In my experience, consolidating shipments with 1-2 carriers is a better strategy than shopping around for every single shipment. It gives you more leverage and simplifies operations. Be visual, demonstrate how quickly your company can become a $1 million client for the shipper.

3. Commission
Most of the Account Managers have sales goals. Their commission depends on shipping volumes from the clients. By converting vendors to ship on your account you assign Texas`, North Carolina`s etc revenue to the area where your headquarter is located and directly impact your Manager`s paycheck.

By being upfront about your needs and consolidating your shipments you can frequently get a growth oriented discount plan that would be better than any offer you can get by shopping around for each shipment or from freight forwarders. Not a secret that many carriers practice a discount cap for freight forwarders on 75 % - you can do better!

4. Asset utilization
Online retail is about delivering single orders from point A to point B. Yet many carriers are used to thinking in terms of truckloads and routes. Be mindful about this issue, identify 4-5 major routes (e.g. Atlanta to SF Bay Area, NY to Florida, LA to North East) and approximate number of shipments per month.

Utilization may never come up in the conversation as a concern but having these numbers ready will help your account manager justify your discounts internally. Remember, shippers have a lot of fixed assets (trucks, planes, distribution centers) and utilization is one of the most important metrics.

Things that you should care the most about
1. Discounted price
Be prepared for a complicated discount structure. Typically, it will be a combination of Base and Earned discounts. Discounts may depend on weight band and freight class. To compare offers you need to simplify and drive for a common denominator.

In the Freight Class Demystified article we argued that FAK (Freight All Kinds) is what you should drive for with LTL carriers. For small packages, on the other side, you need to know your typical shipments weight. Unless you already ship on your account and can get weight distribution from your UPS/ FedEx report - use your common sense and select a couple of weight bands you really want to negotiate about. For example, for furniture and fitness products the best discounts possible are the most crucial for 30-70 lbs range.

Once you simplified the comparison - simulate 10-20 shipments from your most important vendors to the most typical destinations. This can be done in 3-4 hours by utilizing an Online Ship Rate calculator (that almost every major carrier has) and applying expected discounts to the public rates.

2. Accessorials
A few things you need to know about accessorials: they are unavoidable and can double your actual shipping cost. Three most important charges are:
  • Residential delivery. Additional charge to deliver to a residence.
  • Liftgate. A charge applied to shipments over 100-110 lbs for using a liftgate mechanism on the truck
  • Fuel Surcharge. A surcharge applied after all the discounts and surcharges.
Best results can be achieved by negotiating lower residential and liftgate rates with LTL carriers. In other cases you just need to be aware of the costs and plug them into your calculation.

3. Your total price
This is the final step to get your expected shipping costs. Take your discounted prices and add applicable surcharges. Total price for each of the scenarios is the ultimate common denominator for the offers you receive from different shippers. Come back to the shippers and tell them where they need to be in order to win you as a customer.

In conclusion, I have been lucky to work with very bright and patient account managers at FedEx, UPS and Roadway. Together we achieved great results both in terms of discounts and shipping volume. If you would like to explore how this great relationship can help you reduce your shipping costs and help grow your business - send an email or give me a call.

Good luck and have fun!

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