July 2005 | Commentary | Carriers Corner: Air, Ocean, Rail, Road Topics

7 Tips for Negotiating Small Parcel Contracts

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Small businesses are the cornerstone of the U.S. economy, representing 99.7 percent of all U.S. employers, according to the U.S. Small Business Administration's Office of Advocacy.

A vast amount of small package freight moves throughout the United States on behalf of these companies, and in most cases, parcel carriers such as FedEx, UPS, and the U.S. Postal Service are employed to ship and receive the goods.

Given DHL's entry into the domestic small package arena this year, and recent rate hikes from FedEx and UPS, now is a good time for companies to revisit their small package contracts.

Many companies make the mistake of dusting off contracts only at the one- or two-year renewal mark. Companies should instead review contracts early and often to ensure they receive the most competitive, market-driven shipping rates.

When a contract no longer aligns with a company's business, re-negotiation is a must. Here are some tips companies can use to master small package service contract negotiations.

1. Review service contracts line by line. Don't assume to know the true meaning of the fine print. If you don't understand the terminology in the contract, seek consultation from the carrier's representative, or from a qualified freight consultant, to help decipher the language.

2. Be aware of "unless otherwise noted." Most carrier service contracts offer incentives for outbound prepaid shipments only—unless otherwise noted. It is the shipper's responsibility to sift through the contract to see if it is, in fact, noted.

Shippers also need to be covered for inbound shipments. Many shippers have receiving departments that receive small package carrier deliveries every day. If a discount isn't applied when shipments are delivered to a receiving department, you could be overspending.

3. Ask for base incentive discounts. Base incentive discounts are usually expressed as a flat percentage discount for each individual package, and vary among multiple, specified weight ranges. These discounts aren't always included in contracts, so shippers must ask for them.

4. Be sure the contract lists all the services your organization uses. This helps ensure that services align with your needs, and are counted toward tier incentive discounts. These discounts are based on the total "weekly rolling average" revenue—the gross dollar volume tendered to the carrier each week—for eligible services only. And, you guessed it—only listed services are eligible.

5. Employ the services of a freight association. If you have a small package shipping budget of $20,000 or more annually, freight associations can be an invaluable resource. With access to cooperative buying power and expertise in contract negotiations, they can help companies save on freight costs regardless of volume or mode.

6. Always employ "positive uniqueness." In addition to mentioning that other carriers want your business, express to carriers the positive, attractive aspects of doing business with your organization. Carriers favor delivery density, air shipments, and heavier package pickups and deliveries. Be your own best advocate.

7. Pay attention to carrier rules tariffs, and know the surcharges. The rules change often, so companies must be proactive. Check carrier web sites frequently to remain current and unaffected by increasing costs.

The carrier contract negotiation process can be confusing and intimidating. Taking control of the fine print, understanding the benefits of the various services, and handling the broad range of rate enhancements is a complex task. But paying close attention to the small print can mean big savings to a company's bottom line.

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