As a shipper, you need all the discounts you can get to keep costs down. Both UPS and FedEX offer additional discounts to shippers to entice them to remain loyal customers. UPS will send a negotiated quarterly rebate check as a percentage of a company’s overall transportation expenditures. This form of a rebate is also known as “deferred tier threshold agreement.”
The benefits of deferred tier incentives
The positive impact to shippers is extra discounts in the form of quarterly payments. This could be a huge added bonus for shippers that chargeback shipping costs to customers. Not only are the customers covering the shipping cost, but now the shipper is receiving a financial return from the shipments.
UPS sees incentives as a way to retain customers and secure their long-term loyalty. Their logic is, “If you have a decent incentive/discount agreement with UPS, why risk moving to a different carrier?” However, there are a few problems with these discounts that you will find written in the fine print.
The fine print
Customers must be aware of the five words UPS likes to add to these rebate agreements that will strip away most savings, “subject to all applicable minimums.”
For example, let’s say a shipper has a 5% deferred tier incentive and spent $200,000 in net transportation freight charges. If you don’t take into account the verbiage “subject to all applicable minimums” the rebate would be $10,000.
Now let’s factor in how minimum charges could impact potential savings when applied. If a shipment is subject to the 2018 Ground Minimum Charge of $7.32 (Zone 2, one-pound package), it’s excluded from rebate consideration. That means if 50% of all charges are minimum charges, the eligible revenue and rebate are also halved. The shipper would receive a $5,000 rebate instead of a $10,000 due to minimum charges that are slid discreetly into agreements.
The Share a Refund solution
Carriers want shippers to believe they are getting the best rates, but the fine print always tells a different story. UPS and FedEx use these rebates to help avoid deeply discounting their service-level and accessorial charges. Discounts aren’t necessarily a negative thing, but shippers will want to verify that the amount of the rebate is greater than the impact of any other negotiated rates that the carrier could offer.
Let contract optimization experts with years of experience in the industry analyze your current transportation spend. Share a Refund optimizes your contract for long-term success without you having to spend long hours in the process. Minimums and discounts can all be negotiated to secure the most favorable rates.
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