Your business is fully capable of negotiating a better contract with FedEx or UPS. You’re likely reading this whitepaper because you’d been confronted by a shipping expert, who has proposed a contingency based consulting fee for renegotiating your contract and are confounded by the thought of paying an ongoing consulting fee for a one-time service. Divergent to what you may have been told, you can successfully negotiate your own carrier contracts with a bit of information and guidance through the process.
The intent of this whitepaper is to provide you with a playbook on how to successfully renegotiate your own carrier contracts, without the need of an outside consultant.
Getting started
Defining the gaps between carrier contract renegotiation consultants and your internal resources gives rise to the tools and information required for you to execute a successful contract renegotiation.
- Lack of negotiation skills is not the issue. As a seasoned business practitioner, you have the know-how to win.
- Lack of analysis is the issue. Your company likely pays carrier invoices with little regard to component parts or adherence to contractual obligations. The reason is simple, carrier agreements are complicated and invoicing is complex.
- Lack of guidance is the issue. You know you want to pay less, but there’s no playbook on what to look at, what to say or what is reasonable for discounts, incentives and prices.
Workflow
A standard procedure to follow in executing a renegotiation involves the steps detailed below.
Step 1: Collect carrier agreements and pricing agreements
These will be used to determine what data is important to collect from historical shipping information.
Step 2: Develop a shipping profile from recent activity
Download all recent shipping activity from inside your shipping account from the last several invoices. Use several invoices to normalize data. Go through each section in the carrier agreement and write in the numbers based on recent activity. Some examples below provide direction on the type of analysis performed. Share A Refund contract optimization experts can assist you in configuring an operational plan and negotiating contracts.
Define frequency, total and average cost by service type.
Example:
Service type: UPS 2 Day shipments.
Frequency: 182 shipments
Total cost: $4397.12
Average cost: $24.16 per shipment
Define frequency, total and average cost by weight distribution.
Example:
Service type: UPS Ground
Weight range: 6 to 10 lbs
Frequency: 1,238 shipments
Total cost: $11,482.00
Average cost: $9.27 per shipment
Step 3: Evaluate carrier and contract performance
Using your current agreement and historical information the frequent shipments and services types are apparent. These will be the key points of discussion with your shipping rep.
Step 4: Define targeted discounts, incentives and pricing schedules
Here is where benchmarking data shines. Knowing what other companies with a similar shipping volume are paying helps to deliver tangible numbers more quickly. If you don’t have access to such data, relax. The Share A Refund team can supply this information or you can use the examples in the key points to negotiate sections defined below to approximate discounts and incentives based on your shipping profile.
Write on your current carrier contact the numbers that you expect within each section. This information will be sent back to the sales rep for your existing carrier as part of the request for quote step defined below.
Step 5: Submit the request for a quote to carriers
Send your existing carrier the agreement with your markup and notes. This will help focus the discussion and cut through much of the imminent sales tactics.
Send inquiry for a request for quote to other carriers. Eventually, you’ll provide your recent shipping activity reports for review to prospective carriers. No need to send your existing carrier agreement to non-current carriers at this point in the process.
In discussions, you will want to tell each carrier that you are receiving quotes from several carriers. This will help edge up the discounting quote.
Step 6: Revise the pricing agreement and ask for estimates
Revisions are always required. The largest cost-centers are the biggest point of concern. This will be apparent from the analysis in step 3 which determined the largest volume shipment and service type packages for your shipping profile. The key tips for auditing carrier agreements defined below are also a good resource for focusing the discussion of revisions. Revise the pricing agreement until targets in your operational plan are achieved.
Key tip: Don’t fight for low-level cost centers. There’s little economic advantage is getting a bigger discount on 2 Day AM as a service type if there’s no volume. Focus.
Ask for estimates. Based on my recent shipping history, what would be the weekly spend on shipping based on a revised agreement? Tell the carrier that you are asking for similar numbers from the other carriers. Without benchmark data, you’ll be unable to compare cost components for a new carrier, however, the cost total can be compared between carriers.
Step 7: Ensure key features are included
Check the tips section below and include any clauses that are recommended within in your contract. If these features are not included, go through another round of revisions.
Step 8: Execute a contract
Showcase the expected savings from the newly penned agreement.
Step 9: Monitor performance
Actively checking for savings based on the renegotiation is advisable, especially initially after signing a new agreement. The total spend and cost per package should be lower relative to the volume of shipping activity. Share A Refund team can ensure carriers are abiding by the new implemented rates.
When to renegotiate
There’s never a bad time to renegotiate. In fact, renegotiating every year is generally a good idea. The points of consideration defined below provide more insight on the timing of renegotiation.
- Renegotiate when discounts are expired or expiring. Custom Dimensional Weight Divisors, for example, typically expire within a year of signing a contract with UPS.
- Renegotiate if a formalized request for quote process, as defined in the workflow above, was never executed. Engaging in this process derives better discounts and incentives from your existing carrier.
- Renegotiate if you are paying list rates on any of the items discussed in the tips section defined below.
- Renegotiate if you are far off from the example discounts provided in the key points to negotiate section defined below.
Read more: Four mistakes to avoid during carrier agreement negotiations
Key points for renegotiating UPS contracts
The example below is based on $1M per year ($20,883 per week) spend.
Review the key points to negotiate for UPS agreements.
1. Get better incentives for the following:
- Packages for highest frequency weights and zones
- Example: 24.35 to 29% on Zone 1 for 31 – 150 lbs
- Residential Delivery Surcharge
- Worldwide Express Package and Pak
- Worldwide Express Saver Package and Pak
- Worldwide Expedited Package
- UPS Standard Transboarder
- UPS Standard (US – MX)
- UPS Worldwide Express Import FC
- UPS Worldwide Express Saver Import FC
- UPS Worldwide Expedited Import FC
- UPS Standard Transboarder Import FC
- UPS Standard (US – MX) Import FC
- UPS Ground – Dimensional Weight
- Custom Dimensional Weight Divisor
- Type: N-GND Dim WtKWVLF
- Example: 225
- Type: Type: N-GND Dim WtKWVMF
- Example: 175
- Type: N-GND Dim WtKWVLF
- Custom Dimensional Weight Divisor
2. Combine Incentives for Commercial and Residential together
3. Create Portfolio Tier Incentive for each service type
- UPS Ground Commercial Package
- Example: 1,265 – 1,739.99 @ 12.8%
4. Get a minimum net charge for all services to all shipment zones
- Example: UPS Worldwide Express Export to 081 @ -40.00%
5. Get incentive on DAS
- Example: UPS Ground Commercial @ $0.77 off DAS ext and DAS
- Example: UPS Ground Residential @ $1.33 off DAS ext and 1.05 DAS
Key points for renegotiating FedEx contracts
The example below is based on $1M per year ($20,883 per week) spend.
Review the key points used to negotiate for FedEx agreements.
- Get a better base rate on the service type that is used most frequently
- It’s okay if the service types that aren’t used often go up in cost.
- Get base discount
- Get better discount on existing service and package types
- Get more services and package types
- Get decreases from base rate on high-frequency services
- Example: OB Zone 2, 1 Pound $0.37
- Decrease the minimum number of packages per day
- Example: 150 to 112 Packages
- Move from Average Weight to Average Base Package Charge
- Example: 16 pounds to $12.00
- Increase Earned Discount on high-frequency services
- Ground OB $400k to $499k from 9% to 22%
- Add Ground Home Delivery Service (if applicable)
- Reduce Surcharges
- Note: There are typically two terms here. When you see “period of 2 years” the discount applies here. When you see “2 years and a day until” there is no discount here.
- Types
- Dimensional
- Packaging
- Weight
- DAS
- DAS extended
- Oversize Charge
- Residential Package (Home Delivery)
- Set Dim Exceptions
- Dimensional Weight Factor
- Ground < Breakpoint
- Example: 216
- Ground >= Breakpoint
- Example: 251
- Home Delivery < Breakpoint
- Example: 216
- Home Delivery >=
- Example: 251
- Domestic & US to Canada (direct) Ground Bim Breakpoint (cubic inches)
- Example: 5184
- Ground < Breakpoint
- Dimensional Weight Factor
Read more: How FedEx calculates earned discounts
Key points of renegotiation
- Cost per package
- Minimum charges
- Total spend
- Dim Divisor
- Discount
Key tips to consider
- Everything is negotiable
- Never accept waivers for on service failures
- Never accept agreements that penalize you for early termination
- Use previous agreements as leverage on new, increased rates
- Reevaluate every 3 months to avoid expiration on discounting
- Renegotiate every 18 months or less
Share A Refund offers carrier agreement optimization as a service to customers at a fraction of the cost of other service providers. If you’d like help navigating the renegotiation of your FedEx or UPS contracts, then speak with one of our shipping experts at (800) 851-0195.
