Carrier reps are skilled in making shippers feel like they’ve acquired the best contract that’s ever been negotiated. They throw around discounts to entice customers but skip over the fine print that mentions package minimums. Carriers use discounts to keep customers and encourage them to increase their transportation spend. It sounds good in theory, but what if that discount is never applied? That’s why it’s important to know how UPS and FedEx implement minimum charges.
The difference between carrier minimums and discounts
Minimums are hidden within the fine print of carrier agreements and can prevent discounts from being applied, keeping high-volume shippers from serious savings. In writing you might have a 3% discount, but if it’s applied 0% of the time that leaves you with a 0% discount. The package minimum normally affects upwards of 20% of all shipments. Unfortunately, earned discounts will never be applied to those 20% of packages. Understanding what impact a 3% discount has on your carrier agreement starts with understanding how discounts and minimums are incorporated and applied.
Read more: How FedEx calculates earned discounts
How minimums charges work
Let’s take a look at 2018 published rates UPS Ground shipments sent domestically to explain how minimums are exercised on shippers’ accounts.
A shipper might receive a 30% discount on 1-5 lb ground shipments. The provision states that if the shipper meets a certain spending threshold then they receive an additional 5% discount on ground shipments. As spend expands, shippers will see an incrementally higher earned discount. Naturally, shippers assume they’re getting 30% plus an additional 5% for a total discount of 35%.
It sounds like an incredible discount until you become aware of the minimum package charge in the fine print that ruins the chances of true savings. Let’s say in the fine print the minimum charge is set to being equal to a Zone 2, one-pound package published rate. In that example, where $7.32 is the published rate, any amount of the 35% that yields a lower rate will be bumped back up to the minimum $7.32 rate.
With the 35% discount, only the five-pound package in Zone 5 would be above the minimum charge and be eligible for the 35% discount. Any other packages would be charged the $7.32 minimum, which is nowhere close to a 35% discount.
You actually get to apply the discount more when it’s only 30% because three rates exceed the $7.32 minimum.
Share a Refund has the solution
The best way to remedy this headache is to negotiate a better price on the minimum, not a better discount. Reps might try to push back on adjusting the minimum, but trust us that there’s room to negotiate a more favorable rate. Shippers must take initiative to address this concern because reps won’t naturally bring it up for discussion.
Would you rather 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. Auditing all available shipping refunds and analyzing current carrier procedures lead to the most savings.
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