Years ago incentives were primarily based on weight, zone, or even level of service, but carriers realized this wasn’t the smartest way to offer discounts. Revenue-based incentives were introduced to encourage businesses to ship their entire portfolio with one carrier. The more you spend with UPS or FedEx, the higher your discount. This way the carriers strategically prevent you from splitting your shipping profile.
How portfolio tier incentives work
Revenue-based incentives are included in most carrier agreements that are penned today. UPS refers to these as Portfolio Tier Incentives and FedEx refers to them as Earned Discounts. Accessorials or surcharges are not used in this calculation.
UPS uses a few different metrics when calculating the “Portfolio Tier Incentive” that includes gross transportation spend, residential surcharge, delivery area surcharge and extended area surcharge. According to UPS, “Average weekly Gross transportation charges per week is defined as the revenue from eligible and committed services for the given time period divided by the number of weeks in the time period.” Both UPS and FedEx typically use a rolling 52-week average when calculating discounts.
What shippers should know before negotiating incentives with UPS
Shippers must monitor base weekly transportation charges per week throughout the life of their agreement to make sure that they are accurate, manageable and attainable. This monitoring will help verify that you are not in a tier where you are seeing no additional discounts or a tier in which you are prevented from receiving any additional discounts if your volume keeps increasing.
For seasonal shippers, the Portfolio Tier Incentive must be negotiated properly. If your new carrier agreement is implemented outside of your peak season, your average of the previous 52 weeks may exceed what you are currently spending on a weekly basis. This could prevent you from achieving the discount within the target tier. It’s important to work with the carrier to allow a period of time for your business to establish an average that will actually allow you to receive the negotiated discounts.
Share a Refund negotiates carrier agreements
A thorough analysis of your shipping profile will highlight any areas where deserved discounts aren’t being applied properly. The Share a Refund contract optimization team is committed to providing a service geared toward saving you the most money on shipping and transportation. Give us a call or take your free shipping analysis online today.
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