At PeakLogix, our mission is to help our customers lower their costs and maximize their resources. Often – though not always – the best way to do that is by introducing some kind of new technology into our client’s process. That may be something as complex as sortation conveyors, or as simple as RFID scanners.
At the same time, we know that our clients’ costs neither start nor stop at their door. And where there are costs, there is the potential for cost savings.
PeakLogix has been fortunate in its ability to develop relationships with a number of world-class partners. And in an effort to extend some of their knowledge to our clients, we asked Rick Collins, with Platinum Circle Partners, to give us some insight into the world of small parcel shipping, and how his team helps our clients save money.
Contract negotiations – know your enemy, and yourself
The first point that Collins wants to stress is that, in any contract negotiation, the side with the most information – and the most accurate information – is in the best position.
Some information his clients will already have. They’ll already know their average shipping weights, sizes, and distances. Of course, when negotiating a contract with a shipping company such as UPS, FedEx, or USPS, this is information that will have to be shared.
On the other side of the table, the shipping company also has information – with which it isn’t very forthcoming. Its rates, for example, are so variable that what is published on its website will not be what a company pays. Rather, the published rates are an average that don’t include, for example, the hundred or so surcharges that may be added to each and every shipment, which often account for 20% of a company’s bill.
Carriers such as FedEx, UPS, and USPS know that understanding your cost options requires understanding the activity at the same level they do. But if they won’t share their information – and usually they won’t – a company’s only recourse is to understand the contract before it is signed.
Yet here again, carriers sometimes work to obfuscate their costs. Contracts are complex both in their legalese and their rate structures. To understand how they’ll impact a business, every line and surcharge has to be looked at and understood.
First, count the costs
Part of every contract with FedEx or UPS will list the possible charges and surcharges. Often, as part of a negotiation, the carrier’s representative will adjust something – usually the base rate structure, which has the most straightforward impact on cost. “It took a lot of convincing,” they might say, “but I finally managed to bring the bosses around and saved you another 5%.”
That might be true. And it might be in good faith that these representatives work to lower your costs to the loss of their own company.
As an integrator specializing in tailored solutions, we know that every company is different – and the carriers know that, too. They’ll have done their homework and they’ll know your business and its needs. They’ll know which surcharges will net them the most money, and which discounts they can give that look great on paper, but will be ineffectual in practice.
The only way to really know what your costs are going to be is by diving deeply into the hundreds of numbers in that contract and seeing how every line and every surcharge will affect your business.
There may be things at the company level that can be changed – resizing and consolidating packages, shipping ground instead of air, and properly addressing labels, are some places where companies can often save money.
Running analytics and finding places in the contract that can be negotiated is also possible, though often difficult. It takes the right tools – using big data and bleeding-edge algorithms – and experience to interpret the numbers. And it also takes experience negotiating these particular contracts to know where carriers are willing to give, and where they feel they have to stand firm.
The right time to renegotiate? Probably ASAP
The right time to reconsider your shipping costs and contracts is probably the next time your operations allow it. By renegotiating carrier contracts, Collins sees businesses recoup an average of 16% of their shipping costs.
Picking through the weeds of a carrier contract can be done and is almost always worth doing. But it’s also daunting and is often best done by experts using the latest tools.