When it comes to outsourcing certain parts of your logistics and fulfillment, you have a lot to choose from. When it comes to others, it’s a different story. For instance, with parcel carriers your company is pretty well locked into working with UPS, FedEx, DHL or the USPS.
But thankfully that doesn’t mean you have to be equally locked into using these carriers’ published rates. We recently caught up with Amware Fulfillment’s Director of Transportation, Dan Galassi, to discuss the subject of reducing costs for parcel shipping.
You’ve been in the fulfillment and shipping industry for many years. If you could only use one word to sum how up the parcel shipping landscape has changed since that time, what would it be – and why?
While the number of shipped packages has increased steadily, the number of national companies that are competing for companies’ parcel business has done the opposite. Over the years, names like Burlington, Flying Tigers, Emery, Airborne Express and BAX Global have faded from the landscape, leaving eTailers with only a few big parcel carrier names to work with – and limited options when it comes to shopping their parcel business around and finding truly low-cost shipping.
How has that impacted national parcel carriers’ pricing?
Reduced competition is rarely if ever good news, except for the surviving companies. And it definitely hasn’t been conducive to low-cost shipping. In the eight years after most of these other carriers had exited the marketplace, UPS’s and Fed Ex’s annual rate increases were roughly double what they had been during the time when greater competition existed.
What about parcel carriers’ accessorial charges?
Many of them – like delivery area surcharges and peak season surcharges – didn’t even exist until the parcel shipping landscape turned into an oligopoly. Neither did dim weight pricing, which has added a whole new world of expense to the parcel handling landscape.
Given the oligopoly, is it impossible to create negotiating leverage with carriers?
It’s more difficult, but not impossible. Even though it has become more of a seller’s market in freight, there are still opportunities for shippers to negotiate shipping rates that work for both parties.
Which brings us to the focus of this week’s blog. How, exactly, can B2C shippers lower shipping costs?
That’s a nice, “easy” question!
Well first of all, it’s important to know that negotiated rates still exist. If your company’s shipping volumes are high enough, carriers will be willing to reduce rates in order to earn or keep your business.
It’s also important to note that virtually everything within an individual shipper-carrier service and pricing agreement is negotiable. So even if you aren’t able to get major concessions from carriers in one area of your agreement, you may be able to get economies in another and still achieve a win-win.
Let’s unpack that last statement a bit. When you say that everything within an agreement is negotiable, what kinds of things do you mean?
The dim weight divisor is a huge one. While each carriers’ “official” divisor currently ranges somewhere between 139 and 166 (depending on which one you use), a savvy negotiator should be able to get your company a much higher number than that, which reduces your cost and could really pay off if you ship a lot of lightweight but large packages.
So if, for example, you’re shipping a package that’s 12 X 12 X 6 (864 cubic inches) and you’ve succeeded in negotiating a dim weight divisor that’s closer to 190, that could bring your rated weight for this larger, lightweight package down to 5 pounds, versus 6 or 7 pounds had the carrier used the “published” rate.
The home delivery surcharge is also ripe with opportunity. When you’re being charged $3.60 per package, and you get a carrier to agree to knock something like 20% off that price – which isn’t unrealistic – it can result in a 72-cent savings per package. If you ship 10,000 packages a month, that’s an annual savings of $86,400 that goes straight to the bottom line.
What about negotiating service levels? Good idea? bad idea?
That can be a double-edged sword.
On the one hand, it’s always great to get something like a premium shipping speed for a non-premium price, although you probably shouldn’t expect this particular “win” to happen very often. For example, one company we know got its carrier to agree to deliver packages to customers earlier than promised (for no extra charge) as long as that carrier had excess space on one of its earlier trucks.
On the other hand, your company should never have to negotiate for things like reliability, service excellence and outstanding customer care, because those are the kinds of things that each carrier already sells and promises as part of its brand and value proposition.
What if a carrier tries to focus more on these service attributes than the actual agreement itself?
Consider the possibility that it’s using a diversionary tactic. And make it a point to steer the carrier back to the financial discussion at hand.
When people bring up the subject of shipping discounts, the word “volume” usually isn’t far behind.
I know. Nothing speaks louder at the negotiating table than high shipping volumes. The more potential business and revenue your company promises to bring to a carrier, the more receptive that carrier will be to offering higher discounts to help you achieve low-cost shipping.
Even so, you can’t expect carriers to hand those discounts and deals to you on a silver platter. Carriers need to make a profit to continue to invest in their fleets and infrastructure. That’s important. At the end of the day, each carrier’s rep is responsible for striking the most profitable agreement for his or her company – just as your goal is to strike the most cost-effective arrangement for yours.
But what about growing eCommerce companies that aren’t huge-volume shippers yet. How can they improve their leverage with carriers?
One strategy is to align with a 3PL that does parcel shipping on behalf of many businesses. This would mean a full outsourcing relationship that includes inventory storage, order processing and parcel management. Often, that 3PL can use its high shipping volumes as negotiating leverage and can pass along more cost-effective parcel rates.
What strategies do you suggest for companies that do have some decent shipping volumes?
A few suggestions:
- Keep your eggs in more than one basket. When you spread your shipping business across multiple carriers (including regional ones as applicable), it serves as a powerful reminder that a) there’s more of your business to be gained and b) you have other trusted partners that you can divert more of your business to if you aren’t happy with the terms you’ve been offered. That may inspire carriers to come to the table with more aggressive discounts.
- Consider periodically putting your shipping business out to bid. Carrier reps tend to work harder to offer good deals when they’re trying to win your business, expand their share of it or prevent your business from being cannibalized by a competitor. In other words, don’t make the mistake of being what’s known in the business as a “captured account.” It’s never a bad idea for your bottom line to occasionally make even your longest-standing carriers prove that they really do want your business.
- Don’t be timid about renegotiating terms if circumstances change. For example, here at Amware Fulfillment, we recently acquired the fulfillment services unit of Iron Mountain, substantially expanding our geographic scope and parcel shipping volumes. So we revisited our existing agreements in light of this expansion. Never assume that you have to wait until the next contract renewal to ask for a “recount.”
You’ve mentioned carrier reps a couple of times. Talk to us about their role in the negotiating process, and walk us through the finer points of establishing a positive relationship with them.
In China, there’s an important business concept called guanxi , which is all about establishing social networks and cultivating influential relationships.
Here in the U.S. parcel sector, each carrier rep or account manager that is assigned to you is a major part of your company’s guanxi.
The sooner you can establish a relationship with these reps, the better things will tend to go for your company moving forward, because they have usually been empowered to either find you discounts, waive certain fees or offer you financial incentives that you won’t find on any rate sheet. But more often than not, that won’t happen unless you ask. At Amware, we greatly value our partnership with carriers and invest time to create a trusting relationship with their reps.
Any other tips to achieve lower-cost parcel shipping?
A few more thoughts:
- Make sure you understand the particulars of your shipping contract, including making sure you’re hyper-aware of every accessorial charge. At the end of the day, these charges may be adding more to your “fabulous” rate than you think.
- Audit your invoices to ensure your carrier is holding up its end of the bargain. If it’s not, don’t be afraid to ask for the refunds or financial concessions that you’re due.
- Look for trends that prove your company can be an attractive client in ways that are unrelated to volume. For example, if you’re a subscription business that always ships your subscription boxes on the exact same day of the month, that’s the kind of reliability that carriers value, because they can plan for it well in advance.
- Prepare carefully for negotiations with parcel carriers. If your carriers know more about your shipping history and patterns than you do, it’s never a good thing.
Consider How a 3PL Can Help You Achieve Low-Cost Shipping
Amware Fulfillment offers parcel management services to help its eCommerce and direct selling customers reduce parcel shipping costs. To arrange a discussion on what strategies you should consider to bring down your own costs, contact Amware today.