EVERY COMPANY HAS EXCELLENT RATES. So, you have negotiated a great deal with your current providers and they have informed you that you have done the very best that you can do. We have observed this story a thousand instances and we are certain to find it a million more. Having a third party review your small parcel provider agreement and also utilizing many years of experience and also intimate understanding of UPS/FedEx pricing contracts is generally a no-brainer, right? Well, in many cases the additional savings a professional can bring to the table is hard for organizations to appreciate.
Too many individuals believe they have learned the transportation industry through the last three or four negotiations they’ve done with their providers. Others convince themselves that by the time an outside adviser were to deliver the savings, the fees paid would exceed the benefit of hiring them in the first place. On the surface these objections seem legitimate. However, the more depth at which the agreements are understood, the more expensive these objections are.
The FedEx and UPS Agreements have gotten to become so complex and convoluted, it is nearly impossible for shippers to clearly understand the terms and conditions of the agreement… which of course are the things that cost your company the most money. Its gotten to the point where your discounts don’t even matter. It has gotten to the point where the companies with the best discounts are the ones who are paying the most money for their shipping. Each company has their own unique characteristics, extra charges such as minimum package prices, dimensional weight charges will inevitably result in minimal impact of transportation discounts, if any at all.
For example, let’s pretend your small package agreement is near the end of its term. The large bulk of your packages are utilizing the small parcel carriers premium services including Priority Overnight or Next Day Air shipments, which are the carrier’s highest margin yielding services. If your company like many customers have increased during your agreement term and your transportation sales representative comes in to offer you new discounts. After you play ‘hardball’ with him, you decide to ask for a 70% discount off of the 59% discount that you are currently receiving. To your surprise, your sales rep agrees, and you feel like the master negotiator.
If under this example, your company ships an average of 150 packages per week with that particular service (or an equivalent of $10,000 per week), the difference in your new agreement is $66.67. Your previous agreement delivered an average package price (of this service) of $27.33. Because you have negotiated a 70% discount , math indicates the same package is now $20.00… right? THAT’S WHAT THE UPS/FedEx WANTS YOU TO BELIEVE.
Let’s pretend you are a FedEx customer. The Air minimum package for a one pound, Zone 2 package is $23.55. You will pay at least this charge and nothing less, regardless of your discount amount. The maximum discount you will be able to receive for this package is 64.7%. While you have received an improvement of 5.7%, which is far less than the 11% that you thought you were going to be receiving. Now, imagine you’re a UPS shipper. The minimum charge for the air service is $22.85. You’d be netting a maximum of 65.7% discount merely a 6.7% improvement rather than the 11% that you were expecting.
Over the course of one year, if you had been receiving a 70% discount, you would receive a final savings of $1,100 per week ($27.33 under the old discount, minus $20 under the new discount) or $7.33 per package times 150, the net savings you are predicting is around $57,200 per year. However, using the impact of package minimums as identified above, a company utilizing FedEx would only save $567 per week. The package price of $27.33 minus minimum charge equals $3.78 x 150 packages per week), or $29,484 per year. On the other hand, a UPS small parcel shipper would see a weekly savings in the amount of $672, or $34,944 per year. The increased savings are between $13,780 per year with UPS and $11,180 with FedEx in this example for this service level. If you are spending 4,000,000 per year in overall small package shipping, that is a savings of 0.78%. If similar instances were to remain across other shipping services, the final net result of your shipping costs would be a far cry from the 13% discount you had been expecting.
To keep all of this in perspective, the above example starts out assuming that your account qualifies for a 70% discount in the first place, and you have a sales rep who is able to get that approved through FedEx or UPS pricing departments. Outside third parties act as client liaisons to help shippers understand the true impact of language in these complex Ups/Fedex agreements. Experienced transportation professional scan properly guide their clients to making informed decisions to identify where shipping discounts should be, for each shipping service, for each mode, based on each company’s individual shipping characteristics.
Getting the optimal provider agreement for your company has nothing to do with your individual knowledge and expertise. It is difficult to maximize the agreement’s potential without an outside party to help you validate the incentives offered and the complex Ups/Fedex terms which effect the true cost of your shipments.
The first step to getting the best pricing is to recognize the potential impact an unbiased third party can offer to your company.