According to benchmarking studies, shipping is typically a company's highest fulfillment related expense. Every year, rates go up as carriers cover the cost of more last-mile deliveries for the e-commerce industry. With goliaths like Amazon intentionally losing money on shipping to win customer loyalty, how are average-sized companies supposed to compete?
The answer is: by negotiating shipping rates. Just because you aren’t Amazon, doesn’t mean you don’t represent valuable business to companies like FedEx and UPS. Especially as Amazon pulls their logistics in house. In fact, if you have an assigned account manager, this is a pretty good indication of your bargaining power.
What you possess is the opportunity to build a relationship and negotiate with someone whose job is to listen to your needs. Don’t let the idea of negotiation intimidate you. Shipping carriers use several variables to calculate their shipping rates. Check out the main parameters of your ecommerce shipping costs. Ecommerce shipping dynamics changes frequently based on many parameters. Using a shipment automation rule engine helps you adapting the new market conditions.
By understanding their business model, your shipping data, and your own business requirements, you can enter into negotiations with your account manager armed with the terms and knowledge to help you save a small fortune on shipping fees. Determining the best ecommerce shipping strategy is crucial for today's new age fulfillment businesses.
Our Ultimate Guide to Negotiating Shipping Rates will cover:
Don't Let Your Shipping Costs Cut Your Margins: Shipping is typically a company's highest fulfillment-related cost. Learn how Logiwa helps you get the best shipping rates every time.
Adopt an “Everything is Negotiable” Mindset
Everything is negotiable. Before you start the process, live and breathe this mentality and keep the following in mind:
- Don’t Make the First Offer. Never show your hand first.
- Don’t Negotiate with Yourself. When you make an offer, wait for a counter-offer.
- Set a Time Limit on the Negotiating Process. Without a time limit, your carrier can stretch out the process and continue to profit off the current rates.
- Bundle. Understand what you want and then combine your asks into a package.
- Be Willing to Walk Away. Conduct research on your historical shipping data and alternative carriers, so you are firm on what offers you will and won’t accept.
- Be Pleasant, but Focused. You likely have a great relationship with your account manager, but don’t be guilted into accepting the first offer. Their job is to protect their employer’s interests. That said, keep the negotiating process light and civil.
Review Your Agreements with a Critical Eye
Go through your existing agreements with a fine-tooth comb and look for points of negotiation. And remember: everything is negotiable.
This can help you focus your efforts when you review your shipping history data. Review your agreements to determine what you’re currently paying on everything, including next-day air, second-day air, surcharges, and more.
In addition, don’t wait until your agreement ends to re-negotiate and avoid signing any addendum that penalizes you for ending your agreement early. Carriers may attempt to lock you in for a certain time period, but you never know what changes are on the horizon that may require further negotiations.
Gather and Analyze Your Shipping Data
Before you start negotiating rates, you need to know what you want. Your first step is to thoroughly understand your current shipping costs. This is essential. Your carrier understands your shipping history intimately and will use it to gain the upper hand during the negotiation process. Gather your shipping history data and analyze it to paint a clear picture of your shipping rates and shipping fees.
How can you obtain this data?
Pull From Your Shipping System
If you use an order fulfillment software or warehouse management system, it’s fairly simple to pull this data. In addition to providing real-time data, your system may automatically generate reports about your historical shipping data, which should include information on the average base rates and fees you pay each carrier.
You can pull the average weight per package shipped, the average zone, the daily average number of inbound and outbound shipments, the percentage of minimum charge shipments, and more. Your carrier will use figures like this to assess what they’re willing to bargain on during the negotiating process.
And if you use a third-party enterprise shipping system, rather than exclusively relying on one carrier’s system, you will have historical data they don’t have. This is specifically useful when assessing the following points.
This is real-time information on which carrier offers the best rate for a shipment. This is determined based on your package’s weight and dimensions, service levels, delivery time, and delivery zone.
If your historical data shows that you routinely receive best-way shipping from the same provider, it puts your other carriers on the defensive. It’s up to them to present a good case for why you should keep using their services.
Identify how often you use “zone skipping” opportunities. If you frequently ship from New York to California, your packages have to go through several zones, raising your overall shipping costs. By zone skipping, you send a large volume of orders to a specific zone, rather than the final destination, and then engage a cheaper carrier to facilitate last mile delivery.
In other words, you can save by shipping in bulk while also taking advantage of local rates versus national rates.
Oftentimes, zone skipping strategies use regional carriers or nation wide carriers such as UPS and DHL. This shows your carrier that a significant portion of your orders go to the same area, which means they are missing out on fees from a relatively straightforward job.
Surcharges are slippery things. They can show up on your invoice in a variety of disguises such as “service fees”, “accessorial charges”, or “handling charges”.
Simply put, they are the charges beyond the base rate. When negotiating fees, shippers often focus on the base rate. Save yourself more money by investigating your most frequent surcharges.
While base shipping rates are updated annually or semi-annually, surcharges can be updated weekly, making it tedious for shippers to monitor. Moreover, there are all sorts of surcharges, including:
- Handling fees
- Address correction fees
- Delivery area fees
- Delivery reattempt fees
- Signature fees
By pulling information on common surcharges from your enterprise shipping system, you can be specific during the shipping rate negotiating process and go after the shipping fees that hit you hardest.
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Conduct a Parcel Audit
Gathering and analyzing your data is more time intensive if you don’t have an enterprise shipping system, but it is certainly possible. You can conduct a parcel audit which requires manually reviewing all your shipping bills.
In addition to understanding commonly charged surcharges, you can also identify inaccuracies or invalid charges. Even if you don’t have time to challenge every charge, you can plug your base charges and fees into an Excel spreadsheet and run different analyses to find the information an enterprise shipping system would pull.
Negotiate Volume Discounts Based on Sales Projections
Carriers offer volume-based discounted rates. If your business is growing fast and your sales forecast is strong, you can still benefit. Companies like FedEx offer a grace period, allowing shippers to benefit from discounts while ramping up.
Of course, if you don’t meet this sales volume by the end of the grace period, you’ll have to return to standard rates.
Strengthen Your Relationship With Your Account Manager
Your main options for negotiating rates are:
- Conducting face-to-face negotiations
- Sending out a Request for Proposal (RFP)
In both instances, you’ll need to work with your account manager. Your account manager has a lot of competing priorities. They have to liaise with operations, manage service issues, field complaints, and retain customers, and they often work evenings and weekends.
Strengthen your relationship with your account manager by understanding their day-to-day work and coming up with ways to make their job easier.
This could include improving your communication, reducing the number of last-minute requests, or alerting them to an upcoming fluctuation in shipping volumes. And if these efforts aren’t possible, kindness is priceless.
Not only will a good relationship with your account manager facilitate the negotiation process (people like working with people they like) it will also increase your chances of learning about useful service offerings or discounted rates that aren’t publicized, like association pricing.
Initiate an RFP Process
A Request for Proposal (RFP) is an efficient way to present your business needs and carrier requirements to several providers and solicit responses. An RFP is most useful for companies with high shipping volumes, since the potential business is an incentive to prepare and submit a proposal.
That said, don’t be discouraged if you think your shipping volumes are too low for an RFP. Carriers want to win as much business as possible to optimize the space in their trucks and planes.
Once you receive proposals, you can efficiently compare shipping rates between multiple providers and request more competitive offers.
Invest time into preparing your RFP as this will determine the quality and relevance of the responses you receive.
In addition, make it abundantly clear in your RFP that you are not guaranteeing any volumes.
Be sure to include the following information in your RFP:
- Business objectives
- Short-term shipping needs
- Long-term shipping goals
- Requirements from a shipping provider
- Historical shipping information/volumes
- Pricing template
- Request for guarantees on damaged goods or missed deliveries
Including requirements and business goals allows the provider to tailor their proposal and present the most compelling offering. In addition, a pricing template ensures you receive information clearly and in your desired structure.
Negotiate Contracts with Multiple Shipping Providers
Negotiate with multiple carriers. For starters, holding contracts with multiple carriers provides diversified real-time data for your enterprise shipping system. This means you can benefit from best-way shipping. Plus, you’ll be able to compare base rates as well as various surcharges and develop relationships with regional carriers, enabling you to employ zone skipping strategies when needed.
That said, be mindful that you don’t divide your shipping too thinly among providers. You don’t want to miss out on volume discounts.
Among their other ecommerce services, FedEx offers flat-rate pricing for shipments under 50 pounds. You can find their flat-rate finder tool by clicking here. Check out Logiwa's FedEx shipping features for further information.
UPS offers order fulfillment in addition to shipping, which may be beneficial to your business. They don’t offer much beyond this basic rate calculator without logging into their site. Check out Logiwa's UPS shipping features for further information.
Like its competitors, USPS also offers a host of business services. USPS has a long list of shipping rates depending on if you’re using their flat rate packaging or your own, and what priority you select. You can also try their shipping calculator. Check out Logiwa's USPS shipping features for further information.
DHL places a lot of emphasis in their marketing on international shipping, but you can also use them for domestic shipping. Their partnership with USPS is what makes this possible. DHL offers DHL e-commerce and DHL express options for ecommerce businesses.
No matter which carriers you use, Logiwa integrates with all of your accounts. So if you have multiple shipping contracts, you can connect all of them through Logiwa, ensuring you get the best rate every time. Learn how Logiwa helps you get the best rate every time.
Read Your New Contract Carefully for Hidden Fees
If your negotiations or RFP results in a new contract, be sure to review the document carefully. Oftentimes, carriers will agree to your terms only to include hidden requirements, like minimum volumes, to ensure the odds are still stacked in their favor.
For instance, let’s say you negotiate a 50% discount. Presumably, this means a $20 shipment would cost $10, but in your contract, there’s a clause stipulating a minimum spend of $12. So the least amount of money you’ll pay is $12, not $10.
While this may not be an issue if you ship a high volume of goods, it’s still worth gaining full visibility over your contract, especially if this never came up during the negotiating process.
Don’t Waive Your Right to the Money Back Guarantee
Shipping carriers offer money back guarantees for late deliveries. During the negotiation process, your account manager may ask you to waive your money back guarantee as a trade-off for specific perks. Avoid waiving this right at all costs.
Negotiate Based on Your Shipping Type
Many shipping carriers now employ dimensional weight pricing. Previously, carriers priced shipments on their actual weight, regardless of the shipping box size. This means that carriers will calculate:
- The actual weight
- The weight based on the box’s dimensions
The carrier then uses the higher number to use space in their trucks efficiently. If you ship specific dimensions often, consider negotiating a rate based on this information to minimize your costs.
Consider Hiring a Parcel Shipping Consultant
If you don’t have time to commit to the negotiating process, but you think there’s a real opportunity for cost savings, consider hiring a parcel shipping consultant or broker. You can likely get reviews from your professional network.
Parcel shipping consultants can negotiate shipping rates on your behalf and realize significant cost savings. Of course, be mindful of those fees. You want to ensure the fees you pay don’t cancel out your savings.
Negotiate Your Shipping Rates to Strengthen Your Bottom Line
Shipping fees can take a big bite out of your business’s profit margins. Consider your options and analyze your costs ahead of time. Then you can enter negotiations with your shipping provider well prepared to win and protect your bottom line.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.