10 Parcel Contract Negotiation Tips to Save Big on Shipping

Colby Ezell / Small Parcel / July 13, 2022

When delivering to customers is one of the most important factors of a business, it’s understandable that shipping costs might take up a big chunk of expenses. After all, this stage directly affects customers, and therefore it also affects their perception of the business.

Parcel carriers know this too, and they are profiting more and more each year. In fact, carriers have a general rate increase every year, with 2022 seeing some of the highest raises in recent years.

But just because your business depends on shipping carriers doesn’t mean they hold all the power. The key to keeping shipping prices down is continuously monitoring and renegotiating your last mile contracts. If you find your parcel contracts have multiple shortcomings, you need to make some changes.

If your organization hasn’t renegotiated your parcel contracts in the last year, or even worse, in the last few years, keep reading for tips on getting the best shipping pricing.

What Is a Parcel Contract?

A parcel contract is a written agreement between a business and a shipping carrier that outlines and defines the specific rates, surcharges, and conditions of small parcel shipping. Small parcels are individual packages that weigh under 70 pounds. Businesses can negotiate special rates with carriers due to their significant shipping needs, meaning each contract can look completely different.

For organizations, these contracts mainly cover the “last mile,” or the delivery of a product to a customer. Parcel contracts tend to be very complex, making it difficult for business owners to fully understand, much less have negotiating power.

Small parcel contract negotiation is essential for a multitude of reasons. For starters, since it directly affects your customers, it’s crucial to trust your shipping carrier to deliver packages on time and without damage. Plus, considering that shipping costs are often one of the biggest operating expenses for businesses, they must partake in negotiations to avoid overpaying and optimize parcel contacts.

Why Parcel Contracts Are So Complex

For starters, parcel contracts are legal documents, meaning they’re filled with complicated terminology that the average person may not understand. Not only do the carrier reps have the upper hand by understanding all the legalese, but they also create the contracts to favor the shipping company. These contracts can be lengthy, sometimes with over 100 pages, often with fine print that may lock you into a contract.

Even the savviest business person may struggle to understand parcel contracts. On top of the confusing terms, it’s often difficult to see the big picture regarding pricing. Sometimes it might seem like you’re getting a reasonable rate, only to end up with a ton of surcharges when it comes time to pay your invoice. Plus, with each carrier company using different formatting and pricing, it can be hard to compare proposals thoroughly.

Since the contracts are so complex, it’s a good idea to consult with someone who has a deep understanding of small parcel contract negotiations. Third parties like P3 Cost Analysts can negotiate on your behalf to ensure your next parcel contract favors you.

What Can Be Negotiated in a Parcel Contract?

Your carrier representative’s job is to make the most money from your business possible, which is a direct contrast to your goal. They will often tell you that certain aspects of a contract are non-negotiable with their carrier. This isn’t the case. When it comes to carrier negotiations, anything goes.

Everything on a parcel contract is negotiable, including:

  • Tiers: Shippers offer earned discount tiers based on revenue or volume. Lower service rates can be earned based on rolling averages. How the tiers are organized, and the discount applied to them can be negotiated with carriers.
  • Minimum spend: Also known as minimum package charge, this number represents the lowest possible billed price of a parcel. This can render certain discounts meaningless if the discounted rate is lower than the minimum spend.
  • Surcharges: Even if you get favorable shipping rates, excessive surcharges can drive up shipping costs without you seeing it coming. With surcharges, looking through your past shipping data is key. Some frequently occurring surcharges you can address by making changes internally. For others, try to negotiate discounts or eliminate them altogether. Potential surcharges include hazardous materials, large packages, fuel index, address correction, and more.
  • DIM pricing: DIM weight is an estimated weight used by shipping carriers to price packages using the length, width, and height of a package. With this process, the shipping company essentially charges you for the size rather than the actual weight. Negotiating DIM pricing may lower costs for businesses that frequently ship large but lightweight parcels.
  • Bundling: Shipping carriers are offering an increasing amount of services even beyond shipping. Some are offering warehousing, customer service, or outbound processes. You can consider bundling multiple services with your shipping carrier to negotiate lower rates. Just remember this isn’t always the most cost-effective solution.
  • Refunds: Carriers often owe refunds to shippers due to late deliveries, failed deliveries, or overcharges. These refunds are often difficult to claim, and carriers may offer rebates in exchange for auditing rights. Make sure your right to refunds is written into your contract and that you understand the terms and conditions.
  • Termination clause: Make sure you understand your rights regarding ending the contract early. Often carriers impose early termination penalties, preventing you from switching delivery companies or renegotiating pricing down the line. This is not ideal, considering the carriers generally reserve the right to raise prices or surcharges. You can negotiate early termination terms or even push for an open contract.

10 Parcel Contract Negotiation Tips

We’re not going to lie to you, it’s a seller’s market right now when it comes to the parcel shipping industry. However, if you follow these tips for parcel contract negotiations, you’ll be able to find mutual ground with your shipping carrier and come to an agreement that benefits everyone involved.

1. Know Where You’re At

You first need to review your current contract, specifically looking at the fine print to see if you’re locked in. Contracts often have early termination penalties, which might cost you. If nothing is locking you into your contract, then everything is negotiable.

2. Take Your Time

Small parcel contract negotiation is not something you can knock out in an afternoon. It’s going to take weeks, if not more, to go through all the proper steps to make this process worthwhile. You’ll need to run through data reports, shop around to multiple carriers, and wait on approvals for special rates, all of which take time. If you don’t have enough time to dedicate to parcel contract management, consider hiring a professional.

3. Seek Help for Tricky Language

As we mentioned, these contracts are filled with many complex legal terms, confusing codes, and pricing structures that are not straightforward. If you need help with the language or formatting of these contracts, work with a lawyer or experienced professional that can explain it to you clearly. Now is not the time for guesswork.

4. Don’t Skip Data Analysis

Take the time to run a full shipping audit to understand what you’re currently being charged and what your shipping needs are. By looking at your highest expenses, you can better understand how to save on your next contract. Knowing your goals and studying the hard data can help you choose the best negotiation tactics.

5. Check Out the Competition

Even if you’re super happy with your current carrier, don’t forget to compare their prices with the competition. If you get better rates when shopping around, you can bring this to the table to help negotiate prices with your preferred provider. Many businesses find they get the lowest shipping rates by regularly switching between carriers as the best rates are usually offered to conversion customers. Keep in mind that proposals from different carriers may look completely different, making it difficult to compare.

6. Don’t Burn Bridges

As with most things in businesses, keeping positive relationships with those you work with is crucial. Don’t go into a negotiation trying to “beat” your opponent. Instead, remember that positive relationships with carrier reps will likely play in your favor. Try to come to an agreement that is beneficial to all parties.

7. Consider More Than Price

It’s true that when you enter into carrier negotiations, you’re trying to minimize shipping costs, but the price isn’t the only thing to consider. On-time deliveries, customer service, technology integration, and service areas may affect which carrier can offer you the most value.

8. Use Network Connections

It can be challenging to know if you’re getting prices on par with the standards in your industry, so use your network connections to get some insider information. If you have close relationships with others in your industry, ask for carrier recommendations and compare pricing. Another way to gain access to this information is to work with a third party that works with shipping audits. You can use this info as a starting point, but make sure that you end up with rates that mesh with your specific needs.

9. Consider Long-Term Consequences

It’s easy to get so focused on saving money that you miss looking at the long-term or subtle effects of changing your current shipping contracts. For example, different carriers may have different delivery schedules, timeframes, or technology that can result in unexpected costs or frustrations down the road.

10. Never Stop Monitoring

Once you’ve finished parcel contract negotiations, it’s easy to forget all about it. But to ensure these rates continue to work for you, it’s crucial to monitor certain key performance indicators like cost per package and overall spend. Create benchmark data that you can compare future numbers to while monitoring your shipping expenses.

Let P3 Handle Your Parcel Contract Negotiation

There are many steps along the way where it’s recommended to seek the assistance of a professional, so why not let someone else do the whole thing? Not only will letting P3 Cost Analysts handle your carrier negotiations save you weeks of time, but we have a proven track record of saving our clients 15 to 20% on shipping costs.

Our expert team has members that used to work for the most prominent shipping carriers in the country, so they understand these contracts like the back of their hands. Working with us gives you the special insight you need to come out on top during negotiations. Plus, there’s no upfront cost to you, so schedule a risk-free small parcel audit to start saving!

The Bottom Line

Negotiating parcel contracts is no easy feat. The contracts are difficult to understand, and pricing can be hard to understand even for seasoned CEOs. Not to mention you’re not just trying to negotiate shipping rates but also everything else on the contract. The truth is, having a shipping expert on your side is crucial.

These ten tips on getting the price on shipping can help you have a strong hand when you get to the negotiation table. However, it will eat up weeks of valuable time that you could focus on other things. Let the experts at P3 Cost Analysts handle your parcel contract negotiations this year to make sure you get as many savings as possible.

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