Today’s UPS and FedEx contracts are more complicated and difficult to negotiate than ever before.
Several years ago, there were three full service carriers offering ground, air, hundredweight, and international services. FedEx and UPS are currently the last two carriers still servicing the entire U.S. with time definite deliveries. Both offer the same type of services and compete for the same clients. Five years ago, there were over 50 accessorial charges with the two major carriers. Now, there are over 200! The carrier’s new data capture technology has allowed them to more effectively charge accessorial charges that they physically couldn’t in the past.
Before we address the major issues affecting your carrier contracts and how you can successfully negotiate the best rates possible for your company, I would like to give you a brief background on AFMS and why our advice is worth reading.
Founded in 1992, AFMS is a transportation contract advisory and auditing firm, comprised of former VP’s, directors and managers from UPS, FedEx, DHL, USPS, and others. We specialize in showing companies of all sizes how to save money, improve service levels, and obtain better discounts. Our inside knowledge of the carriers pricing programs and models is unparalleled.
Along with that, all the changes that are happening today with UPS and FedEx and the levels of complexity surrounding today’s contracts. We have compiled the following information, to help you better manage your ongoing transportation pricing contracts and carrier contract changes:
Knowing what the carriers consider profitable freight and unprofitable freight as it relates to package characteristics, will determine what discounts the carriers can offer you. The metrics surrounding these pricing variables are complex and need to be reviewed prior to sitting with your carriers and negotiating a new agreement.
1. What has created these pricing changes? Technology improvements and better data capture capabilities by the carriers. The data capture technology carriers use has allowed them to bill for services and extra costs they physically couldn’t charge for a few years ago.
2. Why has this happened? The carriers have dramatically improved their cost-to-serve pricing models, generating billions in new revenue annually.
3. For shippers in 2018, this translates into hidden cost increases and more accessorial charges.
4. What can a shipper do to offset these new charges? Gain a better understanding of the impact these changes are going to have on your company. How much of your transportation spend is in accessorial charges or base rate charges?
5. Prior to negotiating, learn everything you can about your packages, shipping characteristics, and how they are used in the carriers’ negotiation process.
Perhaps the most important thing to understand in the freight negotiation process, is getting the carriers to see how valuable your shipments really are, based on package characteristic.