Depending on capacity restraints, shippers are sometimes stuck with what they can get when it comes to transportation options and rates. However, you may have more negotiation power if your argument for lower rates is backed by data. Real-time market data helps shippers to negotiate with carriers for better rates and service.
Why Does Your Business Need a Shipping Contract?
A shipping contract is a legal agreement between a shipper and carrier that sets the terms and conditions in which the carrier will transport the shipper’s goods. There are many items that can be covered in a shipping contract, for example, the price, delivery timeframes, liability for loss or damage, and payment terms. Shipping contracts are used by businesses that have the need for regular transportation of their goods so that they ensure that they have scheduled capacity and pickup and delivery timeframes.
Negotiating a Contract with a Carrier
A carrier does not hold all the cards when it comes to shipping your goods. The following seven tips will help you negotiate rates with your carrier.
- Know Your Shipping Patterns
In order to be able to negotiate effectively, you have to know your shipping patterns, specifically your volume, current rates, and demand. The volume will determine discount tiers and what services you can negotiate for. Being able to communicate how much you ship can get you better shipping terms. A logistics platform can help you track your shipping volume over time and determine patterns or seasonality in shipping throughout the year. Know the following before you start negotiating:
- The services you currently use and need
- Any flexibility in pickups or deliveries
- What other carriers offer
This information will help determine where to start and where you want to end up, and what the options are for carriers.
- Understand Your Data
Data is extremely useful when it comes to negotiating with a carrier. Most carriers will have access to your shipping reports so you have to also come armed with additional data. Other data to consider:
Surcharges: Surcharges can make up a significant part of total shipping costs. Historical data on surcharges that were paid in the past can help understand your current surcharges.
Dimensional Weight: The dimensional weight takes into account of the weight of objects that are large yet lightweight. If you ship these types of items often, it can affect your total shipping spend.
Zone and Weight Distribution: This data interprets what services you are using and the cost. It can be used to negotiate for lower rates on certain types of packages.
Your current data serves as a benchmark for what services you need and how often you ship.
- Understand Your Carrier’s Pricing
Every carrier has different strategies when it comes to pricing services, such as discount tiers and surcharges. Most carriers do offer discounts for higher volumes of shipments. Carriers also vary in their surcharges, which can be charged for a variety of reasons like fuel and residential delivery. These charges can add to the overall shipping spend.
Contract Freight: These are fixed-rate agreements between carriers and shippers. They usually last one year and are usually negotiated when the term is up.
Spot Market Freight: These rates are dependent on supply and demand as well as capacity. The spot market changes frequently and there is an ability to negotiate often.
Relationship Freight: These rates are among brokers who have relationships with certain carriers. They prioritize the relationship between the two rather than negotiation.
If carriers want to obtain higher rates per load, the current status of the market becomes important.
- Consider Consolidating Shipments
Shipment consolidation can save on shipping costs as it gives you more volume at once which reduces the number of loads a carrier needs to ship. This can be helpful in negotiating volume discounts. Less-than-truckload (LTL) shipments are an option to combine several smaller loads into one larger shipment and save on transportation costs.
- Review Contract Terms
Carrier contracts should be reviewed every few months to identify changes that need to be made to the contract. If major changes have occurred to your business, don’t wait until the contract is up to review it. Rate increases, changes in volume, and the average number of packages you ship can vary throughout the year and this can affect your shipping expenses. Make sure your data is current so that you can adjust the contract as needed.
- Negotiate With More Than One Carrier
It might seem easiest to choose one carrier for your business’s transportation needs. However, while having multiple carriers might seem more complicated, it can save money overall. Using multiple carriers, including regional parcel carriers, can create options for your business. Regional carriers like USPS ca provide great service and lower surcharges in some areas. Having multiple carriers (and therefore options) can increase your leverage when negotiating. As the shipper, you are the customer and the carrier has to gain your business.
- Use a Third-Party Provider
Carriers sometimes increase costs throughout the year and use their experience to generate rate agreements in their favor. Some companies find that using a third-party platform with technology optimization can impact your bottom line. Their negotiating experience and ability to get you the best rates can be a huge timesaver, especially for companies that may not have much experience with shipping contracts.
Verizeal for Your Business’s Shipping Needs
Freight costs can make up a large portion of your business’s expenses, so being able to negotiate contracts effectively can impact your bottom line. Negotiations can be a useful tool for developing good communication with carriers as well as maximizing profitability. If you are looking for ways to save on shipping, Verizeal can save up to 20% on your freight shipping costs.
