Glenn Gooding [00:00:02]:
I would tell you that one of the biggest mistakes I see in the space is shippers will rely on the carrier to tell them what the effect of a proposal is financially to their business. That's in essence asking the fox to guard your hen house. How often do you think I find a variation, a difference between what the carrier might be telling a customer and what actually is affecting the customer? Any guesses? Every single time.
Glenn Gooding [00:00:39]:
Welcome to Parcel Perspectives, the podcast dedicated to small parcel shippers. I'm Glenn Gooding and each episode we dive into insights, best practices and strategies to help you navigate this complex, costly market. Join me as we explore ways to strengthen your long term partnerships with your chosen carriers and stay competitively aligned.
Glenn Gooding [00:01:06]:
Hello everyone. Thanks for joining me again for another episode of Parcel Perspectives with Glenn Gooding. It's good to be seen on this very frosty, chilly southeastern US Day in almost wintertime. Today I want to share some things with you and I want to kind of tee up a deeper dive that I'm going to be doing with regard to kind of negotiating strategies and understanding carrier contracts. So two things for today's session with you. One is I kind of want to help you understand and kind of unpack carrier contracts at a very high level. Talk a little bit about spotting hidden fees and terms and also negotiating for better terms and maybe some best practices kind of woven in there. All with the hope of gleaning your interest for a much deeper dive into the inner workings of carrier contracts as we're calling them right now for a webinar that will be scheduled for December 12, 4:00pm Eastern Time.
Glenn Gooding [00:02:11]:
I hope to see you there. Hope I can say enough in this podcast with you to intrigue you to try to learn more. So enough on that unpacking carrier contracts and I think the first important question is what is a carrier contract? I'm going to stop right there and I'm going to correct the verbiage, the nomenclature I've been using deliberately in this podcast and I'm going to say it's not a contract, it's actually a pricing agreement. It's an important distinction and I want to just give you a very clear, logical explanation of what a carrier pricing agreement is. Whether it be a UPS pricing agreement, a FedEx pricing agreement, an on track pricing agreement, a negotiated services agreement with the usps, you name it. All carriers in the US operate off of their own unique tariff. Think of it as the all inclusive rules and regulations of how to do business with that particular carrier. What is allowed, what isn't allowed what services are offered, what is covered, what isn't covered, all of the details in all the minutiae.
Glenn Gooding [00:03:23]:
Okay. Including rates. Now, a pricing agreement, one that a client, a user will enter into directly with a carrier is anything contained in that pricing agreement will be a deviation from the published tariff. Makes sense. So, for example, you go out and you negotiate a pricing agreement with ups. Contained within that pricing agreement are expedited or air services discounts and ground discounts, percent off at the time of shipping. If it's not contained in that pricing agreement, what is the de facto source of information for billing or rules? It's the tariff. Okay.
Glenn Gooding [00:04:11]:
So the pricing agreement is any deviation from that tariff and majorly, most of the time the primary deviation is from price, right? Discounts, rate structures, things like that. And they are important for shippers because shippers have to know what they're going to pay, right? And if you're an E Commerce shipper, whether you like to admit it or not, the carrier or carriers you go under a pricing agreement with are an extension of your brand. They're an extension of the buying experience, the customer experience, the experience that hopefully retains customers and brings them back for subsequent orders. Now, with that general knowledge, there are all kinds of pitfalls and things with carrier agreements and there's a lot of fine print contained within. So you know, if you're thinking about endeavoring into, let's say negotiating or going to market negotiation with your current carrier or going to market looking for other alternative carriers, I think there's some interesting things to consider at a high level. One is what is your stated goal? Sounds simple, but what is it really? What does it mean? What's your stated goal? I haven't gone through a project with a customer ever that first and foremost the stated goal was cost reduction. So we can just check it off the list. But there are a lot of other potential stated goals.
Glenn Gooding [00:05:47]:
Are you a customer who is beholden to one carrier and one carrier only, and you're looking for a way to maybe diversify? It could be pros and cons to that. Are you just sick and tired of your incumbent carrier? You just feel like you're not getting the service you want or need and you want to look at a complete change? Okay, there's additional goals in this stated, let's say, project that. We're going through a lot of things to consider in that. So if you're thinking about change, what does change look like and how does change impact your company operationally? Customer specific, how does that change happen at the shopping cart buying experience in your subsidized shipping strategy. How about technology as far as generating a shipping level, comparing rates between two or three or four carriers for a like service? Right. Those are all things that have to be in place. And you have to test the appetite, the intestinal fortitude of your organization, the key stakeholders that may be impacted by that. So if you have your procurement blinders on and you're saying price, price, price, price, but I want to challenge the organization with change and I've got this great deal from a non incumbent.
Glenn Gooding [00:07:10]:
Don't lose your credibility and not having your T's crossed and your I's dotted with regard to what it might take to make a carrier change. And if at all possible, have those meetings with key stakeholders beforehand so you get those things nailed down first. Another big one. I'd mentioned it just briefly a minute ago. You're singularly dependent on one primary carrier and you want to bring in a second. Okay, let's imagine for a minute that you have a singular dependence on FedEx and you have a pricing agreement with FedEx that gives you earned discounts contingent on that spend level. And let's imagine for a moment in your negotiating strategy, you want to go to FedEx and you want to say, you know what, FedEx, I like you, but I don't think you're great in all areas. And I'm going to go and I'm going to talk to UPS and I'm going to talk to ontrack about what they can do with the ground residential deliveries I have.
Glenn Gooding [00:08:12]:
And so FedEx, what I'm asking of you is I'd like you to improve my rates. I want to save more money with you, but I only want to save more money with you on 50% of the business I've done historically. How might FedEx respond to that? Kind of a rhetorical question, right? Not favorably. So if you're considering a maneuver like that, you have to consider a wholesale change and you have to consider what would that wholesale change look like and what expectations do you want to present in the marketplace around the sourcing options you want to pursue, for example, that $2 million spend. If you think you want to use the traditional national small parcel provider like a FedEx or a UPS, great. They're very good at what they do. You better have a predetermined idea of what that environment looks like. If you brought in another carrier where they would fit.
Glenn Gooding [00:09:10]:
What does that $2 million spent look like to the non incumbent in this example, UPS and only allow Them to bid on the piece that you want them to be aggressive for. Very, very hard in a negotiating perspective, to give them $2 million to bid on and then pull back on the rope a little bit and say, ah, instead of 2 million, I want the same discounts on a million. Tough conversation. So a lot of work to be done upfront. Along with that, it's important that you really, really understand your current pricing agreement or agreements and what pricing agreements typically look like from a terms and conditions perspective, as well as some of that fine print. Now, the role of fine print terms and conditions in pricing agreements, in layman's terms, ups, FedEx, ontrack, you name it all the carriers want to give you what you're asking for. They want to do it in ways that are easily quantifiable for you, things that you might be emotionally attached to, like base transportation rates. And they want to get you with all of the ambiguous complexities behind the scenes.
Glenn Gooding [00:10:22]:
Accessorials, surcharges, other billing methodologies, things like dim factors, early termination, penalties and performance language, and rebate structures. All those types of things are ways the carriers will improve margin over time. So with very, very rare exception, I would tell you that one of the common rules I live by in the small parcel supply chain space is whatever margin. We don't know what that is. But whatever margin your incumbent carrier is enjoying with you right now in 2024, that margin they enjoy will be bigger in 2025. Fact. Why? Because they manipulate and increase some of those other ambiguous charges at a much higher rate than what they publicize. Around a 6.9 or a 5.9 or a 4.9 general rate increase.
Glenn Gooding [00:11:21]:
So important things to consider. Now as a teaser on some real world examples of costly oversights in carrier contracts, I'm going to give you a couple. One, and this just comes from the earnings call that Carol Dumai let out for UPS earlier. She talked about some new pricing dynamics to test the elasticity of the market and pricing in layman's terms, at least with what I'm seeing in the marketplace, you might be seeing something called a local delivery discount. Sounds benign, sounds interesting. But when you look at the fine print, you find, number one, they're committing to a dollar amount. They have no way of backing in and telling you or quantifying how they're getting to that dollar amount savings. So say 50 cents per affected parcel and we project a $1,300,000 save per year.
Glenn Gooding [00:12:19]:
They have no way of telling you which exact packages are going to be affected by it. And they also in this proposal we'll list out that UPS reserves the right to change or end the local delivery discount at will with or without notice. Well, if you're signed up for a three year term, which is standard length in the transportation world, in the small parcel world, or a five year term, that can be pretty darn dangerous. That's opening the door for in this example at UPS to manipulate that for your benefit. Probably not. It's going to be for their benefit that improved margin on a year over year basis. So that's a real world example of an oversight in a carrier pricing agreement. A second one that I think is vastly overlooked.
Glenn Gooding [00:13:16]:
Fuel surcharge. We've all become very apathetic to fuel surcharges. It exists everywhere in the supply chain. You look at your LTL pricing agreements, fuel surcharges are in the 30s likely. Small parcel is roughly half of that. So you're like, oh, it is what it is. But what you may not realize is that the carriers routinely manipulate those fuel surcharge tables again without notice. So that if fuel were going to be trading at the same level, what was once a 15% fuel surcharge could the next week be 16% and you're not the wiser for it.
Glenn Gooding [00:14:02]:
And fuel costs haven't gone up. So those are a couple, I think, big oversights that I see in pricing agreements with carriers today. Now spotting hidden fees and terms. I've mentioned accessorial fees, I've mentioned surcharges as a general category. It's important to really intimately understand all of those and there's a boatload of them. But at a minimum you really need to understand the ones that impact you and your business. So if you're an E Commerce shipper, here's the short list of what's really going to impact you. Fuel surcharge, probably number one, Residential surcharge, probably number two, delivery area surcharge, more than likely number three, followed by extended delivery area surcharge and then remote area surcharge.
Glenn Gooding [00:14:59]:
Those would be the big ones. In addition to that, how about dimensional billing? Dim factors? Those can get you to and oftentimes varies by carrier. But oftentimes if you look in carrier package level detail that they provide to you in their invoices, you may or may not get package dimensions back from them. So it may be very hard for you to quantify or understand the impact of what a dim factor might be. So you need to have a very clear understanding of what you're impacted by from accessorials and surcharges and equally how much money it's costing you on an annual basis. You have to include that in your knowledge of the base transportation rights to fully comprehend what you're looking at and devise an appropriate strategy to try to reduce that in this exercise. Right. We all realize that the number one common denominator in any exercise like this is cost reduction or cost containment.
Glenn Gooding [00:16:00]:
Ambiguous verbiage in pricing agreements runs rampant as well. Invariably, if you've ever spent the time to read a pricing agreement, it's a great way for insomniacs to get back to sleep. It's tough reading and it gets tougher every single year. And if you're a mature brand, a large brand, and you have a long standing relationship at a strategic level with one of these carriers, inevitably it gets monstrously complicated because everything gets modified and you have addendum A and addendum b and addendum 5c. And by the time you get to this, you're looking at could be in excess of 200 pages of unique pricing agreement legalese terms and conditions. Most of it is probably ambiguous. So you need to spend the time reading that or leaning into an expert who really really understands it and ensuring there's clarity around what it means specifically to your business. Mentioned the financial impact you need to take care of and you need to have good robust tools and strategies to thoroughly review carrier pricing agreements.
Glenn Gooding [00:17:18]:
I would tell you that one of the biggest mistakes I see in the space is shippers will rely on the carrier to tell them what the effect of a proposal is financially to their business. That's in essence asking the fox to guard your hen house. How often do you think I find a variation, a difference between what the carrier might be telling a customer and what actually is affecting the customer. Any guesses? Every single time. Which way do you think that is represented? Is that one where the carrier underestimates their savings or overestimates your savings? Yep, overestimates the savings every single time. Every time. So if you don't have internal resources that can capture the holistic spend that you have in this space and understand every spend element and have a, or a trusted partner that really knows this space advocating on your behalf, not the carrier's behalf, you're going to be at a distinct disadvantage. Now negotiating for better terms.
Glenn Gooding [00:18:36]:
This is a big topic. Here's how I will help you understand this from an ideological perspective. Let's go back to that $2 million made up shipper that solely uses FedEx. I want you to think of that $2 million spend as a balloon. Now within that balloon there is a whole host of different spend elements. Remember the analytics, you need to know exactly what makes up that $2 million. How much is direct transportation, how much is fuel, how much is resi surcharge, how much is, let's say, address correction fees, how much is delivery surcharge, and so on. How much is the financial impact of a dimensional billing structure, you know, actual scale, weight versus build weight, all important stuff.
Glenn Gooding [00:19:29]:
Now the said goal of this we've arrived at an agreement is that we want to reduce or cost contain, that's number one, that $2 million spend. Biggest mistake you can make, folks, is you get emotionally attached to 1, 2, 3 of those spend elements and you solely focus on those. If you do that, you're making it easy on the carrier. They'll placate you by meeting your demands in those areas and through ambiguous billing methodologies, other terms and conditions, other fine print, they're going to find ways to expand that balloon in other areas. So that $2 million spend, imagine taking two fingers and poking it in the balloon you've compressed here to the rest of the balloon expands. So what I always recommend, don't be emotionally attached. Devise a strategy of how you want to go to the market and provide a request that allows the carriers the flexibility of helping achieve your stated goal. Stated goal might be I'm at $2 million in total spend now and I need to find a way to drive 25% out of my supply chain.
Glenn Gooding [00:20:46]:
Allow the carriers the flexibility and the creativity to help you achieve that. Have the analytics, have the access to the resources, the knowledge base of someone on your team or an outside firm to help you quantify that and understand the impact of those things that will help you tremendously in approaching this project. So I hope that was enough of a teaser as far as what to expect. On December 12, I'm going to dive into a real world client. It's been a long term client of ours had the privilege of supporting. I'm going to work hard to probably anonymize that client for obvious reasons. However, I'm going to walk through all the sorted details, the trials and tribulations of what we accomplished together, what some of the pitfalls were and how we finally got there. When I say finally got there, it was a dynamic process involved really easily four different unique independent negotiating periods within the partnership timeline, not just a one occurrence where we had four negotiating rounds.
Glenn Gooding [00:22:04]:
So I hope it helps you, hope it intrigues you and I really hope to see you on the webinar. Look forward to hearing from you and I will speak with you soon. Take care.
Glenn Gooding [00:22:21]:
Thanks for listening to Parcel Perspectives, hosted by me, Glenn Grigg. I've been in the small parcel space for 37 years, starting with a deep and broad background working for one of the major carriers as an operator and industrial engineer, later managing pricing at the highest level for the largest, most complex shippers in the world. Since then, I've been a national thought leader and worked to help drive strategy for clients from Fortune 50 companies to startup e commerce businesses, helping them more competitively align in this complex and expensive market. If you enjoyed the show, please subscribe and share with friends. Join us next time for more expert advice and strategies to stay ahead of the shipping game.
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