The Ultimate Guide to Parcel Contract Negotiation
Published on July 11, 2024
E-commerce is a very competitive industry. One of the elements that can make or break your edge over your competition and increase your profits is your shipping costs.
Having a parcel contract that ensures you pay the best prices and don't lose your rights is crucial.
This comprehensive guide will walk you through the essentials of parcel contracts, key negotiation strategies, and insider tips to help you get the best possible rates from your carriers.
What is a parcel contract?
A parcel contract is a formal agreement between a company and a carrier that outlines specific rates, terms, and conditions for shipping services.
It typically includes negotiated discounts, surcharges, and service commitments tailored to the shipper's specific needs and volume requirements.
While you don't need a parcel contract if your business has low shipping volumes, it can become increasingly valuable as your shipping volume grows. If you're a high-volume shipper, a well-negotiated parcel contract can mean significant cost savings and improved service from your carrier.
Here are some of the advantages of having a parcel contract:
- Cost savings through negotiated rates
- Customized pricing based on shipping patterns
- Predictable costs for better expense forecasting
- Service guarantees and performance commitments
- Potential for priority handling and dedicated support
- Flexibility to adjust terms as business needs change
- Competitive advantage through lower shipping costs
- Streamlined operations with a primary carrier
- Access to enhanced carrier technology and tools
- Volume incentives and tiered pricing opportunities
For businesses with higher shipping volumes, negotiating a parcel contract becomes more and more beneficial. As your volume grows, so does your negotiating power.
The exact volume at which a parcel contract becomes advantageous can vary depending on factors such as your shipping patterns, the carriers you're working with, and your industry.
What is Typically Included in a Parcel Contract?
Parcel contracts are complex documents that cover many aspects of the shipping relationship. Here are the key components you'll typically find:
- Base Rates: The starting point for shipping costs before any discounts are applied.
- Discounts: Negotiated discounts from base rates, often tiered based on shipping volume.
- Surcharges: Additional charges for specific services or circumstances (e.g., fuel surcharges, residential delivery charges).
- Service Levels: Definitions and commitments for different shipping speeds and options.
- Dimensional Weight Policies: Rules for calculating shipping charges based on package size.
- Minimum charges: The lowest amount you'll pay for a shipment, regardless of discounts.
- Accessory charges: Charges for additional services, such as Saturday delivery or signature requirements.
- Performance Guarantees: Carrier commitments to meet certain service standards.
- Payment Terms: Billing and payment terms, including credit limits and late fees.
- Contract Term: The length of time the agreement is in effect.
10 Best Strategies for Negotiating Your Package Contract with Your Provider
Parcel contract negotiation doesn’t have to be a hassle. With our tips, you’ll be able to get significant savings and improved service. In turn, it can help you lower the shipping fees you pass to your customer. Here are ten proven strategies to help you secure the best possible deal:
1. Know Your Shipping Profile Inside and Out
Before you start negotiating, conduct a thorough analysis of your shipping data. Understand your
- Annual shipping volume
- Average package weight and size
- Most common destinations
- Frequently used service levels
- Frequency of accessorial charges
2. Benchmark Your Current Rates
Compare your existing rates to industry standards and those of shippers of similar size. Tools like Buster Fetcher's Report can provide valuable insight into where you stand and where there's room for improvement.
Having a general idea of what companies with similar shipping needs are paying can really help you in negotiations.
3. Focus on Total Cost, Not Just Discounts
While headline discounts are important, they don't tell the whole story. Pay attention to minimums, dimensional weight factors, and accessorial fees.
You can use our dimensional weight calculator to see how carrier volumetric weight factor compare.
A contract with lower base discounts but more favorable terms in these areas may actually save you more.
4. Negotiate Multi-Year Agreements Strategically
Your business objective is likely to grow over time. Don't let a long-term contract hold you back. Yes, longer contracts often offer better rates, but they can limit your flexibility.
Consider negotiating annual rate caps and performance clauses that allow for renegotiation if service levels drop. This approach balances long-term savings with the ability to adapt to changing needs.
5. Leverage Competition Among Carriers
Don't put all your eggs in one basket. Maintain relationships with multiple carriers and let them know you're considering alternatives. This competition can lead to better deals and more flexible terms.
6. Understand the Carrier's Perspective
Carriers are businesses with their own goals and constraints. Research their recent financial performance, market strategies, and capacity issues. This knowledge will help you tailor your approach and find mutually beneficial solutions.
7. Address Accessorial Fees Head-On
Accessorial fees can add up quickly, and before you know it, all your savings from discounted basic rates are gone. Identify the fees that affect you the most, and negotiate caps or waivers on those fees.
Consider bundling some accessorials into your base rates for simpler billing and potentially lower overall costs.
8. Customize Your Agreement
One size doesn't fit all when it comes to parcel contracts. Work with your carrier to create custom rate schedules or zone-based pricing to match your specific shipping patterns. This approach can yield significant savings over the standard rate structure.
9. Negotiate Performance Incentives
Include performance-based incentives in your contract. For example, you can negotiate additional discounts or rebates for meeting certain volume thresholds or for processing a high percentage of shipments electronically.
10. Don't Neglect Service Guarantees
While cost is critical, service quality is equally important. Negotiate strong on-time delivery guarantees and clear remedies for service failures. Consider asking for dedicated customer support or priority handling during peak seasons.
It's also worth having a tool like Buster Fetcher to make sure you don't miss packages that are delivered late.
Conclusion
Negotiating your parcel contract may seem time-consuming and complex, but it's worth it. Using our strategies, you can secure a contract that significantly reduces your shipping costs and provides you with high service levels.
Remember, negotiation is an ongoing process. Review your contract performance regularly, stay informed about market changes, and be prepared to renegotiate as your business needs evolve.
Are you ready to optimize your shipping costs? Start by analyzing your current shipping data and identifying areas for improvement.
FAQ
What is the Difference Between Shipping Contracts vs. Freight Contracts vs. Parcel Contracts
While parcel contracts are crucial for businesses shipping smaller packages, it's important to understand how they compare to other types of shipping agreements. Let's explore the key differences between shipping contracts, freight contracts, and parcel contracts:
Shipping Contracts:
- Broad term encompassing various types of transportation agreements
- Can include parcel, freight, air, ocean, and multimodal shipping
- Often used for businesses with diverse shipping needs
- May involve multiple carriers or logistics providers
Freight Contracts:
- Focus on larger shipments, typically over 150 lbs
- Often involve Less-Than-Truckload (LTL) or Full Truckload (FTL) services
- Usually priced per mile or per hundredweight (CWT)
- Include specific terms for loading, unloading, and transit times
- May involve specialized equipment (e.g., refrigerated trucks, flatbeds)
Parcel Contracts:
- Designed for smaller packages, typically under 150 lbs
- Primarily used for B2C and small B2B shipments
- Priced based on weight, dimensions, and distance
- Include detailed rate structures and surcharges
- Often offer more precise tracking and delivery timeframes
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