Parcel - February 2008 - (Page 11) Another effective way to restore incentives is through a rebate. Some carriers will offer rebates on a monthly, quarterly or annual basis, and rebates can be written into contracts and based on either net or gross expenditures. Despite what your carrier reps may tell you, most accessorial charges are no longer off limits during negotiations. The key to obtaining some relief is to quantify the financial impact of each of these add-ons. Drill down with your carrier reps to get to a hard cost for all your add-ons. Once you have established the most costly of these fees, prioritize reductions with your carriers. One of the biggest costs is fuel surcharges. Although the carriers reduced their fuel surcharges by two percent, these reductions didn’t benefit shippers for long. In 2007, the two percent reduction in fuel only extended through June and then went right back up to historical highs. Meanwhile, shippers felt the entire annual tariff increase for 12 full months. There are several strategies to minimize the additional fuel surcharge. Ask your carriers to put a fuel surcharge cap in your contract so that it won’t ever exceed a certain percentage. It is also possible to ask for a flat fuel surcharge that would be fixed for the life of your contract. Remember that the fuel surcharges vary between the carriers and that the USPS still does not apply one. based on either net or gross expenditures. Most importantly, these rebates apply to all shipments, including packages affected by minimum charges. Contract terms can also help shippers avoid taking the general rate increase each year. Some shippers have negotiated net rates that aren’t tied to the carriers’ published list rates. This allows them to write into their contracts different, lower annual increases. And, as with fuel surcharges, it is possible to negotiate a cap to general rate increases. Shippers with fixed caps probably will take much lower increases than the 2008 general increase of 6.9%. Another important factor to consider when negotiating contracts is annual expenditures. All the carriers tie their proposed rates to minimum revenue levels and commitments. If you can accurately project your expenditures, you can use these monthly commitments to increase incentives and discounts. Negotiate rolling averages and other revenue thresholds to maximize incentives, rebates and other discount terms. Many shippers were negatively impacted by the 2007 Oversize rule changes. By some estimates, the carriers realized hundreds of millions of dollars in higher rates for dimensional shipments. According to PARCEL’s Trends Survey, those shippers affected will experience a 10% increase in their parcel spend. Not all shippers had to accept the new 194 rule. By customizing contract terms, some shippers were able to grandfather the old Oversize rules. Others were able to negotiate higher unique dim factors and/or cubic inch thresholds. These specialized dim factors can often narrow or eliminate the differences between actual package weight and the new dimensional weight. As with all negotiations, negotiating terms is a two-way street. Knowing what to ask for is important. You may have operational, service or automation requirements that increase the carriers’ “cost to serve” model and prevent you from fully maximizing these savings. On the carrier side, the keys to negotiating contract terms are to be reasonable, flexible and open. There are some accessorial fees that are political and practically sacred to the carriers. These areas tend to be the most difficult for shippers to negotiate. Keep in mind that while your primary carrier may not be able to offer concessions, it is possible that one of the non-incumbent carriers would be willing to negotiate various terms to compete for your business. While negotiating contract terms may seem more difficult than negotiating rates, it will pay off in the long run. Rates will change on an annual basis, but your contract will impact you for several years and will influence daily shipping expenditures. Tim Sailor is the founder of Navigo Consulting Group, which specializes in contract benchmarking, distribution analysis and carrier negotiations. Since 1995, Navigo has reduced its clients’ shipping costs by more than 30%. Tim was recently recognized as a Distinguished Logistics Professional by the American Society of Transportation and Logistics, Inc. He can be reached at 562-432-2299 or Tsailor@NavigoInc.com. ■ February 2008 11 Other Factors to Consider Minimum shipment charges is another cost that can also be controlled thorough contract terms. Many shippers don’t realize that the Zone 2, one-pound minimum shipment charge effectively negates their negotiated incentives. With this rule, the carrier can apply higher undiscounted rates to a large number of lower weight shipments. And ironically, the higher you have negotiated your discounts, the more shipments are impacted by this exclusion. Contract language can be written to offset these terms. It is possible to negotiate a lower minimum charge with some carriers offering flat minimums or a percentage off the minimum charge. Another effective way to restore incentives is through a rebate. Some carriers will offer rebates on a monthly, quarterly or annual basis. Rebates can be written into contracts and www.PARCELindustry.com http://www.PARCELindustry.com
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