Parcel - August 2008 - (Page 12) operations HOW CARRIERS SET THEIR PRICES By Thomas Andersen and how to get yours to go down egotiating pricing with a carrier is similar to buying a car. There is the notorious sticker price. You expect to get a discount, and you assume that you have negotiated well after several rounds of having the salesperson go back and forth between you and the finance manager (the mystical force behind the black curtain). Once the deal appears to be finalized, they add a “destination charge,” and you find that you will pay considerably more than you had budgeted. You don’t have good ways to benchmark the results, however, so you settle. The car buying process has changed quite considerably, due in large part because the Internet makes information readily available. Don’t expect the same from the carriers, however, as contracts are protected by legal language, which limits information from being shared with the public. So you receive an invoice one week and then ask yourself, are others paying what I’m paying for the same shipments? Are other companies receiving greater discounts or reductions on any of the fees that consistently increase year over year? Bottom line, you ask, how does my pricing measure up, and how did the carrier establish the pricing? Although there are guidelines that carriers follow when negotiating pricing with shippers, rates, fee concessions and rebates certainly are not set in stone. Profit margins are protected, as a result of approaching opportunities, based on charging the maximum amount they expect a shipper will pay. This applies not only to small- to medium-sized businesses but also to national and global-sized companies. The following are the five Cs that the carriers consider when establishing the price for a shipper. Customer: A carrier will evaluate what the needs of the customer are. An experienced account executive anticipates the questions that are likely to be asked by his or her pricing analyst (the minimum level of involvement that’s required for competitive discounts, fees, and incentives). Questions will include: • As volume is a key driver, what’s the size of the shipper? • Is service, price, technology or another requirement the primary component that will drive the shipper’s decision? • Will the customer’s shipment methods require special attention? Although it may increase the cost, will applying a fee generate revenue that could potentially lead to overall greater 12 August 2008 www.PARCELindustry.com N http://www.PARCELindustry.com
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