UPS and FedEx are raising their rates again – do you have a plan?
UPS and FedEx have both set their rates to increase by approximately 5% in January of 2010. It happens every year. Depending on how good your rep is you may or may not hear that much about it. Yet, it happens year after year and if you don’t pay much attention, it can have a significant impact on your transportation revenue spend. If your company spends $50,000 per year on shipping and your rate increase is 5% that means that your shipping costs have increased by more than $200 per month!
$200 per month may not be a lot of money to some folks, but for most people in economic times such as these you have to make every dollar stretch as far as possible – and now more than ever. More than likely what you won’t see is your rep showing up with a new pricing agreement ready to address that increase. But when was the last time you renegotiated your shipping contract?
If you’ve been working with these companies for a while, you are certainly familiar with daily rates vs. retail, delivery area surcharges, residential surcharges, additional handling, large package surcharges, dim-weight charges, and fuel surcharges, guaranteed service refunds, service recovery and insurance issues/claims. International shipping is a whole different issue. All those things go up as well, so make sure that you review your 2010 service guide thoroughly. All this impacts your bottom line and if you’re shipping packages daily in substantial volumes this means there is a LOT of money involved.
Issue a Request For Proposal/Pricing (RFP)
So you’re thinking that it just may be possible that you’re spending more money on shipping than you need to. I understand. It sucks. Seeing invoices for thousands of dollars roll in weekly is tough, especially when they deny your claims, after damaging your stuff and nickel and dime you for everything under the sun (hello Delivery Intercept and address corrections!).
These companies want to "partner" with you to establish a mutually beneficial business relationship and there is much value in that. Having a good relationship with your carrier will help get action on things that need quick attention like missed pick-ups, damage claims, or other sensitive issues. You always want to have a good relationship with your carrier. That being said, they are also a vendor for your company and should be in a position to be fighting for your business. It’s not unusual for these guys to be confronted with requests for pricing (RFPs) on a regular basis, and if you haven’t done that recently (or at all) then you need to do it. Doing so can save your company thousands of dollars!
Get them competing for your business
When you issue your RFP it puts these companies on an even playing field, competing for your business – and that’s the way that you want it! It’s important to be clear about what it is that you want from the RFP, but you also have to be flexible. You have to have a good idea about what you can expect, and it’s advisable that you work with someone who’s been through this process before if you’re not familiar with all the details of your pricing agreement. Set your targets high, but reasonable. Give your vendors room to work, and give them flexibility so that they have a realistic chance of meeting your requests. Set a deadline and hold to it.
Be firm but reasonable
Be careful with meetings and phone conversations during the time period that they’re supposed to be working on your request. It wouldn’t be unusual for the vendors to want to meet to try to dissuade you from some of your requests on your request. Once when helping a company with this process I had one vendor request numerous meetings during the time when they should have been working on a proposal. I let them know that I was available to discuss any questions about the RFP, but we wouldn’t be meeting until we had received a response to our request. It was a tough situation, but we were clear on what we wanted. Ironically, the other carrier complied with our expectations completely and they ended up with the business. As mentioned before, there is nothing wrong with maintaining amicable relationships, but you need to be clear that you expect the vendors to respond to your request.
Start doing yearly reviews
UPS and FedEx raise their rates every year due to their evaluation of their business as a whole, economic climate and outlook for the coming year. So should you! You need to take a look at what you spend on transportation expenses year over year, and by service. Did you spend $90,000 two years ago, but $120,000 last year? That could potentially make a huge difference in your shipping contract! Have you maxed out your current bid? Do you know? Do you still have a copy of your pricing agreement? Are you shipping more ground residential packages than before? What about your air packages? Take some time and go over these things.
Don’t forget your accessorial charges, damage claims
Another important item that can’t go unchecked in your review is the amount you spend on all the extra charges that appear on your bill. Take a look at what you spend on delivery area surcharges, residential surcharges, additional handling, large package surcharges, dim-weight charges, and fuel surcharges.
Pay attention to what your losing on guaranteed service refunds, service recovery and unpaid damage claims and insurance issues. Make sure you have processes in place to check delivery status updates, and claims processing. Keeping an eye on all this will save you money! It can be a painful experience to see where money is being drained, but it will give you clear ideas on what to expect in your new contract.
This year, don’t let the new rate increase go by without doing a thorough review of your shipping expenditure. If your shipping costs continue to increase it’s definitely time to take a look, issue and RFP for more competitive pricing, and save enough money to hire one – or several – new employees.