While the pendulum has recently swung back to favor shippers at the negotiating table, making sense of what to prioritize can be another matter altogether. Parcel carriers have a ton of data — and they supply so much that it can be challenging to know where to focus when it comes to negotiating priorities.
The only way to combat great data is with great data. Here’s how to prepare.
Get the data you need to negotiate effectively
Prep for negotiations starts long before you ever reach the negotiating table. There are three components to successful preparation: 1) benchmark; 2) gather performance and cost data; 3) audit invoiced costs.
Benchmark
- Understand market rates and carrier priorities. For instance, one financial services company found that listening to UPS and FedEx earnings calls can provide insights into their negotiation approaches because he knows their company priorities.
- Gather insights from peers. We consistently hear from our customers that Parcel Forum is an amazing resource for this, in addition to publications like Parcel Industry. Compare notes with fellow shippers — learning what they’re paying will give you a better sense of what is competitive.
Gather your own parcel performance and cost data
Incomplete — or, worse, inaccurate — data will negatively impact your decision-making. There’s no shortage of data shippers could track:
- Cost of service/cost to serve: Understanding the cost implications of various services.
- Delivery performance: Tracking the efficiency and reliability of deliveries.
- Volume and lane trends: Analyzing shipment volumes and routes.
- Accessorial charges: Monitoring additional fees beyond basic shipping costs.
- Service-levels: Understanding the trade-off between delivery times and costs.
- Discounts on freight/package cost and services: Assessing the impact of discounts on overall costs.
- Customer satisfaction metrics: Evaluating the customer experience related to shipping.
- Carrier performance: Measuring the performance of each carrier to identify the best partners.
First, you’ll gather all necessary shipping invoices and shipment details. These will come in a variety of forms, from EDIs to PDFs to spreadsheets.
It’s important to build a centralized repository of this info. A centralized repo will standardize different terms between carriers, eliminating the need to manually map UPS’s Next Day Air to FedEx’s Priority, and give you everything you need associate each cost down to the SKU.
Run effective audits
You have to audit your data in order to trust it. We all have stories about errors that have resulted in massive overspending.
One billion-dollar distributor’s audit uncovered an internal system error that had stopped sending manifests — resulting in $3.75 charge per package without a manifest, and $1M in duplicate missing PLD (package level detail) charges. They were able to go to UPS and negotiate a one-time courtesy credit because the shipper didn’t realize there was a problem and UPS didn’t notify them.
For some shippers, auditing requires hiring a programmer who can transform EDI data; partnering with a parcel SME to manually audit; running analysis on the database. Platforms like Loop centralize and automate this process to provide better results, faster.
You want to audit a number of components:
- Account codes: Verifying that invoices are billed to the correct account codes to allocate costs accurately and ensure suppliers are not misusing contracts.
- Rates: Comparing invoice charges against the contracted rates to ensure the correct rates are applied to each shipment.
- Services: Checking that the invoice lists the correct services and associated discounts.
- Accessorials: Ensuring that any additional fees, such as reweighting or dimensional weight charges, are correctly applied and valid.
- SLAs: Analyzing the selected service level (e.g., next day, ground) against the published transit days to confirm that the chosen service level matches the delivery requirements.
Transform data into insights to identify key negotiation points
Data is only as good as the insights you can derive from it.
Run analytics to highlight where your biggest spend lies, allowing you to focus negotiations on those areas. You want to get granular by understanding what moves the needle, vs. picking up a few dollars here and there.
Overlaying predictive analytics can help you adjust your negotiations to secure better rates or guaranteed capacity — tailored to your business needs. For example, one retailer whose peak period is in summer (vs. the typical winter rush) was able to guarantee pickup times from a carrier.
Priorities might emerge like:
- consolidating lanes
- adjusting service levels to reduce costs
- negotiating waivers for Guaranteed Service Refunds (GSRs)
One Fortune 500 direct-to-consumer pharmaceutical company was able to identify $3.1M in savings in just one quarter by utilizing Loop analytics. They then knew how to focus their negotiations on key spend areas, resulting in significant cost reductions and improved bottom-line performance.
Get negotiation-ready with Loop
Loop transforms data into insights that help shippers optimize their carrier networks, combining auditing software, AI and analytics, and automated reporting.
Reach out today to learn how to drive profitability in your logistics operations with better data.
