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Negotiating Contracts with Vendors

July 1, 2022 Chase Flashman

Contract negotiation with vendors can be overwhelming. You are being told you have the best rate, but no one on either side of the table has any data to back up that claim. When we take the overarching topic of negotiating contacts with vendors, and concentrate on shipping carriers specifically, the headache increases. Especially when you are dealing with a duopoly like UPS and FedEx. So, where do you start? Where does one learn how to negotiate price with suppliers? In this blog, we will discuss six key tactics to use for carrier contract negotiation.


1. Know Your Position

When you are negotiating terms with a vendor, the first thing you must be armed with is your ask. If you don’t know what you are looking for or what to expect, you will not be walking out of the negotiation with the best deal possible. Things you should know about your own situation include knowing your budget, your deadline for a new signed contract, who the decision makers are on your team, and if you are prepared to walk. It is also a good idea to make a list of your “must-haves” vs your “nice-to-haves.”

Price Negotiation Examples:

Start by anchoring the discussion. Say something like “We are looking to spend no more than $XX for this.”

This allows you to set the budget cap before the negotiation has even begun. The carrier will likely ask you how you came up with that number, and how it fits in to your budget. They are just trying to figure out if it is a real number or a stunt. Don’t let this intimidate you. Come prepared with the answers to these and more to start your negotiation on the right foot.
Once you know all of this, you can move on to the second tactic.

2. Know Their Position

Knowing your own position is a great start but knowing theirs is imperative to a successful deal. Show the carrier that you understand how they operate, their underlying costs, and the challenges they face in the industry. The simple step of displaying empathy can go a long way in negotiation. On the other hand, if a vendor or supplier thinks you don’t understand their perspective, they are more likely to write you off and be less flexible. Being open and transparent about both parties’ needs is a great lead into our next tactic.

3. Clear Communication

If you are wondering how to negotiate discounts with vendors successfully, clear communication is the answer. But it is not just on you, this is a two-way street. Both you (the shipper) and the supplier (the carrier) must be clear and effective in your communication. Work together to keep communication efficient, responding timely and appropriately to keep the conversation moving forward. This is important to manage even before a negotiation. If the carrier knows you are responsive and willing to work with them, not against them, the thought of a negotiation, especially one around price, will be much more palatable.

4. Research Pricing

Speaking of price, our next tactic is all about it. Do your research. When you are negotiating payment terms with suppliers it is imperative to know what you are paying now, what it actually costs the carrier to ship your package, and what you should be spending. But how do you find all this information, that the carrier’s try so hard to hide? You hire an expert.

5. Build your Negotiation Team

While you can always choose to keep your team internal, often times hiring an expert in the industry can help you get a better rate. It is imperative to make sure that your team has skills in all the necessary areas.

At ShipSigma, we use ai-powered technology to manage, optimize, and analyze over $1Billion in parcel spend. This allows us to do more than just benchmarking. With our insights and analytics platform, we provide cost modeling data and can show you the amount you could be saving down to the penny. That is our Shipping Savings Guarantee. We then provide end-to-end service and will lead your carrier contract negotiation.

The hard truth is that the carriers only goal is to maximize their profits, not help maximize yours. They will tell everyone that they “have the best rates,” but if everyone has the best rates, then no one does.

We know you have a great team in-house, and we are not interested in taking their jobs nor do we claim to be better negotiators. We merely want to be an extension of the team you have already built, providing the live market spend data to help successfully navigate the negotiation process.

6. Avoid Fatigue

If we at ShipSigma can help you avoid the “agree to anything because your exhausted” weakness, then we’ve done our job.

Unfortunately, sometimes the best deal goes to the side with the most endurance. This could be physical endurance to sit in a meeting longer than expected or having the mental fortitude not to let your emotions run the conversation. Here are a few things to consider to avoid fatigue when stepping into a negotiation:

  • Expect the negotiation to go longer than planned
    • The in-person meeting or video call could go well beyond the scheduled block
    • The parties could continue to go back and forth for weeks with edits to the contract

  • Bring snacks
    • Make sure you pack some food and a drink to keep your energy levels up, especially if the meeting goes longer than planned.

  • Don’t be afraid to take a break
    • Don’t hesitate to step out of the room to take a breath, wash your face, or otherwise if the negotiation isn’t going as planned. Sometimes you just need a moment to reset to get back on track.

  • Keep calm
    • Avoid letting your emotions run the conversation. Keeping steady and calm will allow the discussion to keep moving forward without implosion.

  • Don’t get desperate
    • Don’t cave because you're tired. You have the facts and data on your side, take your time and trust the process.

how-to-negotiate-contracts-with-vendors

Negotiation Preparation

You’ve done your research, now it’s time to put these steps into action. Because while you are inquiring about how to negotiate contracts with vendors, your suppliers are constantly examining and developing their tactics for how to negotiate price with customers. Come prepared to a negotiation and you will be one step ahead of them.

Price Negotiation Conversation Example

Once the supplier provides their offer, it’s your turn to counter.

Talking points include:

  • Thanking them for their offer and hard work
  • Explaining your situation (not in budget, not aligned with market values, etc)
  • Presenting your counter offer
  • Noting your intent if the offer isn’t met
  • Offering hopes of reaching an agreement
  • Setting a response date

What does this look like?

Dear Contact,

Thank you so much for the proposal you sent over.

My team and I have reviewed the documents and were very happy with what we read. Unfortunately, we noticed that the price you quoted is out of budget.

In order for us to move forward, we request a rate that is X% lower than your original quote to reach a final price of $XX. While we respect the benchmarking that you provided, we were able to come this number using cost modeling technology and comparing live market data. X,Y, and Z. If you cannot offer this price, we unfortunately will need to transition to another carrier.

We hope that you can accept this offer so that we can continue our business relationship. Please inform us of your decision by XX/XX/XXXX.

Let ShipSigma Negotiate Your Carrier Contract For You

We are experts in carrier contract negotiation, we do it every single day. With our ai-powered platform, we know when to ask, what to ask for, and how to ask for it. We know how much we can save you before we negotiate and how your rates stack up. We’re not here to disrupt your operations or negatively affect your relationship with your carrier. Our mission is simple, we’re here to save you money. Our customers see an average of 25.2% savings. It only takes a minute to get started. Contact us today to learn about what savings you could see with our carrier contract negotiation solution.

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