Carrier Contract Negotiation
Cut parcel shipping costs without lifting a finger. ShipSigma helps high-volume, UPS and FedEx parcel customers save big without changing carrier service levels.
Cut parcel shipping costs without lifting a finger. ShipSigma helps high-volume, UPS and FedEx parcel customers save big without changing carrier service levels.
Director of Global Logistics
Cost reconciliation and reporting was a big reason why we signed up for ShipSigma. Everything's just so easy to use.
Our previous freight auditing company only secured half of the savings that ShipSigma finds and delivers back to our UPS account each week.
ShipSigma noticed 60% of our shipments could have travelled ground arriving the same day. ShipSigma saves us money in many ways we'd otherwise miss.
Even though we didn’t end up working together, I know I can trust them, and will likely work with them in the future. Super refreshing to experience honest and fair business!
Until ShipSigma, we had no idea of the unfair market we were playing in. ShipSigma leveled the playing field and found us nearly 25% in savings.
We thought we had a good understanding of our shipping until ShipSigma. The insights and analytics have given us visibility we've always wanted.
Our AI-powered platform is fueled with a network of data from over a billion in shipping spend to guarantee your carrier savings instantly.
Our AI-powered platform is fueled by a network of intelligence from over a Billion of shipping spend to instantly and accurately predict your savings down to the penny. It works so well that we guarantee it.
We're experts in carrier contract negotiation, we do it every single day, and our AI-powered platform drives insights from over a Billion of shipping spend. We know exactly:
You can know your savings without ever talking to a salesperson if you'd like.
Are you wondering how to negotiate shipping rates with UPS or Fedex? Unsure what a carrier contract is exactly? Here at ShipSigma, we are dedicated to transparency in an aspect of business that can be quite murky and difficult to navigate. If you are unclear on aspects of carrier contract negotiations or are looking to save money on shipping parcels and freight, you’re in the right place.
This guide will cover:
A carrier contract is an agreement between a company that ships parcels or freight and a company that has packages to ship. Shipping companies, also known as carriers, charge a set rate for every parcel that they move. An example of a contract carrier is UPS with another popular options being FedEx. Companies that frequently ship large quantities of parcels or freight are able to negotiate lower prices with contract carriers. This is where the "contract" part comes into play, as this agreement spells out all the details of what each party is responsible for.
A carrier contract will typically include:
Like all contracts, it is important to carefully read and review every clause before signing. Carefully reviewing the terms and conditions, and having a clear idea of what your business needs for this agreement to be beneficial, will help you negotiate a favorable contract with your carrier.
Parcel generally refers to shipping individual boxes to many different locations. You may see "parcels" referred to as "packages," which is essentially the same thing. Parcel shipping generally has an individual package weight limit of around 150 pounds, although most packages are under 70. There is also usually a dimension requirement. Once your packages are over 108 inches by 165 inches, then small parcel shipping companies will categorize them as freight.
Freight refers to large quantities of boxes or goods that move as a unit to the same location. They are often on pallets and are categorized by the amount of space they take up in the shipping container. There can be full truckload, less than truckload (LTL), or partial truckload shipments of freight. Freight can be shipped via truck, cargo plane, ship, or train.
Carrier contract negotiation is the process of each party going through the contract and hammering out the details. Once these details have been mutually agreed upon, the carrier will draw up a contract that includes all of the terms and conditions. An important thing to note while parcel contracts tend to be similar to each other, there are many different types of freight contracts. These can include:
With parcel carrier contract negotiation, there are two main companies that most businesses use to ship their parcels: FedEx and UPS. This duopoly can make negotiating a contract tricky, since it’s difficult to figure out what a fair parcel shipping rate is (more on this later).
One of the unique factors with freight negotiation is the sheer number of carriers—all with their own fee structures and competencies. This overwhelming marketplace can lead to supply chain executives following the "path of least resistance," staying with the same providers they’ve used in the past despite rising prices and excessive fees.
At ShipSigma, whether you’re shipping parcel or freight, our industry-leading technology and best in class platform uses advanced data science and analytics to identify and recommend cost reduction opportunities. This enables a continuous improvement process to optimize parcel shipping spend and benchmarks shippers against their peers. Beyond benchmarking against your peers, we also cost model out your shipping data to understand the profitability of the carriers to reverse engineer what your optimized contract should be and decipher how much money you will save.
For parcel shipping, we help you find small improvements that make a big difference—all without changing carriers or service levels and with no interruption to your workflow. You don’t have to change the way you ship to save money.
For freight shipping, we start with best-in-class vendors, thoroughly vet their capacity and performance, and structure mutually beneficial agreements. Our end-to-end service also includes on-going support, ensuring that your freight carriers adhere to the contract, as well as securing refunds and invoice corrections when they fail to do so.
Simply put: contract carriers want to maximize their profit margins, not help you maximize yours. Pre-negotiated shipping rates are sky-high, and often, your post-negotiation rates are not market appropriate either. Parcel carriers operate under a duopoly—meaning there are only two major carriers (FedEx and UPS) that control the rates for the industry.
Contract negotiation can have a powerful impact on your bottom line. For example, at ShipSigma, we worked with an industry-leading food and beverage company that was spending $7 million a year on shipping with UPS. Our proprietary platform, a Software-as-a-Service (SaaS) based analytics, contract analysis, and negotiation solution, saved them $2.4 million a year on their shipping costs… without changing carriers or service levels.
Everyone thinks that they are getting a good shipping rate, especially when carriers are telling you this. According to them, you are. Remember, shipping companies like UPS and FedEx are essentially a duopoly. This means that they set the rates for the entire industry compared to each other, not compared to what it actually costs to ship a parcel.
Often, account managers for these small parcel contract carriers will say things like "a very competitive volume-based discount," when the truth is that 20% or even 50% discounts (sometimes more!) on ground shipments still leaves a large margin for the carrier. Without market intelligence, industry experience, and the modeling of your parcel shipping cost, it’s difficult to negotiate fair and competitive rates.
In addition, there are many fees and assessorial charges that are included in contracts. These fees range from fuel charges to dimensional weight divisors to large package surcharges and more. This can exponentially increase your shipping costs, especially when you are moving a high volume of parcels or freight. In fact, over 40% of the carrier's profitability comes from these types of charges.
In order to know what good shipping rates are for your company, ShipSigma has built industry-leading cost modeling software that will let you know what you should be paying based on your existing invoice data.
Our groundbreaking technology and our proprietary process have transformational results. We worked with an e-commerce company who thought they had "good shipping rates." Prior to working with ShipSigma, they were spending $11 million per year on shipping costs. We saved them $3.1 million within 41 days without the client having to change carriers or service levels.
Similar to shipping parcels, figuring out what a good freight rate is can be difficult. There are industry indexes that can be used, but understanding and decoding this data can be time consuming and difficult. Freight rates are typically paid by the mile, and the range varies greatly. Truck load, less than truckload, air, and ocean freight have their own unique rates that will fluctuate based on market factors. Common variables that affect the freight rate include:
If you are searching for this answer, you won’t have much luck finding a specific number. This information is protected closely by freight contract carriers, for a reason. If businesses know an average number, then that gives more negotiating power to the purchaser. With ShipSigma, we empower you to optimize your entire supply chain process by leveraging historical shipping data, industry averages, and current costs.
Here at ShipSigma, we’ve seen many carrier contract negotiation examples. Long before this company existed, our founders were on the other side of the table negotiating contracts as employees of UPS and FedEx. Here are our top ten insights on how to negotiate contracts successfully:
The party with the most information also has the greatest negotiating power. Traditionally, contract carriers have had a stranglehold on information with confidentiality clauses and a lack of transparency. ShipSigma’s industry leading shipping insights and analytics software empowers you to negotiate by unpacking the truth of how much it actually costs to ship your parcels and freight.
Every company thinks they have negotiated the best rate, especially when they have successfully lowered their costs by 1% or less. And, in a way, you absolutely have. Closing a contract with a discount of this nature shows artful negotiation skills. However, benchmarking shipping costs against competitors and finding a 1% discount significantly reinforces the illusion that their rates are low when the truth is that no one is getting the best deal. The duopoly between FedEx and UPS gives carriers the ultimate control.
ShipSigma’s end-to-end service gives you a passionate advocate who is intimately familiar with the internal processes of these major carriers, helping you reduce your margins and achieve significant cost savings.
Part of your research should include a parcel invoice audit, like those conducted by ShipSigma. Our platform will help you identify unnecessary costs and gain better visibility into your shipping habits. Using our self-managing system, you can go into negotiations equipped with every detail about late deliveries, inaccurate billing, lost or damaged packages, and other issues that crop up. When it comes to negotiation, knowledge truly is power.
You can’t ask for what is appropriate if you don’t have access to live market data. Our analysts & software engineers have developed industry leading tools that provide objective insights based on your carrier invoices. This detailed modeling allows you to compare vendors’ cost and capacity and enables you to ask for what is fair in your negotiation sessions.
Negotiations can easily disintegrate when one of the parties takes an "all or nothing" approach. To avoid this attitude, one approach is to segment the contract into relevant portions and treat each one as its own negotiation. This will help you make progress with a series of solutions rather than attempting to come up with one major solution.
A common denominator that we have observed is that our clients have great relationships with their contract carriers. This isn’t something we’re here to change. With a few tweaks, your relationship can stay positive while improving your outcome and bottom line. One way to do this is by controlling the negotiation process. Rather than waiting for your rep to come to you, you can (and should!) initiate negotiations and drive the location, timing, topics, and pace of negotiation.
Successful negotiators use statements of facts rather than appealing to emotion. Rather than using language like "I feel" or "I believe," they let their data and research do the negotiating for them—because objective facts are powerful.
Whenever you negotiate a contract, you will have a list of "must-haves'' and "nice-to-haves." Rates are clearly a high priority for most carrier contract negotiations, but there are other important aspects of these agreements as well. Take the time to go through your lists and select your top priorities. This will help you when negotiating because you already know where you have give and take.
Right in line with the above point, it is important to understand how to give a little bit to gain exponentially. Leave yourself room to negotiate by starting with a higher ask and be willing to let the other party "win" on small points—because you will ultimately walk out of the room with the grand prize.
Whenever you reach an impasse during the negotiation process, questions can become a strategic and effective tool. Rather than demanding or arguing, asking questions about why the other party is taking a hard line can help facilitate discussion.
Having lawyers review your contract is always a sound business decision. Along with the legal professionals, ShipSigma’s team of former UPS and FedEx staff can analyze your shipping profile and create a detailed and deliberate proposal to bring to your existing carrier. Our insider perspective paired with industry leading technology helps you improve on your already excellent contracts with the carrier you trust. 30 days from now, you will be saving 20 to 30% on every parcel that leaves your facility.
The most important part of negotiating with your shipping company is to leverage your data and the relationship that you have already established. When looking at how to negotiate rates with carriers, it is important to recognize that your carrier does not want to lose your profitable business.
At ShipSigma, we are carrier-agnostic, and will help you achieve significant savings with your current shipping providers, no matter how recently the agreement was negotiated. Our cost modeling is based on your invoice data, and our proprietary technology provides predictive analytics that anticipate future shipping changes. This allows you to proactively interact with your carrier to ensure that you are getting the best possible pricing.
You negotiate the best rates with the transparency and information provided by ShipSigma.
With ShipSigma’s experienced team leveraging proprietary technology and proven strategies.
Yes, we said it twice because we are passionate about saving our partners money. We know exactly where the savings are because we helped build the margins when we were working for these carriers. Our decades of carrier pricing, finance, and business development experience has given us firsthand knowledge of how these companies think and operate. The experience we have with setting and negotiating pricing on the carrier's side means that we know the acceptable profitability ratios and what the carrier will actually accept.
We’re not here to disrupt your operations or affect your relationship with the carriers. Our goal is to bring proven solutions and innovative technology that improves your bottom line AND makes carriers happy to keep you as a client.
With ShipSigma, you can bring cost modeling and profit margin insights to the negotiating table and walk away with a favorable contract based on what it actually costs to ship your parcels. This process can cut your negotiation time significantly, allowing you to secure significant improvements within 30-45 days. Our cost modeling algorithm provides unbiased and actionable information that would otherwise stay hidden within past invoices and agreements.
Try ShipSigma for free today and start saving on every parcel or load of freight that you ship.