RFP: 5 Steps to Negotiate Carrier Agreements
Negotiating carrier agreements is vital for managing shipping operations in any business. The correct agreement can meet customer expectations, control costs, and facilitate organizational growth. However, this process is complex and requires careful consideration of multiple factors before finalizing a decision.
Recent developments in the industry, including the recent UPS and Teamsters union agreement resulting in a $30 billion increase over the next five years, and FedEx's consolidation of operating companies, are poised to reverberate throughout the small parcel shipping industry, influencing aspects such as the annual General Rate Increase (GRI). As businesses approach contract renewals and RFP processes, they must assess these changes to secure the best contract for their unique needs. The potential rate cap adjustments are also of particular concern, impacting shipping costs and budgets for larger shippers. To successfully navigate these challenges, businesses must adopt a proactive approach, equipped with comprehensive insights, to flexibly adjust their shipping strategies within the dynamic landscape.
Navigating carrier agreement negotiations requires a strategic approach based on data, industry insights, and understanding your business needs. This guide explores key steps for informed decisions and successful collaborations with carriers. From creating a shipper profile to negotiation, each phase optimizes shipping operations. By addressing overlooked elements, you'll secure agreements aligned with your goals and drive growth.
Creating Shipper Profile
The first step is to gather as much data as possible about your shipping and billing history to accurately present your business and its needs and future plans to the bidding carriers. This data should include information such as:
- Shipment volume for the past 12 (24 months, with YoY growth if available).
- Average package weight
- Package size distribution and top box weights
- Percentage of B2B and B2C shipments
- Average number of packages per shipment
- Percentage of shipments with no accessorial charges
- Percentage of return shipments
- Damage/Lost frequency
- Average Transit Days
- Average on-time performance for current carrier
- Average order value
- Shipment origin data, including all origin sites, and destination data, with average zone
- Shipment service types and percentages of the total distribution
- Identify and highlight any areas of positive growth, positive cost reductions, or unique and beneficial data points that would be beneficial for the carriers to know.
- Identify and highlight any special considerations or operational needs that carriers need to be aware of
As you gather shipping data, consider your unique business needs. This includes industry, growth, customer, tech, and operational requirements. With a solid foundation, identify and address needs in the RFP. Let's now delve into the process of identifying and addressing your specific business needs within the RFP framework.
Identify Unique Business Needs
In addition to your shipping data, you should also consider your unique business needs when creating your shipper profile. This includes factors such as:
- Your industry
- Specifics to unique operational processes
- Growth plans
- Customers’ expectations and needs
- Future shipping requirements
- Technology needs
- Key objectives for the new agreement and organizational needs
Recognizing your specific business needs is crucial in developing your shipper profile. Industry, growth plans, customer expectations, and technological prerequisites all mold your carrier selection, ensuring a good match. Moving forward, let's explore the importance of clearly communicating your expectations and requests in the RFP process.
Clearly State your Requests and Expectations
Discounts by Service
Next in your RFP document you will want to provide table(s) that list the current discounts by service level and weight, residential or commercial, the requested discounts, and the carrier's offer in their proposal, as shown below:
Additionally, you should include an itemized list of all accessorial transactions during the past 12 months, as well as the total incurred charges by accessorial type. This will provide all bidding carriers with a complete understanding of the impact that accessorial charges have on your shipping operations, as well as their own. You can then list the current, requested, and offered discounts in the same table format as the service levels.
A well-defined and realistic timeline is essential for the RFP process to stay on track and reach a final decision. The RFP process can be complex and time-consuming, so it is important to have a clear understanding of how long it will take. This will help to ensure that all parties involved are on the same page and that the process can move forward smoothly.
When setting a timeline, it is important to consider the following factors:
- The complexity of the RFP
- Any holidays, vacations, events, other projects that could potentially result in timeline delays
- The time it takes to gather information and respond to questions
- The time needed for proposal evaluation
- The duration required for back-and-forth contract negotiations
Once you have a clear roadmap for the RFP process in place, document it and share it with bidding carriers. This will give them a thorough understanding of your requests and their impact on both your operations and their own. Once this framework of expectations is in place, we can move on to the pivotal task of analyzing the carrier responses to your RFP.
Analyze Carrier Responses to your RFP
Once you have received responses to your RFP, you need to carefully analyze each carrier's proposal. This includes comparing the rates, services, and terms offered by each carrier. It is also important to consider the carrier's reputation with your customers, as they will be the face of your company. Key things to consider include the carrier's reliability, on-time performance, visibility, technology solutions, package handling, transparency with invoicing and billing, and customer service record.
As part of your analysis, you should also run a current versus proposed cost analysis. This will help you to see how much money you could save by switching to the new carrier. To do this, you will need to re-rate all your previous shipments for the past 12 months using the new proposed discounts. This will give you an estimate of the annual savings you can expect.
You can then compare the projected savings to your key organizational goals. Once you have analyzed all of the proposals, you can summarize the offers across various service types in a report. This report will help you to make an informed decision about which carrier to select.
Here are some additional things to keep in mind when analyzing carrier responses and creating reports:
- Be sure to compare apples to apples. This means that you should compare the rates for the same services and terms.
- Don't forget to factor in hidden costs. Some carriers may charge additional fees for things like fuel surcharges or accessorial charges.
- Be sure to consider the long-term. Don't just focus on the short-term savings. Make sure that the new carrier can meet your needs in the long run.
With this assessment done, let's now explore effective negotiation strategies.
How to Approach the Negotiation Process
Here are some tips on how to approach the negotiation process successfully:
- Be professional. This means being respectful of the other party and their time. It also means being prepared and organized.
- Look for a win-win scenario. This means trying to find a solution that benefits both parties. It is important to remember that the goal of negotiation is not to get the best deal for yourself, but to get the best deal for everyone involved.
- Be organized and detailed. This means having a clear understanding of your needs and what you are willing to negotiate. It also means being able to articulate your needs clearly and concisely.
- Be creative and open-minded. This means being willing to think outside the box and consider new possibilities. It also means being willing to compromise.
- Have a list of negotiables. This means identifying the key areas where you are willing to negotiate. It is important to prioritize these areas so that you can focus your efforts on the most important ones.
- Set high targets, ideal targets, and walk-away points. This means having a clear idea of what you want to achieve in the negotiation. Your high target is the best possible outcome that you are hoping for. Your ideal target is the outcome that you would be happy with. Your walk-away point is the point at which you are no longer willing to negotiate.
- Be aware of your range of reasonable and realistic expectations, but don't be afraid to ask for large numbers. This means understanding what is realistic and achievable in the negotiation. It is also important to be flexible and willing to adjust your expectations as needed.
- Be prepared to walk away. This means being willing to end the negotiation if you are not able to reach an agreement that meets your needs. It is important to be willing to walk away in order to protect your interests.
- Do your research. Before you start negotiating, it is important to do your research and understand the market. This includes understanding the rates and services offered by different carriers, as well as the current market conditions.
- Build relationships. It is important to build relationships with the carriers that you are negotiating with. This will help to create trust and goodwill, which can make the negotiation process more successful.
- Be patient. Negotiation can be a time-consuming process. It is important to be patient and persistent in order to reach a successful outcome.
Mastering the art of negotiation is essential, and the aforementioned strategies provide a robust framework to achieve successful outcomes. Now, let's delve into some of the lesser-acknowledged factors that can significantly influence negotiations and ultimately impact the quality of your carrier agreement.
*Few other areas often neglected or overlooked in negotiations:
Shippers should consider whether they need to purchase insurance for their shipments. Insurance can protect shippers from financial losses in the event of damage or loss of goods in transit. Shippers should consider whether they need replacement cost or invoice cost reimbursement. Choosing between these options determines how they will be compensated in case of loss or damage to their shipments.
Shippers should negotiate favorable payment terms with carriers. This could include terms such as net 15 days or even net 30 days.
Guaranteed service refunds (GSRs)
GSRs are agreements between a small parcel carrier and a shipper that define the level of service that the carrier will provide. They can include things like guaranteed delivery dates and on-time delivery commitments. In some cases, shippers may agree to waive their right to a GSR in exchange for increased discounts in another area.
Shippers may want to negotiate technology integration agreements with carriers. This will allow shippers to connect their shipping systems to the carrier's systems. This can help to automate the shipping process and improve efficiency.
GRI rate caps
(General Rate Increase) Shippers may want to negotiate GRI rate caps with carriers to protect themselves from taking the full annual GRI.
Carriers may offer rebates to shippers based on their shipping volume, the types of services they use, or other factors. Rebates can be a helpful way for shippers to save money on their shipping costs.
Technology subsidy dollars
Carriers may offer technology subsidy dollars to shippers based upon their volume or current parcel spend. These dollars can help shippers to offset the cost of implementing new technology.
International shippers may want to request discounts on brokerage services.
International shippers must be mindful of applicable tariffs on their shipments, as these are government-imposed taxes on imports and exports. Considering tariffs during negotiations is crucial, as they can significantly impact shipping costs and the overall analysis of total expenses.
Return services options
Shippers should consider the return service options that are available from the carrier they choose. This will help them to ensure that their customers can easily return defective or unwanted products.
Shippers with a good damage history may be able to negotiate greater discounts or rebates from carriers. This is because carriers are more likely to offer discounts to shippers who are less likely to damage their shipments.
Dimensional vs. actual weight
Shippers can negotiate better rates if they have a higher actual weight verse dimensional weight. Others who are impacted by dimensional weight could negotiate higher DIM factors which are above the standard 139.
Amidst the complex negotiation landscape, it's important to highlight several often-overlooked aspects that can significantly impact the outcome. By delving into these areas, businesses can refine their negotiation strategies and create comprehensive agreements that reflect their unique needs. With these finer points in mind, let's now conclude by summarizing the key takeaways to the RFP process.
The RFP process is an intricate journey to secure the best carrier for your business. By collecting and analyzing data, understanding your business's unique needs, setting a realistic timeline, and negotiating effectively, you can optimize your shipping operations. The evolving landscape demands adaptability and a strategic approach to stay ahead. As businesses implement these steps and considerations, they can foster reliable partnerships with carriers, fostering growth and success in their shipping operations.