Logistics, Warehousing & Distribution

Using Your Small Parcel Contract as a Competitive Logistics Weapon

30 Jun, 2003

By: Bill Wolski

If you were about to take a flight, would you expect the pilot to have a flight plan?

If you were going to build a new house, would you do so without a blueprint?

Why enter into an agreement with your small parcel carrier without a complete understanding of your costs and your service requirements? In addition to knowing your costs and your service requirements, are you aware of the multiple options available to you to move small parcels? For example, it is not uncommon that any company might have one carrier for overnight letters, another carrier for B2B time sensitive parcels, and a third company for non-time sensitive parcels. A company must keep an open mind and leverage the competitive nature of this industry.

It is important to remember that savings are hard savings. For example, if your company can reduce its B2B rate by 3%, those savings show up next month on your carrier invoice and every month thereafter. These are not soft savings.

There are several tools and methodologies that every company that uses a small parcel carrier should employ in order to optimize its cost and service. By doing so, your company can:

  • Minimize the expense of outbound parcel shipping

  • Meet the service requirements of your customers

  • Gain a competitive advantage that can be passed along to customers or added to your bottom line

For example, have you done a volume analysis to determine where your primary ship-to locations are? When we review parcel carrier contracts for our clients, we often find that our client has a very significant discount in some portion of their rate structure. However, when we do a comparison of the discounts versus volumes, we often find that the significant discounts contracted for apply to volumes that are less significant. Those high volume shipments often do not have the highest discounts applied.

Are you always shipping next day or 2nd day air? We have often determined that many of our clients’ shipments that are designated as air shipments can actually get to their destination via ground shipments. Yet, they are paying the freight premium for air service! Guess what? Their carrier representative will not often point that out to them. Are you also aware that there are tools available in the marketplace that can help you identify that these excessive charges?

We believe that assessorial charges have to be monitored, and, if they fall outside an acceptable tolerance, they need to be addressed and addressed quickly. Once an assessorial fee has been charged, it is usually very difficult to get it reversed.

The validity of an assessorial charge can often be questioned. For example, an address that is truly incorrect is a valid charge. However, there are instances that a shipper will send more than one parcel to the same customer at the same address, and while one has a complete address, the other may be missing something irrelevant such as the Suite Number. These types of charges need to monitored and audited.

Changes that need to be made to minimize assessorial changes can be internal or external. It is important to understand what can be done to change processes or technology, or what has to be changed in you parcel carrier contract, to minimize exposure to these charges.

It is very well publicized that most parcel shipments are guaranteed. What does that mean? Very simply, if a shipment is guaranteed to arrive by noon, and it arrives at 12:01 p.m., the shipper is entitled to a refund of that shipping cost.

Will your carrier voluntarily refund you the shipping cost? Absolutely not! In fact, when you do ask for it, your representative may tell you that you are not entitled to receive it, even though it is part of your contract!

Does the typical shipper even know how many of its parcels are being delivered late by its parcel carrier? Most likely not. In most cases, the company finds that a late shipment does not adversely affect its business or its relationship with its customer. However, the guarantee is built into the contract, and it is a source of additional revenue (or reduced expense) for the shipper.

What is the best way to secure late shipment refunds? There are niche companies in the marketplace who have developed web-based software programs that can determine which of your shipments arrived late. It takes less than five minutes for the company to upload the parcel carrier’s shipment file to the company that tracks these shipments. They will also secure your refund for you. What makes this service even more attractive is that there is no upfront investment for your company; these companies will work on a contingency basis. Until you receive a credit from your parcel carrier, you will not receive an invoice for late shipment refunds.

Finally, are you paying for services you do not need? Ask the following questions:

  • Are all your shipments time sensitive or are some not?

  • If you are normally shipping packages via ground that are 2nd day ground shipments, and there is no adverse effect if they arrive on the third day, would you be willing to allow the packages to arrive on the third day in order to save shipping expense?

  • Are you willing to use a separate carrier to handle those parcels?

Recently, there are freight carriers who have devised some innovative ways to solve your “last mile” challenge. Their answer? Use the United States Postal Service.

Their approach is to pick up your small parcels that are not time-sensitive, deliver them to the USPS’DDUs, and let the USPS deliver them to the customers’ final locations. This is especially efficient with shippers that have a high volume of home delivery. Another upside to this strategy is that parcel carriers will often take an adversarial approach to a shipper that tries to reduce its shipping expenses by “zone skipping”. This not only helps your company save by zone skipping, the actual cost in closer zones is less.

The downside is that this typically adds one day to the total service time. The upside is multifold. Advantages include:

  • The freight expense is usually significantly less than that of your standard parcel carrier

  • You get six day per week delivery, including Saturday, at NO EXTRA COST

  • USPS will make more delivery attempts without charging an extra fee

  • If the recipient has to make the pickup personally, most people know where theire post office is, but how many know where their parcel carrier hub is?

In summary, there are many tools, analyses, and negotiating points that every small parcel shipper can use to reduce its costs yet maintain the service its customers need. A contract negotiation planning tool might be just what your company needs to assist you in achieving those goals.


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