Most businesses are at a disadvantage when it comes to negotiating their parcel contracts with carriers. The carriers aim to maximize their profits and can sometimes exploit companies that don't have the knowledge or tools to secure fair pricing. Here are four key aspects to focus on during your next negotiation to increase your chances of a successful outcome:
MBG Waiver Verbiage
Minimum Reductions
Earned Discount Tiers
Accessorial Discounts
MBG (Money-Back Guarantee) Waiver: Many companies sign carrier agreements with MBG waiver language without realizing it. This waiver means that shippers are giving up their right to file for late shipment refunds. This language is becoming more prevalent in carrier agreements, but often goes unmentioned in carrier discussions.
Imagine a scenario where UPS or FedEx fails to deliver a critical package to a critical customer, damaging the customer relationship. If a refund is filed, the carrier may reject it due to the MBG waiver on the account. This is unacceptable and shippers should be able to hold carriers accountable for their standards, especially since they are paying a premium for on-time deliveries.
Solution: Do not agree to sign a carrier agreement with MBG waiver language unless the cost benefits outweigh the drawbacks.
Minimum Reductions: A crucial part of the negotiation process is minimum reductions. Every package has a published minimum charge based on service, weight, and zone. The minimum reduction is a negotiated value to reduce the published minimum charge.
For example, a Next Day Air package (Zone 2, 1 lb.) has a minimum of $30.62. If the minimum reduction is $13.00, the new minimum is $17.62. Negotiating a minimum reduction can have significant financial implications, so it's important to ensure that it's included in the contract for your most common service levels.
Earned Discount Tiers and Revenue Bands: FedEx has Earned Discount Tiers and UPS has Revenue Bands. They refer to the same concept. The Earned Discount/Revenue Band value is the sum of all gross (published) transportation charges for the previous 52 weeks. This includes gross package charges, gross accessorial, and gross fuel charges.
Knowing your Earned Discount/Revenue Band value will determine the tier and discount you qualify for in your agreement. This value can change week to week, so it's important to maintain it to avoid dropping in or out of certain tiers.
Savvy shippers know their earned discount threshold and make adjustments as their volume changes. If you're too low on your tiers, you'll receive little to no earned discount, and if you're too high, you'll cap your discount potential.
Common Questions: Will negotiating deeper discounts hurt my earned discount? No, the earned discount is calculated based on your gross transportation charges, not the discount received.
In conclusion, paying attention to these four aspects during your next parcel contract negotiation will help you secure a better deal and avoid costly mistakes.