When a company thinks about shipping, they probably think of one of a handful of big name carriers. Some carriers may be dominant forces in the transportation arena, but that doesn’t mean a company can’t negotiate their contracts.
“When it comes to shipping agreements, companies may not always understand the language used in their contracts, which may set them up for double-digit fee increases over the term of the contract or other unfair penalties and costs,” said John Haber, Partner, NPI.
When it comes to costly contract transportation pitfalls that uneducated companies may encounter, Haber identifies three categories: annual rate increase, unjust contract terms, and assessorial fees.
Annual Rate Increases
“There is currently a lack of competition in the shipping industry, so big name companies feel they can justify 5 to 7 percent increases per year of a contract,” he said. “That’s a huge increase when prices aren’t rising and a company has a 3-year contract.”
Haber advises companies to request new pricing information if they are under contract, or they should consider opening up to bids if they aren’t.
“Rate increases may differ from carrier to carrier, and location to location,” he added. “Companies should think about updating their decision matrix that they use to determine shipping options and thoroughly analyze their shipping characteristics.”
Clearly, when it comes to shipping contracts, knowledge is power. Companies should know where their money is going, what rates or fees may go up, and what options they have to mitigate those increases.
Unjust Contract Terms
If a company were to take a closer look at their contract, they may start to see the potential penalties and extra fees. The problem is that many companies don’t understand the language of their contract, or perhaps they don’t pay close enough attention to it.
“If a company has a 3-year contract and they want to renegotiate during the second year, they could face some substantial penalties,” Haber said. “That is unfair to a company that has to deal with market fluctuations and product changes, especially if they are stuck dealing with a carrier that can’t handle those types of volume issues.”
Haber adds that shipping companies may include confusing or deceiving options, like deferred rebates, which would be a discount after the fact, or the carrier could exclude fuel surcharges from rebate calculations.
According to Haber, some shipping companies may add high fees for fuel surcharges, or add delivery area surcharges for certain zip codes, which could add substantial charges to a company’s shipping costs without their knowledge.
And these assessorial fees are rising -- fees for address corrections have gone up 40 percent in two years. Ground minimum charges are up 6 percent this year, and they rose 9 percent last year. Delivery area surcharges are up 15 percent, and returns shipments are up 16.7 percent. With just about every area of shipping costs increasing, it’s important to cutback wherever possible.
“The company’s hands are tied,” Haber said. “It’s hard to absorb cost increases and fees like that. Try adding rate caps into shipping contracts, or perhaps add an opt-out clause if the fees become overwhelming.”
When looking at shipping contracts, companies can and should try to object to certain fees that they feel are unfair, Haber adds. However, going head-to-head with a major carrier probably won’t be an easy task.
“Companies can face tough negotiations with carriers,” Haber said. “They have little recourse with only two major carriers. They need leverage to get the best pricing.”
To gain the leverage they need, he advises companies to seek out a third party for help during negotiations.
“Companies need to consider bringing in a third party that specializes in transportation costs,” Haber says. “They can find areas for cost-savings that companies may not even be aware of. They deal with carriers and contracts often, and they know what to look out for.”
In the end, if a company can gain a better understanding of what they are paying for and what costs they can cut back on, it will not only help their shipping bills, but their overall bottom line as well.
“Shipping can be a very complicated area,” Haber said. “Companies should do whatever is necessary to level the playing field and tell carriers that they are not willing to accept unfair penalties or tricky calculations.”
NPI is an expense reduction consultant that aims to provide strategic cost reductions for companies by making sure they receive fair market value for transportation, telecommunications and IT purchases. For more information, visit http://npifinancial.com/