How do Shippers Manage These New Increases?
Surcharges of every description are popping up and there seems to be no end in sight. More than ever, Shippers must pay closer attention to these charges and be ready to negotiate them down with the carrier. COVID-19 and the upcoming holiday season are concurrently causing havoc and providing most carriers opportunities to add new surcharges.
Carriers have become more blatant with surcharges; they offer simplified pricing schemes. Like Flat Rate shipping then adding additional charges after the fact negating any expected efficiencies. A shipper needs to be more aware of the charges and impacts to mitigate said increases. We do know surcharges will be introduced throughout the year with little advanced warning; CPC has tools and methods to surgically apply discounts and softening the impacts of new charges. These discounts will have a lasting effect as we move into 2021.
Below are five methods that a shipper can apply when negotiating a fair contract with the parcel carriers
1. Minimum charges
Typically, there is a greater emphasis on obtaining higher discounts off the published rates. However, if a shipper has a profile with very light shipments, they should look at what discount they have off of a minimum shipment. The minimum charge enhances revenue for the carrier and if left unchecked it could result in higher costs. For example, if a carrier Like UPS and FedEx publish a minimum charge per package at $8.32, you can have shipments weighing up to 20 pounds with a 50% to 80% discount that won’t see any reductions below $8.32.
2. Dimensional weight versus Original Weight
Package cost depends on whichever is greater: actual weight or the dimensional weight, “DIM Weight”. A DIM Divisor is the numerator used to calculate DIM Weight. The formula is (Length x Height x Width)/ DIM Divisor. Over the past 5 years, the DIM Divisor has decreased from 194 to 166 and now its 139. The lower the divisor, the higher the weight and cost.
Shippers should understand what proportion of their packages that are subjected to DIM weight. CPC has tools to calculate this and simulate different divisors. It’s possible to renegotiate a new DIM Divisor and lower the costs.
3. New Accessorial costs, Carrier adds fees for anything they can.
Accessorial fees, or surcharges, are more prevalent with parcel carriers than with other modes and other major carriers. Ones unique to parcel are residential deliveries, deliveries outside major areas, oversized packages, additional handling with large items, signatures, adult signatures and fuel. Accessorial can add as much as 30% to the bill. A shipping profile needs to be created to understand how often these charges appear. Once understood it can be renegotiated for concessions.
These new charges appear during a crisis, like COVID and they should disappear after the crisis. However, they become permanent just like the fuel surcharges in the past.
Fuel costs are significantly lower than they were 2008 to 2010, and they are still here. Carriers will push these surcharges because they can.
4. Revenue bands and Rebates
Revenue bands are the golden handcuffs ensuring the carriers that the shipper will provide more volume to them. The more volume provided, the deeper the discount. Discounts are tied into revenue bands, with specific discounts based on the spend level.
With COVID-19, some shippers experienced steep declines pushing them out of their current discount band and bumping up their costs. CPC has helped shippers obtain an extended grace period to keep their discount levels in place.
Additionally, FedEx has capped volume from some shippers experiencing higher than usual demand and existing high-volume customers, as demand for shipping exceeded their capacity. This creates an opportunity for the carrier where they can force shippers to a lower revenue band and decreasing their discounts and increasing the carrier’s profits. Bottom line, working the Revenue Band game is confusing and difficult to manage and usually favors the carrier.
Rebates have a similar effect as revenue bands. The carrier will promise a rebate on the total amount spent for a quarter. This is similar to a credit card providing cash back on purchases. CPC guides their client to forgo the rebate for a higher discount amount. The Shipper enjoys that money now instead of waiting 90 days to receive it.
5. Early termination - NEW
Lately, we are seeing carriers add an Early Termination clause to the pricing agreement binding a shipper to the length of a pricing agreement. Don’t sign the agreement with this clause as if the contract is terminated early, the clause will allow the carrier to back invoice the shipper, for 2% to 2.5% of the previous 52-week revenue. There is no benefit to signing an early termination agreement.
If your agreements have any of these issues the time is now to remedy it and take the money left on the table.
CPC has a successful track record assisting the shipper with their agreements. Have CPC provide you a No-Cost assessment. CPC is ready to help your company save today.