The Do's and Don'ts of Freight Rate Negotiation
Shipping costs represent a major supply chain expense, anything you can do to lower your freight rates will help. Here are the do's and don'ts of freight rate negotiation.
Don't Pay for What You Don't Need
Be clear on what is important to you in a carrier, and what isn't. If you can compromise on speed, you can negotiate lower rates. Or maybe your product has a relatively low value by weight - in this case, you can negotiate a lower price for lower carrier liability levels. Tell your carrier what is and isn't important to you when you ask for a quote, and they'll be able to trim extras that you don't need.
Do Sell Yourself
You're probably used to asking potential carriers "why should I work with you?" in an effort to lower prices. But consider what can make you a better shipper for them, and use it to your advantage. According to Inbound Logistics, small parcel carriers prefer air shipments and shipments with high delivery density. Do you have the cash flow to pay faster than required in exchange for a lower rate? That could be a powerful negotiating chip.
Don't Skip the Fine Print
Make sure to read it...and all of it! Inspect the documents for hidden fees or inflexibilities that won't work with your needs. Are there charges for demurrage? Charges to offer C.O.D? How much time do they allot for pickup and delivery? Are there extra charges for evening or weekend deliveries? The carrier's quote may sound good initially, but the extra terms and fees in the contract need to be taken into consideration. The fine print is also a good place to negotiate. For example, many carriers will accept a liability around $25 per pound, rather than the usual low FAK liability. You can also negotiate various accessorials and charges.
Do Calculate Your Cost Per Mile
Once you've found any additional or hidden fees in the contract, use them to calculate the carrier's cost per mile. This will help you to compare prices with other carriers, and to get a more realistic understanding of your total shipping costs.
Don't Be Hard to Deal With
The word "negotiation" might invoke the image of digging your heels in and refusing to budge. But don't forget that your carrier will play a key role in your supply chain, and you want to build a positive relationship. This is especially important when you consider that the supply & demand balance between shippers and carriers is always shifting. While you might have your choice of carrier now, you could be scrambling to find capacity at high rates later.
Do Ask for Bids on All of Your Business
Asking for quotes on all of your business rather than a small subset increases the motivation for carriers to offer you competitive pricing. Working with one carrier or broker can have other advantages as well - if a carrier knows everything that you need shipped, they can make recommendations on more cost-effective ways to combine or route your shipments.
Don't Underestimate the Value of a Good Carrier
Consider how important reliability and flexibility is to you. Understand that a higher priced, reliable carrier may cost less overall compared with a low priced carrier that loses freight or makes late deliveries. Keep that in mind if you have a fantastic carrier who isn't willing to negotiate lower prices.
Do Leverage A Freight Association
If you're shipping small parcels, freight associations can help you to access group buying prices. Check at any associations that you currently hold membership with. It may even be worth joining an association just for access to parcel shipping savings.
Do Create a Carrier Master Agreement
A Carrier Master Agreement is a private agreement between you and your carrier. This is important for two reasons - first, it will put everything that you negotiate in writing. Second, because this is a private agreement that only applies to you, your carrier does not need to offer it to their entire shipper base, as they do with terms written in their tariff.
When you implement this agreement, make sure to specify that the Master Agreement will take precedence over the carrier's tariff, and that they may not change their tariff or any terms with your agreement. This way you won't ever be taken by surprise - and your work negotiating will not go to waste.
Looking for extra help writing a Carrier Master Agreement or negotiating with carriers? Read how our Freight Claim Assistance Program can help.