Finding savings where there were none
David Hannon, News and Transportation Editor -- Purchasing, 10/10/2002
Small package shipping is an area of logistics that many shippers overlook when seeking cost and efficiency improvements. Small package typically accounts for the smallest portion of a shipping budget. In the eyes of many shippers, there are familiar names offering familiar rates in small package and it's simply a matter of picking one. But in today's cost- focused environment, shippers are looking into all areas to trim expenses and gain efficiencies, and having some inside knowledge can help negotiate better rates with fewer headaches.
Brett Febus, managing partner of ShipSave Consulting and former UPS employee spends his days helping small package shippers find ways to gain cost efficiencies in their shipping operations and contracts. Febus says carriers prey on the frustration that builds during the negotiation process between shippers and carriers, often to the point that a shipper will simply give in to the rates and stipulations the carrier sets.
Febus says few shippers actually pursue full discounts available on small package rates when negotiating contracts and suffer in the long run because of it. The discounts are not necessarily based on volume, but often on how much it costs the carrier to ship the packages. A carrier may hold back percentage points on discounts purposely so they can add the points to the discount later and keep in the customer's good graces. Asking for full discounts can mean 5-10% more savings up front and better discounts later in the contract.
Shippers can turn the tables in negotiations by asking for more than desired in certain cases and make concessions later in the negotiations. For example, if a shipper truly wants the last pickup to be 5 p.m. each day, that shipper can start the negotiations telling the carrier it wants a 7 p.m. final pickup. Then later, when the negotiations focus on price, the shipper can concede to a 5 p.m. last pickup if it means a better price.
Who a shipper negotiates a contract with can make all the difference in the world. An account manager may say the current discount is as low as he can go, because, to his knowledge, it is. But a pricing manager may be working behind the scenes with the ability to drop the discount lower, unbeknownst to the account manager. Knowing this can help a shipper negotiate more directly.
Febus says a common misconception is that greater shipment volumes always lead to greater discounts. While that may be true to a certain extent, typically, the $2-million level in small package is where discounts top out and any volume beyond that will not increase discounts. Altering the characteristics of packages may change the level and frequency of discounts slightly above the $2-million mark. Carriers sometimes target certain types of packages for discounts so learning more about these cycles can mean even more savings opportunities.
| Market share | 2001 |
| FedEx | 47% |
| UPS | 33% |
| Airborne | 20% |
| Volume | 2001 |
| FedEx | 2.92 million |
| UPS | 2.03 million |
| Airborne | 1.25 million |
| SOURCE: SJ CONSULTING | |
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