When you get right down to it, there are really two main things that small parcel shippers and buyers want: the right level of service and the right price. But before buyers can go out and find the supplier that can provide that, users need to establish the right level of service for your business and the right price for that service level. To put a finer point on both, Purchasing recently spoke with three sources: a carrier (UPS), a contract negotiation specialist (Genco) and a small parcel shipper (Olympus Medical, see separate story).

Bill Knasinski, vice president of the parcel division of Pittsburgh-based Genco, says now is a good time to negotiate contracts for small parcel shipping services. In addition to the increased competition in the U.S. market thanks to DHL's continued push, the increase in the number of surcharges can give shippers an advantage.

Come again? Yes, Knasinski says that with carriers implementing surcharges and accessorial charges for nearly everything imaginable, small parcel shippers and buyers have more areas and points to negotiate with carriers on—taking a perceived negative and turning it into a positive.

"It's not really important which bucket the discounts come in, because it's all going to the bottom line," he says. "Carriers under the radar have been bumping up a published 3-6% rate increase to a 10% increase through these extra charges. There are more than 60 accessorial fees used. So now is a good time to look at those and get some of that money back."

Both carriers and negotiators like Genco recommend a shipper fully understand its current and projected volumes, lanes and priorities before putting an RFP out to carriers. Steve Holmes, a spokesman for Atlanta-based UPS, recently polled some of the company's negotiation experts to get their take on what shippers should evaluate before coming to the negotiation table.

"A volume projection that's too low can reduce the incentive a shipper negotiates, and a projection that's too high can result in time-consuming renegotiations down the road. Additionally, overprojections can cause budgeting issues because the shipper will not receive the agreed upon incentives."

Holmes also says, contrary to popular opinion, assessorial charges are not a small parcel carrier's dream. "These services often represent a large cost to carriers that must be passed on to the shipper," he says (see sidebar). "The only answer is to calculate the bottom-line dollars you will spend with each carrier to derive an accurate comparison in negotiations."

According to Knasinski, this is where a third-party negotiator can help shippers—establishing what rate levels are realistic based on their volumes and which surcharges should be targeted for negotiation. Some carriers consider certain surcharges negotiable and others non-negotiable, so knowing where to focus a negotiation is half the battle.

Genco uses a rating engine to help translate what a carrier's proposal will mean to a shipper's bottom line. "There are so many different characteristics for each shipment—it's hard to understand what exactly you are paying for. It's unfortunate that carriers have made it that complicated."

In fact, Knasinski says what he does is less about negotiating and more about translating the information so the shipper can understand what the impact of each proposal will be to the bottom line.

And evaluating what a carrier is offering is not always easy. Knasinski says in a recent case a shipper had requested carriers' best offers for service on a 700-mile lane. One carrier considered it next-day ground coverage, which Genco saw as a red flag and worked to validate through customer references and requesting detailed plans from the carrier.