Negotiating Parcel Carier Contracts

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Tips and ideas and stratigies to negotiate parcel carrier contracts

Tips and ideas and stratigies to negotiate parcel carrier contracts

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  • 1. Negotiating Parcel Contracts
  • 2. Jerry Hempstead
    • I retired as Vice President of National Accounts for DHL in January of 2006.
    • I began his career in 1972 in New York, where I held various positions in Operations and Sales. In 1976, I was appointed District Sales Manager in Bridgeport, Connecticut, where I remained for two years.
    • In 1978, I became District Sales Manager in Detroit and in 1982 I was appointed Director of National Accounts. Six years later I was appointed Vice President, National Accounts.
    • I have served as Vice President of Programming for the South Florida Roundtable of the Council of Logistics Management now known as the Council of Supply Chain Management Professionals (CSCMP), as well as the New York Roundtable. I am currently a board member of the American Society of Transportation and Logistics and in 2004 was conferred the title of Distinguished Logistics Professional (DLP). I have also been a lifetime member of the national transportation fraternity Delta Nu Alpha, and a member of the Chicago Traffic club.
    • In May of 2004 I was presented the Franklin Award by the Mail Systems Management Association (MSMA) & Mailcom. I was named the Transportation Person of the Year by Delta Nu Alpha the national transportation fraternity in September of 2004.
    • I am a member of the Board of Directors of the Good Shepherd Foundation.
    • I am a 1972 graduate of Villanova University, Hempstead and did two years of post-graduate work at St. Johns University in Jamaica, New York. I reside in Orlando, Florida with my wife and am the proud father of three children.
  • 3. Great News for shippers
    • UPS Apr 23 2009 announcement
    • Volume per day declined 4.3% during the quarter with Next Day Air® down 0.7%, deferred down 1% and ground off 5%. Revenue per piece declined 4.6%, reflecting product mix changes, the decrease in fuel surcharges on all products and the continuing trend toward lighter weight packages. 
    • FedEx Mar 19 2009 announcement
    • U.S. domestic package revenue declined 15%, driven by a 12% drop in revenue per package due to lower fuel surcharges, weight per package and rate per pound. U.S. domestic package volume declined 3%, despite the benefit of DHL exiting the U.S. domestic package market. FedEx International Priority® (IP) package volume fell 13%, with declines in every international region. IP revenue per package dropped 8% due to lower fuel surcharges and unfavorable exchange rates.
    The carriers cant afford to loose your shipments And will fight to take your shipments from a competitor
  • 4. OMERTA The American Heritage® Dictionary of the English Language: Fourth Edition.  2000. 
    •   SYLLABICATION: o·mer·ta PRONUNCIATION :  Oh  -mûr t , m r-tä NOUN:A rule or code that prohibits speaking or divulging information about certain activities, especially the activities of a criminal organization
  • 5. EVEN AS A PEDDLER
    • I did not know all the concessions my peers were getting form my own pricing department (nor were they telling)
    • I as a peddler did not tell shippers all the discounts and waivers and concessions they could get.
  • 6. UNLESS
    • You work for all three carriers (4 if you count the USPS) in the pricing department, TODAY, you don’t know what the best deal is or the lowest price or incentives or concessions are.
    • I WILL TRY TO FACILITATE THE NEXT BEST THING
  • 7. The basics
  • 8. HAS You EVER NEGOTIATED Minimum charge Insurance Minimum Fuel Surcharge Dim Rule COD Fee Delivery Area Surcharge Residential Surcharge Address correction Reduced
  • 9. HAS You EVER NEGOTIATED Minimum charge Insurance Minimum COD Fee Fuel Surcharge Din Rule Oversize Rule Delivery Area Surcharge Residential Surcharge Address correction Waived
  • 10. HAVE You EVER NEGOTIATED Lock in the base year tariff & rules Per shipment pricing Yearly incentive Quarterly incentive Ramp up period Start Up incentive Flat rates Flat $ amount off Percentage’s off Revenue Thresholds
  • 11. Fuel Surcharges Caveat Emptor Note to self: Are fuel surcharges Negotiable? Can you tell your carrier “ the contract I sign now are the rates I want to pay for the duration of the contract and you will not honor any additional charges for the length of the contract.” Currently the air fuel surcharge is 0 But they have moved 2% of the fuel surcharge into the base tariff every year for the last 4 years Sp with compounding its about 10% of the fuel surcharge formula that’s already baked into the base rate. They did this in anticipation of fuel coming down so they dud not have to forfit all of it back to shippers
  • 12. Do you have to agree that your discount is off of the base tariff in effect at the time of shipment
    • Or would it be prudent to tell the carrier
    • “ the base tariff in effect on the day we sign the contract is the base tariff that will stay in effect for the duration of the agreement”?
    • Nothing prevents the carrier from taking up the base tariff all they want.
  • 13. DOES YOUR CONTRACT PREVENT THE CARRIERS FROM DOING THIS?
    • Dimensional Weight Replaces Oversize in 2007 Effective January 1, 2007, Oversize charges for large packages shipped via UPS Ground services will be replaced with a simpler rate calculation based on dimensional weight. Dimensional weight rates are applicable only to UPS Ground packages that are three cubic feet (5,184 cubic inches) or larger. Billable weight will be based on actual package weight or the dimensional weight, whichever is greater. Packages smaller than three cubic feet will be billed based on actual weight
    • FedEx Ground Dimensional Weight Rate Calculation (effective February 5, 2007)
    • For FedEx Ground shipments, a rate calculation based on dimensional weight will replace oversize charges for packages that are 3 cubic feet (5,184 cubic inches) or larger. These packages will be billed based on dimensional weight unless actual weight is greater. Packages smaller than 3 cubic feet will be billed based on actual weight.
    Some shippers still enjoy the old girth rule
  • 14. UPS Store franchisee files suit against UPS
    • According to the complaint, franchisees weigh and measure customer packages in their stores, and charge customers accordingly. They then ship the package to UPS, where the company re-measures the package and charges the store owners for the difference.
    • Perhaps here is a flaw in some of the shipments you tender for which they charge you dimensional weight
    • Can you negotiate out those defects?
  • 15. DO YOU KNOW ?
    • The USPS is able to negotiate with you a competitive, shipper specific rate for Priority mail; and Express Mail
    • They are extremely competitive in the lighter weights
    • Have no delivery area surcharge, no residential surcharge, no address correction fee and no fuel surcharge
    • Do you know that these products FLY on the FedEx network?
  • 16. DO YOU REALLY HAVE A “CONTRACT”?
    • You can ask carriers, including incumbents, for bids any time you like
      • No penalty
    • You can drop your carrier at any time
      • Their recourse is only to diminish your discount over time
    • Your contract says they can drop your discount at any time.
    • You are not compelled to give all your freight to one carrier
      • Unless you signed up for same
    • They are not compelled to give you service.
      • Do they pay you a penalty if they go on strike or miss a pick up?
  • 17. DO YOU REALLY HAVE A “CONTRACT”
    • What you really have is an “at will” agreement that says
    • “ If you give a carrier “x” amount of business (shipments/revenue/both)”
    • They “will extend to you discount “y” as a dollar amount, or percentage off a tariff, or both.”
    • Or some have hard wired cell by cell rates
  • 18. 50% Off Of What
  • 19. Afghanistan DHL Scale L FedEx Scale O UPS ????? Albania DHL Scale E FedEx ????? UPS Scale 407 Pricing is More complex with international
  • 20.  
  • 21.  
  • 22.
    • Many contracts are set so that no discounts will drop below the rate of a package below the Zone 2, 1 LB charge
    • Example: Given a 30% discount, the red cells below would not receive the entire discount level
    Minimums Do I really have a discount at all? Note to self: Ask for no minimum or lower minimum
  • 23.
    • BUNDLED PRICE HAS 200 LB MINIMUM FROM ONE SHIPPER TO ONE CONSIGNEE
    • BUNDLED PRICE HAS MINIMUM CHARGES
    • BUNDLED PRICE USES AVERAGE 15 LB PIECES
    Shipment Pricing
  • 24. NEW AND IMPROVED WAYS TO ENHANCE YEILD Its not always apples-to-apples AT THE MOMENT UNIQUE TO UPS
  • 25. Accessorial Charges Analysis Accessorial charges can account for as much as 40 % of total spend! Note to self: Do I know the impact to my business
  • 26. Delivery Area Surcharges (DAS) Over 25% of the US population now lives in a DAS zip 23,427 DAS zips out of a total of about 43000 or 53% of all zips UPS in January reclassified 16,826 or 83% of the Commercial Delivery Area zip codes as Extended Commercial Surcharge.
  • 27. Declared Value
    • UPS and FedEx $0.65
    • $1.95 minimum
    • Look into PIP www.pipinsure.com
    • U-PIC www.u-pic.com
    • Shipsurance www.shipsurance.com
    Never ever buy carrier provided insurance.
  • 28. Parcel Contract Negotiations
  • 29. Retention Penetration Conversion
  • 30. Penetration Selling for the Carriers : They have some of your business and are pursuing more. Ground, Air, International
  • 31. Conversion Selling for the Carriers:
    • They have NONE of your business:
    • Expect Aggressive Discounts
    • Make sure all service concerns are covered
    • Test for smooth operational transition
        • Expect your incumbent carrier back in a few months with a “Conversion Quality” contract
    Note to self: Conversion status gets the best pricing!
  • 32. Is this news?
    • A District Sales Manager has more pricing latitude than a sales rep
    • A Regional Sales Manager has more pricing latitude than a Sales Manager
    • An Area VP has more pricing latitude than a Regional Sales manager
    • A Senior VP has more latitude than an Area VP
    • An Executive VP has more latitude than a Sr VP
    • The President has more latitude than an EVP
    • And whomever you get involved wants to win and would hate to be blamed for loosing a deal
    Note to self: Get my deal up the food chain as high as I can !
  • 33. Presenting your Freight Characteristics What's attractive to the carriers Note to self: Package my book of business to maximize the appeal to the carrier Many Few Number of locations Few Lots Number of shipments Seasonal peak Year round Seasonality High Claims Low claims exposure Liability Few Many Multi piece shipments Low High International v Domestic Long Short Air Distance Short Long Ground distance Low High Delivery density Low High Pick up density Low High Commercial v residential Low High Weight Bad Good Attribute
  • 34. UPS Says the same folks make the decisions for all the products Note to self: Promote ALL the biz to get the best pricing !
  • 35. UPS says the sales folks are commissioned more for inbound collect. Therefore you can get a better deal by holding out the inbound you can control
  • 36. The complexity Of Earned Discounts with package or revenue thresholds
  • 37. 6 BANDS OF REVENUE
    • Band 1: 0%-49.9% of target revenue
    • Band 2: 50%-69.9% of target revenue
    • Band 3: 70%-89.9% of target revenue
    • Band 4: 90%-109.9% of target revenue
    • Band 5: 110%-129.9% of target revenue
    • Band 6: 130%+ of target revenue
  • 38. 6 BANDS OF REVENUE
    • Band 1: 0%-69.9% of target revenue
    • Band 2: 70%-79.9% of target revenue
    • Band 3: 80%-89.9% of target revenue
    • Band 4: 90%-109.9% of target revenue
    • Band 5: 110%-129.9% of target revenue
    • Band 6: 130%+ of target revenue
  • 39. 6 BANDS OF INCENTIVES
    • Band 1: 0%
    • Band 2: 50% of target incentive
    • Band 3: 70% of target incentive
    • Band 4: 100% of target incentive
    • Band 5: 105% of target incentive
    • Band 6: 110% of target incentive
  • 40. THE DOUBLE WHAMMY
    • Band 1: 0%
    • Band 2: 50% of target incentive
    • Band 3: 70% of target incentive
    • Band 4: 100% of target incentive
    • Band 5: 103% of target incentive
    • Band 6: 105% of target incentive
    • Band 1: 0%-69.9% of target revenue
    • Band 2: 70%-79.9% of target revenue
    • Band 3: 80%-89.9% of target revenue
    • Band 4: 90%-109.9% of target revenue
    • Band 5: 110%-129.9% of target revenue
    • Band 6: 130%+ of target revenue
    ROLLING AVERAGES NORMALLY RESTART WITH A NEW CONTRACT
  • 41. IN CONFUSION THERE IS PROFIT They do this, because they can
  • 42. EXAMPLE $ PER WEEK
  • 43. EXAMPLE PKGS PER WEEK
  • 44. 4 BANDS OF REVENUE
    • Band 1: 0%-49.9% of target revenue
    • Band 2: 50%-89.9% of target revenue
    • Band 3: 90%-109.9% of target revenue
    • Band 4: 110%+ of target revenue
  • 45. 4 BANDS OF INCENTIVES
    • Band 1: 0% of target incentive
    • Band 2: 70% of target incentive
    • Band 3: 100% of target incentive
    • Band 4: 110% of target incentive
  • 46. 4 TIER DISCOUNT STRUCTURE TARGET
  • 47. They can price specifically to your shipment distribution by weight and zone Cell by Cell / Matrix Incentives
  • 48.
    • Make sure they count all the revenue
    • Agreement Page - 42 Services
    Note to self: Have I asked for a discount on all the services, all the sites and all the billing types! All Services Commercial Residential Inbound Outbound Third Party Make sure all sites and account numbers are included
  • 49. Anybody can get 44% off on air and 19% off on ground They know the tricks
  • 50. WHAT SHIPPER KNOWS WHAT THEY ARE PAYING AND HOW WILL A SHIPPER EVER COMPARE WHAT THEY ARE PAYING TO ANOTHER CARRIERS OFFER
  • 51. Parcel Magazine & Morgan Stanley SURVEY RESULTS PARCEL TRENDS REVEALED Rate Your Carriers Part 1: Results of the Annual Best Practices Survey: Over 250 Respondants, Over 90 million parcels
    • 11 percent of survey respondents use consultants to negotiate rates.
    • Consultants negotiate more favorable rates, driving discounts 49% lower than if the company negotiates .
  • 52. WHAT MIGHT BE NEGOTIABLE
    • EVERYTHING!!!
    • RATES
    • DISCOUNTS
    • ACCESSORIALS
    • DELIVERY COMMITMENTS AND GUARANTEES
    • FUEL SURCHARGES
    • CLAIMS RATIO’S
  • 53. WHATS POSSIBLE
    • MONTHLY, QUARTERLY, YEARLY INCENTIVE PROGRAMS
      • BASED ON REVENUE OR SHIPMENTS OR BOTH
    • AUTOMATION INCENTIVES
    • START UP INCENTIVES
    • RAMP UP/IMPLEMENTATION PERIODS
  • 54. Pay Attention money is wasted on selecting air services where next day is guaranteed via ground and or second day ground where 2 day air is being used. Note to self: Ask for a service agnostic tariff
  • 55.  
  • 56. Service Guarantee Lets cut to the chase
    • In the event Brown, Purple or Yellow Carrier fails to attempt delivery within the time published on the Brown, Purple or Yellow Carrier website, or as
    • provided when 1-800-PICK-Brown, Purple or Yellow Carrier is called, Brown, Purple or Yellow Carrier, at its option, will either credit or refund the
    • transportation charges for each such package to the payer only, upon request, subject to the
    • following conditions. This is the sole remedy available under the Brown, Purple or Yellow Carrier Service Guarantee.
    • (a) Brown, Purple or Yellow Carrier’s guaranteed delivery schedule has been obtained by referencing Brown, Purple or Yellow Carrier’s website or
    • contacting a Brown, Purple or Yellow Carrier Customer Service office. "On-time" means, subject to the terms of this Brown, Purple or Yellow Carrier
    • Service Guarantee, delivery is attempted within the Brown, Purple or Yellow Carrier guaranteed delivery schedule.
    • (b) Each package is properly recorded on a Brown, Purple or Yellow Carrier source document or in a Brown, Purple or Yellow Carrier automated
    • shipping system.
    • (c) Each package in a shipment bears the appropriate Brown, Purple or Yellow Carrier tracking label and an address label, or
    • a combined label generated by a Brown, Purple or Yellow Carrier automated shipping system, showing the consignee’s
    • correct name, deliverable address (Brown, Purple or Yellow Carrier does not provide delivery to a P.O. box) and ZIP Code
    • (or postal code for international shipments). In addition, Brown, Purple or Yellow Carrier reserves the right, in its sole
    • discretion, to refuse to honor a request for a credit or refund of transportation charges for a
    • package when that package is not accompanied by a smart label and timely Package Level Detail
    • (PLD) information, as defined in the Brown, Purple or Yellow Carrier Tariff, at the time the package is tendered to Brown, Purple or Yellow Carrier.
    • (d) Each Brown, Purple or Yellow Carrier 2nd Day Air A.M. package is addressed to a commercial, not residential, address.
    • A residential delivery is defined as provided in the Brown, Purple or Yellow Carrier Tariff and in this service guide.
    • (e) Each package in a shipment bears a Brown, Purple or Yellow Carrier Saturday Delivery routing label when optional
    • Saturday service is requested and available.
    • (f) Each package in a shipment is tendered to Brown, Purple or Yellow Carrier during Brown, Purple or Yellow Carrier’s published business hours.
    • Packages received from or destined to certain locations may require earlier pick up times
    • (available at the Brown, Purple or Yellow Carrier website) to meet delivery time commitments.
    • (g) Brown, Purple or Yellow Carrier is notified in writing or by telephone of a service failure within fifteen (15) calendar
    • days from the date of scheduled delivery and is advised of the consignee’s name and address,
    • date of shipment, package weight and Brown, Purple or Yellow Carrier tracking number.
    • (h) For Brown, Purple or Yellow Carrier Worldwide Expedited shipments, the guarantee shall apply only to shipments
    • originating in, or destined for, the United States, and when the billed party is resident in the
    • United States and is responsible for all shipping charges.
  • 57. Waive the service guarantee
    • All carriers fail
    • All the guarantee means is that is the carrier fails, you can apply for your money back
    • So the failures require work on your part to find them and file for them
    • Or for a third party to do, with whom you are now going to split some of that savings
    • So why not figure out what percentage of your bill is saved by filing for service failures
    • Then say to the carrier that you will waive the right to file service claims and that the carrier just reduce the tariff by that amount
    • Or send you a refund for a percentage at the end of the month.
  • 58. It’s the win-win
    • You don’t have to research them and file them
    • You don’t have to split the savings with an audit firm
    • The carrier does not have to research them for validity
    • And you get the savings you deserve inherent in the service guarantee
  • 59. PREpurchased Options
    • FedEx Express® Prepaid Stamps
    • These prepaid shipping labels for FedEx Express® shipments take the place of airbills, allowing you to allocate shipping costs — and specify a FedEx® delivery service — upfront. FedEx Express Prepaid Stamps are nonrefundable and nontransferable. FedEx reserves the right to bill an additional amount for packages that exceed standard acceptance limits or require special handling.
    • Service DescriptionDelivery AreaAvailable for FedEx Priority Overnight®, FedEx Standard Overnight® and FedEx 2Day® delivery throughout the contiguous U.S.Instructions
    • To order, call 1.901.397.3650 or download our online order form .
    • If you have questions, please download FedEx Express Prepaid Stamps FAQs .
    • Minimum order is 10 prepaid stamps.
    • You must specify a shipment weight and FedEx Express delivery service.
    • Contact your FedEx account executive for more information.
    • Exceptions
    • FedEx SameDay®, FedEx First Overnight®, FedEx Express Saver® and FedEx Express® Freight services are not available.
    • No additional service options, such as Saturday delivery or Hold at FedEx Location, are available.
    • Special FeesA $4 fee may apply for courier pickup if the shipper does not have regular scheduled FedEx pickup.
    • USPS
    • Has a menu of flat rate priced options
  • 60. Carrier Agreements
    • Important to Review RIGHT NOW :
    • Revenue commitments
    • Locations included
    • Discounts offered
    • Terms and conditions
    • Addendum’s
    • Rate charts
    • Portfolio Services
    Note to self: Have things changed and what's negotiable ?
  • 61. If you liked what you heard
    • Jerry Hempstead
    • 1724 Buckhorn Pl
    • Orlando Fl 32825
    • 407-342-3825
    • [email_address]
  • 62. Notes to Self
    • Note to self: Conversion status gets the best pricing!
    • Note to self: Get my deal up the food chain ad high as I can !
    • Note to self: Package my book of business to maximize the favorable and downplay the unfavorable !
    • Note to self: My LTL is eventually going to be a big carrot to the parcel carriers !
    • Note to self: Promote ALL the biz to get the best pricing
    • Note to self: Start contract during highest volume or have the carrier start you off got a guaranteed time with the highest discount!
    • Note to self: Have I asked for a discount on all the services, for all my sites and all the billing types
    • Note to self: Have things changed and what's negotiable?
    • Note to self: Consultants can get you a 49% better discount than you can achieve on your own