Financial and Operational Considerations for Parcel Services

By Guest Editor

March 02, 2018 at 10:34 AM

When identifying shipping best practices there are numerous methodologies, carriers, and shipment service choices to consider. These should be assessed with respect to their potential financial and operational impacts. More often than not, shippers are primarily focused on getting their packages sent and delivered on specific dates. During carrier contract negotiations, if savings are produced and your incumbent says you’re getting the best price, what else could you ask for? That’s why the crucial and challenging work of studying these rates is often ignored. Learning how these rates are determined, identifying market competitive pricing, and managing your account to ensure ideal package selection are all essential tasks.

A good scrub of your parcel shipping process and review of contract terms & conditions can easily uncover significant savings opportunities and help you optimize internal operations. One way to expedite visibility into potential opportunities is to leverage a benchmarking program. You’ll gain a closer look at these services and better understand current shipping behaviors and requirements. You’ll also gain insight into what other companies are doing and the overall competitiveness of the market.  The exercise could prove that a better result is available.  If that’s the case, here are some things to consider when taking that “Deep Dive” into what you are spending and how you are shipping.

Typically parcel carriers offer discounts off of service guide rates. These are based on the total volume of shipments processed within each shipment category, weight classification, and destination. Your first thought will likely be to push for deeper discounts within a specific shipping zone, weight group, or for your high volume shipment types. One commonly overlooked contract stipulation, however, ensures that carriers usually have minimum charges set forth in the contract.  These might offset whatever discount you believe you’ve negotiated. For example, you might have negotiated an 80% discount for a specific shipment type across all weights and zones, but the contract requires a minimum net cost of no more than $X lower than the zone 2 / 1lb package service guide price. The net result is that you are actually only getting a 60% discount on that specific shipment.

Service Guide, or gross rates, are also not standardized across all carriers.  That means a smaller discount with one supplier might actually result in a lower price than a bigger discount with another. This pricing variance is not consistent across all shipment types, weight groups or zones.

What does that mean for you? You’ve got to be certain of carrier requirements before you make your request and assess the results of those demands thoroughly to adjust your final “asks”. Additionally, you need to fully understand the net effect after discounts and other pricing incentives for each carrier charge.

When sending a shipment, are you actually carefully assessing the package you are selecting? Are you sure all that dead space is needed? Do you really need the package to arrive by 10:30AM or will lunch time the next day suffice?  All of these factors impact your net price. Understanding the fundamentals of dimensional weight application, better selecting package type (box, envelope, etc.), centralizing shipping within a specific zone, and trying to accommodate a standard time of day for shipments can all help you better control spend and optimize the shipping process as a whole.

Competitive pricing isn’t everything.  You need to fully understand carrier capabilities to determine who is capable of supporting your business needs, fulfilling unique requirements for all locations, and provide account management functionality to continuously improve spending and processes.

The result of these considerations is not just lower pricing. You’ll enjoy a more streamlined process that can also improve the timeline for sourcing these services in the future. Spending the time now will only help you in the future. Hopefully, it’ll help you in the near future and not in 3-5 years when your contract expires.

About the Author

Merz.pngLeigh Merz is a Senior Consultant at Source One Management Services. With experience supporting a wide-range of strategic sourcing and cost reduction initiatives, Leigh is a trusted resource for in the telecommunications, small parcel, and SG&A categories. In addition to her client work, Leigh is an active mentor for emerging professionals within Source One and is a frequent guest speaker at Philadelphia-area universities.


Tags: parcel shipping discounts parcel shipping benchmarking parcel shipping strategies
Category: News Article

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