Editor’s Note: This is a guest article from Laura Jelen with negotiations.com who discusses some useful tips on how companies can negotiate freight rates a bit better.
Shipping costs are a significant part of the supply chain expense. It’s in your best interests to reduce these costs where possible without compromising the value of the service you get from your carriers. Consider the following tips from negotiation skills training to lock-in better freight rates.
Achieving Holistic Freight Management in the Roaring ‘20s
When You Negotiate Freight Rates – Beware of Freight Rate Volatility
Variations in shipping rates reflect the nature of supply and demand. Depending on the type and origin of your goods, demand peaks during some months and declines during slower seasons. For instance, there’s an upsurge in Asia from mid-January to early February as merchants rush to get more goods before Chinese New Year begins. At these times, there’s less space available for cargo and market rates are high.
Once you’ve understood the market rates in your shipping lanes, then it’ll be easier to decide whether to ask for a guaranteed contract or to play at the spot market. A guaranteed contract acts as a hedge during high seasons. This type of contract offers a set price and capacity agreement, which may be high at certain times of the year but lower during high seasons when everyone wants more capacity. Spot rates, on the other hand, fluctuate depending on market conditions. They are suitable for small shippers who don’t have enough volume to negotiate for contract rates.
Leverage Group Buying
Merchants who transport larger cargo can afford to negotiate based on the quantity they bring on board. However, small scale merchants don’t have the leverage to negotiate better terms on their own. These merchants can instead join buying groups to leverage better deals together.
Leverage Logistics Data
Freight data gives you in-depth knowledge about your operations. Being well trained in analyzing your shipping trends gives you more leverage while bargaining. Carriers also have access to your freight data and may use it against you, unless you act savvy. By accessing real-time information about your operations, you can build a clear picture of your needs. You’ll be aware of terms that look great on paper but won’t offer you any value. A carrier may provide discount rates that won’t save you money, especially for areas you rarely ship to or waivers that disregard discount rates during peak seasons. Freight data gives you the leeway to negotiate for the best transport deal possible.
Don’t Underestimate the Value of a Great Carrier
A reliable carrier matters a lot in your supply chain. Some carriers may decline to negotiate and stick to their terms. If you’re happy with a carrier’s reliability and flexibility, don’t lose sight of the value your carrier brings. Though they may charge higher, it’s in your best interests to work with a carrier that has proven reliability. A skilled negotiator also understands the importance of building a long-term relationship with a carrier. Lasting relationships are often more favorable than short-term savings. The rate of supply and demand between shippers is always changing, and a reliable carrier can shield you from any price hikes or delays in the future.
Compare Offers From Different Carriers
The internet has made it easy to access directories to see what other carriers are charging. Before meeting your carrier, train yourself to research on what others are charging. Compare factors like:
- Different rates offered
- Transit requirements
- Accessorial charges
- Weights and dimensions
- Fuel costs
- Origin or destination zip codes
A carrier will likely be willing to offer better terms if they think you’ll go to a competitor. However, when negotiating for better rates, remember to not overlook the value you may already be receiving.
Read the Fine Print
In the shipping industry, the devil is always in the detail. A skilled negotiator is expert at identifying charges or hidden costs that can be eliminated. What’s the time allowed for pickup and delivery? Are you charged for deliveries on holidays and weekends? Do you pay cash on delivery? You could also negotiate on accessorial charges such as cargo packing and unpacking fees. These are some of the issues you’ll find hidden in the fine print. You should train yourself to separate what you need to pay for from what doesn’t suit your needs when you negotiate freight rates.
What Does the Carrier Bring to the Table?
It’s advisable to learn as much as possible about carriers who’ve responded to your request for proposals. Look at how your freight can fit into the carrier’s operation patterns as part of the vetting process. As much as they advertise their strengths, most carriers will also have weaknesses that could affect your business. Ask the carrier how they’ve handled problems and resolved you’re familiar with in the past.
Draft a Master Carrier Agreement
A master carrier agreement is a special contract between you and the carrier. It takes precedence over other tariffs and includes everything you’ve agreed to in writing. This means the carrier can’t change the terms without your approval.