The Distribution Management Group, Inc. |
Tired of the ‘Nickel and Dime’ Treatment from Parcel Carriers?
Wouldn’t it be nice if you could dictate substantial rate increases every year to your customers and all of your competitors would follow your lead? We’ll, UPS does! Today’s small parcel carriers are in a no lose situation. They have conditioned shippers to endure significant price increases year after year after year. The sum total of these increases each year far surpasses the rate of inflation as well as the carriers’ increased operating expenses. The carriers have wised up over the years and realized they will simply be swapping market share back and forth from year to year if they continue to challenge each others rate increases; therefore, they simply follow the leader, UPS.
Small parcel carriers today know that they’ve got you between a rock and a hard place. It is difficult to pass the increases on to your consumers year after year and remain competitive within your industry; however, your parcel expenses continue to mushroom and become a much more significant percentage of your revenue. You can always transfer your volume to the less expensive USPS, but we all know you’ll get what you pay for.
Carriers have become increasingly creative in how they implement and publicize the annual GRI’s. Carriers realize that most shippers focus their negotiations primarily on their discounts off of published rates. The issue with this approach is that the annual GRI’s differ greatly from service to service, weight to weight and zone to zone. While the published GRI in 2005 was 2.9%, the actual increase in many areas was much greater. In addition, carriers know that all eyes are on the published rates, so they continue to add and increase accessorial charges at a much greater pace. Many of the accessorial charges have increase by double digit percentages this year and some as much as 40%. It is much more difficult for shippers to determine the true impact of these accessorial increases given the complexity in identifying them prior to shipment and difficulty itemizing them for each package via your carrier invoice.
Below is a snapshot supporting this logic:
2005 % Increase Service/Accessorial Charge UPS FedEx FedEx HD DHL 1 lbs/Zone 2 Commercial Ground Delivery 4.93% 4.93% n/a 4.93% 1 lbs/Zone 2 Residential Ground Delivery 5.57% 8.08% 5.57% 8.08% Hundredweight Ground Average 5.90% 5.90% n/a 5.90% Residential Surcharge - Air 25.00% 14.29% n/a 14.29% Residential Surcharge - Ground 7.14% 14.29% 7.14% 14.29% Delivery Area Surcharge - Commercial 25.00% 25.00% n/a 14.29% Delivery Area Surcharge - Residential 14.29% 14.29% 14.29% 14.29% Ground Fuel Surcharge 2% 2% 2% 2% Declared Value Insurance 14.29% 14.29% 14.29% 0% The bottom line is that shippers must first understand exactly where they are spending there money, what elements of the GRI have the greatest impact on their expenses, and then negotiate carrier agreements focusing on these variable rather than signing off on carrier concentric agreements. In almost every case, the carriers know more about their shippers’ characteristics than the shippers themselves do. If you are ever going to turn the tables and gain the upper hand in contract negotiations, you must understand how your business is affected by the annual GRI, what elements of the GRI are negotiable, what your competition is negotiating, and why you deserve concessions in pricing.
DMG, Inc. was formed specifically to help shippers facilitate this task. It can be extremely difficult, if not impossible to undergo this task on your own. While you have competent personnel and years of experience negotiating these contracts, you will inevitably leave money on the table if you cannot benchmark you characteristics and pricing with your competition, understand your carriers’ pricing algorithms, quantify your carriers’ profit margins on your accounts, and negotiate each element of your contract at the highest level within the carrier organizations.
If you would like DMG to assist you in this daunting task as we have for many Fortune 1000 corporations, please contact us today. You can’t afford to delay, and we guarantee the results will exceed your expectations.
Archived Articles
- Tackle the 2006 General Rate Increase; February, 2006
- Avoid the Nickel and Dime Treatment; March, 2005
- Postal Consolidators - Here today, acquired tomorrow!; October, 2004
Contact The Distribution Management Group today!