Industry Market Trends

How Manufacturers Can Negotiate Better Shipping Carrier Contracts

Jul 24, 2013

Manufacturers looking to negotiate better contract terms with their shipping carriers should schedule regular performance reviews and be prepared with accurate data analyses and reports to determine "whether carrier agreement needs to be amended in any way and support you during any negotiations that may take place."

That's according to Aaron Samuels, managing partner with BridgeNet Solutions, a logistics analytics firm. Samuels has written on the topic from the angle of shipping companies, and recently spoke with IMT to explain how manufacturers can benefit from the same basic strategy as well.

Samuels identified three major areas of negotiation.

"Having high-level reports at your fingertips is important because it enables you to hold the carrier accountable for negative trending and request better rates or incentives," Samuels said. He told IMT that manufacturing companies "will fall into the same categories of strategy and contract review, provided that they are holding the contracted rates or accounts with the carrier and are paying for the transportation to either distributors or end customers. If not, and the manufacturing company does not pay for any transportation costs (i.e. customer accounts are being used), then the review would focus purely on the service side of business."

The first negotiation area is customer satisfaction. One example scenario Samuels gave was "if the data reflect that the carrier has been unable to provide the shipper with a satisfactory rate of on-time deliveries," it may be reasonable for the shipper "to request that a threshold be set and that any quarter in which the percentage of on-time deliveries falls below the approved threshold that a rebate be provided by the carrier."

So, "your business reviews would focus on services that affect your customer satisfaction, primarily on-time delivery performance," he said. "By having the carrier provide reporting each month or quarter showing the number of on-time deliveries, any negative trending or areas of high negative results can be addressed and used as leverage in determining a solution."

Manufacturers, Samuels advised, should review "how often and how well the carrier is currently picking up product from your location -- a pickup that is too early may result in product not being shipped that day and affect your customer relations. A pickup that is late enough to ship all products, but is not handled on-time by the carrier to sort and transport to the destination will also be a negative with your customers."

So the most important metrics to leverage when reviewing carrier contracts are those that impact the manufacturer's customer service standards. As Samuels said, if the carrier is unable to improve the situation, a negotiation of a rebate or refund may be an alternative. This should include a review of any damaged or lost shipments as well.

A second key area of negotiation is volume. The regularly scheduled business review, Samuels said, "is a good time to review the volume being manufactured and shipped and how it has changed since the last review or trended over the years. It may be time to arrange an extra pickup to handle increasing volumes, or switch to a dropped-trailer method of shipping based on new operations within your facility -- for example, the inclusion of a staging area for consolidation of orders and end-of-day final shipment rather than shipping multiple orders for the same customer throughout the day."

The third topic that should be discussed includes any upcoming changes to the manufacturer's facility, Samuels said, "or if the carrier is planning on implementing a new service or lane in the near future that would be beneficial to include on your agreement."

Samuels stressed that there is no set formula for conducting a successful business review with your carrier. He noted that after the first negotiation, there may still be issues that arise which need to be worked out. Further, he encouraged businesses to review contracts on a monthly, quarterly, or semi-annual basis if needed.

"By having frequent communication with your carrier to address issues and improve the relationship, business reviews can be beneficial to any manufacturing company," he said.