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Carrier contract negotiation: How to negotiate with FedEx and UPS

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This is a guest post from Refund Retriever President Brian Gibbs. Brian founded Refund Retriever in 2006 while running his first eBay-based business and seeing the shortcomings of other shipment auditing companies. Refund Retriever’s primary focus is FedEx and UPS parcel invoice auditing. Gibbs has been featured in Forbes, Entrepreneur, and other publications discussing parcel auditing, shipping, eCommerce, and more.

FedEx and UPS are vital partners for your business, but unfortunately, fulfilling through them is only becoming more expensive and problematic. That’s why it’s essential to negotiate your carrier contracts to your benefit so you can continue selling your product. (As an owner, you should know well how much the cost of shipping affects your business.)

Introducing more strategic planning into your parcel contract negotiations can enable you to optimize shipping expenses, counterbalance rate increases, and fulfill your customers’ demands more efficiently. For most retailers, shipping and transportation costs account for at least one-third of their budgets, so it’s imperative to research and understand all aspects of carrier agreements before signing to ensure you maximize your savings.

What do carrier contract negotiations entail?

During carrier contract negotiations, each party discusses and agrees upon the details of their partnership. Then, the carrier creates a shipping contract that includes the terms and conditions of said relationship.

The carrier will then issue a proposed agreement for the shipper to sign electronically. Once the proposed contract goes into effect, future shipment pricing will abide by these terms.

Contract carriers want to maximize their profit margins, not yours, and their aggressive tactics reflect this mindset: Pre-negotiated shipping rates are expensive, and your post-negotiation rates will usually be inconsistent with similarly sized shippers. The harsh reality is, parcel carriers operate under a duopoly — two major carriers (FedEx and UPS) control the industry rates.

Understanding UPS contracts

UPS contracts usually feature individual sections for specific pricing items, including accessorial fees, refunds, surcharges, and incentives. The carrier issues a new rate proposal based on the shipper’s volume every time a new shipping contract replaces an older one. This means any price changes at the time of contract renewal will affect all UPS service levels.

The initial pages of a UPS contract outline general information related to UPS customers and the term duration and termination clause.

Under Addendum A of your UPS agreement, you’ll find information about customers’ shipper accounts and commodity tiers. Addendum B is most shippers’ focus during the contract negotiation process, as it includes terms related to portfolio tier incentives, minimum charges, guaranteed discounts, applicable DIM weight factors, and fee adjustments. Fee adjustments relate to accessories like additional handling, residential, and delivery area surcharges.

Understanding FedEx contracts

FedEx agreements are separated into subsections for the Ground and Express service levels. Make sure you have all current carrier agreements on hand before reviewing parcel shipping rates.

The first few pages of FedEx contracts discuss the general terms and agreements (i.e., automation, unexpected volume, and confidentiality) between the carrier and the shipper. Next are separate pricing pages for domestic and international shipping. They include information about shipping volume and applicable discounts based on your total shipping spend over the last 52 weeks.

Other notable terms are minimum transportation charges on domestic shipments and discounts offered on international shipping under domestic pricing or based on shipping volume.

Towards the end of your FedEx agreement, you’ll find accessorial and dimensional weight concessions terms, including applicable discounts on FedEx Ground, Express, Air, and other service levels. Accessorial fee reductions have term limits, which expire and will cause your shipping to increase if missed.

How to negotiate with FedEx and UPS

The foundation of a successful carrier contract negotiation is leveraging your data and established relationship. When planning how to haggle rates with carriers, remember that your carrier wants to retain your business.

1. Minimum charge impact

All service levels have a minimum charge for each package. The standard minimum charge is usually a Zone 2, one-pound package. For 2023 FedEx and UPS ground, this is a charge of $10.10; no matter your discounts, you’ll pay a minimum of $10.10 for that shipment, so it’s important to know how many of your packages hit this mark. Then, determine how much discount to obtain on the minimum charges.

2. Properly structure earned discount tiers

Many shippers aren’t aware of this, but carrier contract negotiations can occur at any time. While earned discount tiers can be beneficial in providing further incentives, you want to monitor your gross spending and understand the entirety of your contract, including your discount tiers. These tiers and the discounts associated with them are negotiable.

3. Beware of Guaranteed Service Refund (GSR) waivers

Some carrier agreements will incorporate a GSR waiver, so it’s imperative that you read the details of your contract. Never sign an agreement that precludes you from receiving refunds when you deserve them. In many cases, this will be a last-minute addition from the carrier to increase their margins. When performing a thorough audit of your FedEx or UPS invoice, we typically see anywhere from a 1%–4% return on total spend when filing claims for late deliveries, manifested-not-shipped mistakes, erroneous residential charges, etc.

4. Know your shipping data

It’s vital to study your shipping history before every carrier contract negotiation. Being unaware of factors like parcel expenses, shipping zones, package weights and sizes, and dim divisor places you at a disadvantage. When your carrier knows your shipping data more intimately than you, it’s nearly impossible to negotiate a better deal. In many cases, hiring a professional audit firm like Refund Retriever that has powerful reporting can provide the information needed to gain leverage over FedEx or UPS.

When to negotiate with FedEx and UPS

Any time you see a significant increase or decrease in your shipping volume, reevaluate your agreement. You could be losing valuable tier-level discounts or missing out on additional volume discounts. Further, FedEx accessorial fee discounts have a term limit; when the time expires, FedEx will charge full price for accessorial fees, so know how long your agreements last.

Navigating shipping contracts can feel intimidating and time-consuming, and contract management, negotiation, and renegotiation tend to be long processes. However, most customers think they’ve already negotiated the lowest price and so sign contracts without calculating savings.

FedEx and UPS carrier contracts contain confusing language, underlying clauses, and other subtle details that often go overlooked, including yearly rate increases, overcharges, shipment exceptions, and late deliveries — all of which hurt your bottom line. Further, poorly implemented shipping and pricing agreements can generate additional excessive overspending. Negotiation is thus essential to control your business’s shipping costs.

As a valued customer, you can review and renegotiate with your provider to continue enjoying the best prices, and Refund Retriever’s carrier contract negotiation experts can help with every stage of the process.