How to Reduce Small Package Transportation Costs in a Challenging Economy

In his strategy-packed session, “How to Reduce Small Package Transportation Costs in a Challenging Economy,” Rick Collins, vice president of AFMS Logistics Management Group, acknowledged that negotiating shipping rates can be daunting – but it should no by means be a missed opportunity.

He contended there are plenty of areas for potential negotiation, especially in the areas of shipping surcharges. And Collins should know: His firm, AFMS Logistics Management, was founded by former shipping company executives, like him. They worked for the major carriers, including FedEx and UPS.

According to Collins, rising fuel costs, global market uncertainty, DHL’s exit from the North American market, and the United States Postal Services’ discounting of services will all contribute to significant 2012 integrated carrier rate increases. To negotiate the best possible rate, he recommends knowing your “package profile” – including, but not limited to, which of the 100-plus surcharges that exist are being applied to your bill, as well as average package dimensions and pick-up/delivery density.

To build this profile, Collins strongly recommends taking advantage of the electronic billing and billing analysis tools most carriers offer. This data will enable month-by-month comparisons of surcharges, maps of where packages are being sent and so on.

“Negotiate on what you ship most,” Collins advised. “Or, figure out the most common weight. Doing either is way more effective than saying, ‘Give us your best rates.’”

According to Collins, shipping revenues don’t drive discounts; package characteristics do. So, don’t be surprised if a competitor – who’s shipping fewer packages, but to busier hubs – enjoys a better discount from a carrier. To this end, he suggested cutting down on box dimensions wherever possible, even if it’s just an inch or two. “It can lead to huge discounts.”

Further advice for reducing your shipping rate is to identify packages that can be shifted from air to ground transport, reducing cost while maintaining transit times. He also recommended evaluating the costs of shipping from potential locations before breaking ground on a facility or distribution center.

Because surcharges often represent 15 percent to 20 percent of your shipping bill, these are great opportunities to negotiate rate reductions, Collins asserted. Surcharges range from fuel, residential (versus business) delivery, address corrections, oversize charges, dimensional change charges, Saturday deliver and declared value (insurance). “Note that the USPS applies none of these surcharges,” he pointed out.

One surcharge with major potential for negotiation is related to delivery area. As Collins explained, even metro areas –Phoenix, for example – are subject to these fees. In fact, 55 percent of the nearly 43,000 zip codes in theUnited Statesare subject to delivery area surcharges.

“Your pricing is driven only by two things: market conditions and shipment/package characteristics,” Collins told attendees. “So, while some surcharges are easier to negotiate than others, all are negotiable.”

Before you do, though, he recommended conducting an assessorial summary of what surcharges are most frequently applied and represent the highest dollar values, and then negotiating on those.

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