If your sole focus is on growth in sales volume or revenue, rather than improving cash flow … well, it shouldn’t be. While the first is an effective means to improve inventory turnover, it’s the latter which will determine if you can keep the doors open and the customer shipments rolling. And if your company sells physical products, your freight costs can have a significant bearing on your cash flow.
One way to control freight costs is to negotiate with your carrier for more favorable shipping terms. The outcome of the negotiations will depend on a number of factors, including your understanding of the factors that affect shipping rates.
1. Determine the Factors that Affect Shipping Terms and Rates
Depending on the shipment, your rates may be influenced by the quantity of goods you ship, a shipment’s final destination or trip mileage, the shipment’s weight and density, as well as the type of cargo, such as hazardous materials. When making a quote, a shipping company may also consider the road conditions en route, the number of personnel required to transport the shipment and fuel rates.
While you might think you’ll get a better rate if you negotiate a net freight shipping quote, you may save more money if you negotiate each factor that contributes the quoted rate. So research the average price of each element of the quote to ensure any figure you propose is a reasonable one. Start with a review of your company’s past shipping invoices and vendor proposals to refresh your memory in terms of historic transportation costs, your typical package sizes and weights, payment terms and guarantees. As you work through that information, keep in mind that the primary factor that influences shipping quotes is supply and demand for shipping services. In the process, you might collect this information for different types of shipping that might fit your needs, as well as different types of packaging. For instance, if you use your carrier’s packaging, you might avoid “dimensional fees”, the charge you pay if the size of your box is not a carrier standard. Once your research is complete, you’re prepared to recommend a reasonable rate for your typical package sizes and weights, and final destinations.
2. Research Rates for Alternate Shippers
Unless you determine the rates that your primary carrier’s competitors are charging for the same services, attempting to negotiate lower rates will be difficult. For this reason, before you talk to your regular carrier, get rates from some others. Remember these rates might be made up from as many as 75 special charges.
As an alternative, you can compare shipping rates between various local, regional and national carriers by using a website such as ShipGooder. All you do is enter the address for the shipment’s origin and destination, the number of packages you want to ship and their weight. In response, the site displays rates for a variety of services offered by different companies. You can compare these rates to those you’ve been paying to determine if you’ve been paying reasonable rates or if you might save money doing business with a different company. Keep in mind that a regional carrier’s rates might be less than those of a national carrier, but the delivery network may be smaller.
Also consider hybrid services, which means a major carrier will pick up your packages and ship them to the post office that’s closest to the final destination, from which a local delivery agent makes the final delivery. The cost can be half the cost of a regular delivery by a major carrier.
3. Develop Ongoing Relationship with a Carrier
Growing a business is about offering quality products and providing stellar service. But it’s also about relationships you develop with your clients, vendors, suppliers and other business partners, including your freight carrier.
To obtain the best possible shipping terms, you’ll need to get to know your freight carrier and your point of contact at the company. Speak to them a few times a year about new product or service offering, or a new value proposition. This might be new routes, new packaging, new tracking technology or new volume pricing, all of which might improve the carrier’s quality of service, its speed of delivery or reduce your shipping costs.
4. Create an Invitation to Tender
After your research is complete, and you’ve discussed your options with your current carrier, you create an Invitation to Tender (ITT). The ITT is your solicitation to potential carriers to submit business proposals. In turn, each interested freight carrier will solicit your business by submitting a sales proposal. After you receive the proposals, you need to compare them to identify the advantages and disadvantages of each one and the carrier that will best meet your company’s needs.
Your ITT should include the information a carrier will need to submit a reasonable quote. For instance, you’ll want to provide a company profile that describes your product and service line, the geographic location of your target markets, as well as your average monthly shipping volume. Specify what the carrier must provide, such as climate-controlled shipping containers, particular shipping papers, or the means to transport hazardous materials. Only then will the proposals provide a reasonable estimate for services that meet your expectations.
5. Request Shipping Discounts or Participation in Preferred Customer Program
Freight carriers compete aggressively for shipping customers, so when you negotiate for shipping terms, ask about customer incentives for shipping a certain volume of packages or for switching carriers. Also, there’s no reason to keep your discussions with one carrier a secret from another one, says Jack Mitchell, the president of PANCGroup, a spend management and audit recovery firm.
A carrier might also grant discounts based on your company’s shipping volume or some other factor, such as prepaid shipping. So as your sales ramp up or another freight-related business event occurs, consider negotiating for lower rates. Also, ask your carrier about any discounts the company offers based on your company’s membership in a trade organisation or other group.
To receive the best service from your freight carrier at a reasonable cost, it’s crucial to establish a relationship with the company. You can do so by researching all of your options and negotiating an agreement that meets the needs of your company, as well as those of the carrier.
