Get Basic Tips for Negotiating Freight Contracts
What You Need to Know About Freight Contracts
Negotiating freight contracts is a time-consuming process. It is not just a matter of sitting down with a carrier, they name a price, and you agree to it. The key is that you really have to negotiate. Shipping freight is an expensive endeavor; therefore, it is your responsibility to get the best rates possible.
Basic Parts of a Freight Contract:
How often does your company ship product? If you require the carrier to show up to your dock daily, the cost will be different than if your requirements call for once a week pick-up.
How much tonnage do you ship? Provide the carrier annual numbers as well as averages per week. The best way to obtain these numbers is to take the prior year's shipping numbers and add or subtract business (according to gains and losses).
What are you paying your current carrier? Often times when it comes to negotiating freight contracts, it is a carrier who has reached out to the shipper seeking business. When the shipper provides copies of their current carrier's invoices, it is an incentive for the new carrier to provide a deeper discount in order to land the business.
How quickly do you pay your bills? Simply telling a carrier how quickly you pay is not sufficient for good negotiating tactics. The best option is to show proof of payment. Do not show just one payment, but rather at least six months worth of invoices and payments.
What is your shipping schedule? On which day/days of the week do you primarily ship? Are you flexible on the time of day you ship? That may be a key negotiating tactic. If you can adapt to the carrier's schedule it gives you room to negotiate a lower shipping cost.
Where do you ship? If you are moving your product across town, it will be less expensive than shipping across the country. Across country will be less expensive than internationally. If you ship to multiple locations then you will need to decide if you want to set up a single zone rate or a multi-zone rate. A single zone rate is practical if you ship to the same destination all the time. This rate is also practical if you ship primarily close to your home location. A multi-zone rate is more practical if you ship throughout the U.S. on a regular basis.
How much tonnage do you ship per destination? How much tonnage you ship will directly affect the cost of freight.
What is your specific freight description? What freight class ratings do you ship? Are hazardous materials involved? Will freight be pre-paid or collect? If you primarily ship less-than-truckload (LTL) shipments, try to seek a freight-all-kinds (FAK) rating. This will save money in the end if you ship a wide variety of classifications. It also makes the invoice auditing process easier.
Sitting Down to the Table
Once you have all your data together, you may either set up a face-to-face meeting with the carrier or send out Requests for Proposals (RFP) (also known as Requests for Quotes or RFQs). Face-to-face meetings are fine, but RFPs are more productive. RFPs give you a chance to review everyone's proposal and make a chart of what they are offering. The chart will help you easily compare who will give you what for how much.