What Every E-Tailer Should Know About Negotiating Shipping Rates
Here’s a secret: UPS, FedEx, and US Postal Service shipping rates are not set in stone. These carriers want your business, and for larger retailers, they’re often willing to negotiate rates. In fact, negotiating shipping rates is so common that there are entire companies dedicated to doing it for you.
However, if you prefer to handle the negotiation process yourself – or if you want to get some insights into the process – this article is for you.
Areas to Consider When Negotiating
Shipping rates are based on a variety of factors. So, when you approach negotiations, it’s a good idea to think about certain aspects instead of trying to get a discount on the total rate.
USPS has a Commercial Plus Pricing program that offers discounts once you pass certain volume thresholds. As of 2016, it’s only available for select mail services, including:
- Priority Mail/Priority Mail Express/Priority Mail Express International
- Global Express
- First-Class Package International
FedEx and UPS don’t offer anything like that, so you may have better luck scoring deeper discounts than usual with them. This isn’t to say that USPS won’t negotiate with you; they may be willing to do so if you request a Negotiated Service Agreement from them. You might have more leverage if you express interest in using a USPS mail service that doesn’t come with Commercial Plus Pricing rates.
Before meeting with a certain carrier, look into their pricing structure and the different fees and surcharges they impose. Next, determine which ones you want to try to waive or bring down. Here are a few common ones:
Dimensional Weight Pricing (DIM Weight)
It’s a pricing system based on a package’s dimensions and weight, and it is the standard for all three carriers. If most of your packages are in a certain size, weight, and dimensional range, you can try to negotiate a discount for that range only.
Many, if not all, carriers have an insurance policy in place. Most of the time, it’s not set in stone. If the carrier won’t budge on the shipping price, you can try to negotiate a better insurance rate schedule for your business.
Residential Delivery Surcharge
If you ship to a lot of residential addresses, a cut in the carrier’s residential surcharge will save you a lot of money. All three major carriers impose a surcharge on any residential deliveries because they cost three times as much as business deliveries. It can’t hurt to see if the carrier would be willing to lower or even waive this surcharge for you.
Large Package Surcharge
Any package bigger than a certain size, such as 130 combined inches, and heavier than a certain weight, such as 90 pounds, will incur a surcharge. If you normally ship large packages, you can try to cut that surcharge in half.
How to Get Leverage
It all boils down to this: the more business you’re going to give a carrier, the more willing they are to give you a good deal.
You can still get leverage even if you’re not a high-volume shipper. Here are a few ways to do this:
- Ask for a grace period. If you’re a new company, UPS or FedEx may give you a low rate and allow you a three-month grace period for your business to grow and get more sales under the condition that you’ll lose the low rate if you don’t meet the sales goal at the end of the grace period.
- Ask to be grandfathered in. Most carriers, including FedEx and UPS, increase their rates by 5 to 7 percent each year. You can ask for immunity to any price hike that takes place during the term of the contract. A carrier that’s eager to earn your business will consider your request and likely grant it. This is also a great area to go over when it’s time to renew your contract.
- Shop around. Meet with all the carriers you’re interested in. Get quotes from each one and then approach the others with incentives from their competition to see if they’ll be matched. This is a good way to gauge a carrier’s interest in getting your business, and you can use the information to leverage a deal in your favor with an interested carrier.
- Establish a relationship with an account manager at each carrier. Account managers have access to association pricing and other programs that aren’t always advertised.
- Offer to use them as your sole carrier. Many e-tailers ship through various carriers, but you might land an attractive deal with one if you agree to use them exclusively for a certain period of time.
- Understand the way they operate. Some carriers like to make their commercial discount programs complicated enough to make their clients give up and accept the going rate. The more you understand the carrier’s pricing process and terminology, the more capable you are of speaking their language and landing a good deal with them. Not doing so will increase the risk of missing out on the opportunity to negotiate down the deals they already offer. LinkedIn has a great guide on UPS and FedEx pricing process terminology.
- Check with your associations for discounts. SEMA members qualify for a decent UPS discount, and many state and local chambers of commerce also qualify for discounts. If your company belongs to an organization, be sure to check with them about shipping discount programs. Sometimes, the discounts are better than you can get on your own.
Finally – and most importantly – always ask for a discount. UPS reps are often happy to give you a discount, even if you only spend $75/month on shipping. All you have to do is email or call.
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