We have discussed negotiating with LSPs in previous posts. Here is a quick summary which can help guide engagements with providers. The key takeaway is value before price.
The motor carrier and air freight industries are extremely competitive, giving shippers an advantage in carrier selection and negotiations. A common mistake made by small and medium sized clients is failing to prepare before meeting with carrier representatives. Another mistake is focusing on price. A better strategy is to emphasize value in your discussions with LSPs. If you determine that they have the capabilities to provide quality services, then you can move the discussion to price. Consider: if simply asking for lower rates can result in transportation savings, how much better would the result be with a little preparation? Here are some suggestions from someone who has spent many years on the carrier side of the table.
Determine your specific transportation needs and goals ….for example
- Price- compare net rates (not % off because base rates differ), minimums
- Transit Times/Reliability- including pick up and delivery, terminal services, linehaul
- Inventory Costs- reduced transit time = reduced inventory costs… how transportation adds value
- Product Differentiation- faster, better service as a marketing tool
- Capability/Access- carrier has right equipment in right place at right time
- Security- carriers claim ratio and loss/damage experience
- Relationship- responsiveness and problem solving protocols
Analysis Prior to Negotiation
There is not much advantage to withholding your shipping profile from LSPs. Because the industry is so competitive you will get a better deal if transportation providers know what volume they are bidding on and any specific service requirements. If this information is not available to them they will hedge their bets and be less aggressive in their offers. Gather some data and present it. This will give you professional status in the eyes of your carriers. Here is some minimum information needed. Most of it can be found in bill of lading or invoice files.
- Volume/Frequency- # of shipments per day, week, or month
- Weight- average weight per shipment
- Dimensions- standard dimensions, if any… palletized or non palletized…pictures are helpful
- Heaviest Shipping lanes- domestic and international
- Services- priority or economy, express or deferred
- Density- pounds per cubic foot ( for motor carriers)
- Classification- NMFC item numbers (for motor carriers)
- Dimensional Weight or Dim Factor (for air freight forwarders)
- Packaging type- transportation only, display, labeling
- Freight Payment Terms- prepaid, collect, third party
- Control- Who has authority to sign an agreement? Who makes routing decisions?
Request for Proposal/Request for Quotation
A formal RFP or RFQ is an effective way to both reduce transportation costs and gain the value that you need from your carriers. Ad Hoc Logistics can prepare your RFP/ RFQ, get it to the appropriate transportation providers, and even negotiate on your behalf. Get started by contacting Ad Hoc Logistics.