The New Art of Negotiation For Shipping Contracts

In today’s demanding environment, skillfully negotiating shipping contracts is essential. As customer expectations continue to soar, logistics teams are scrambling to keep up—all while leading carriers rake in record profits.

E-commerce has exploded, largely due to the pandemic. Over the last two years, customers have spent $32 billion more online for the same volume of goods—a figure that’s only growing. To accommodate skyrocketing demand, businesses are adopting new strategies—including omnichannel fulfillment and free shipping—the success of which is largely dependent on effective, cost-efficient shipping contracts.

An obstacle-ridden negotiation process

For logistics teams everywhere, negotiating shipping contracts is a complex and tedious process. Today, carriers enjoy a considerable advantage over the businesses they work with, setting record-breaking parcel and long-term contract rates. Businesses face a number of challenges, including:

  • Lack of transparency
    The negotiation process is rife with technicalities: aside from freight rates, contracts stipulate timing, package sizing, and countless other conditions.Dictated by ever-evolving regulations, today’s negotiations are notoriously difficult to navigate—a challenge that’s exacerbated by a lack of transparency. Because they aren’t privy to the terms of their competitors’ contracts, businesses can only hope that they’re getting a fair deal. Oftentimes, they aren’t.
  • Surging fuel costs
    Amidst the turmoil in Ukraine, increases in global fuel costs have shown no signs of stopping. As a result, carriers are raising fuel surcharges—and businesses are bearing the cost.

    “We’re in a challenging environment when it comes to shipping negotiations, pricing, and freight spend management,” Donal Brennan, Vice President of EMEA Operations and Global Projects at CTSI-Global, explains. “Freight providers’ costs are rising because of factors like fuel, reduced capacity, and inflation. It’s leading to higher costs across the board.”

  • Driver shortages
    Longstanding driver shortages are only getting worse—and supply chains around the world are feeling the effects. According to the American Trucking Associations, last year’s shortage numbered a whopping 80,000 drivers—a figure that may double by 2030.

    What does that mean for shipping contracts? Most carriers are contending with a limited workforce—a problem compounded by unprecedented fuel costs. To compensate for potential revenue loss, some carriers—particularly UPS, FedEx, and other big names—are raising parcel and contract rates.

With the right tools, businesses can negotiate winning contracts

Despite these obstacles, businesses can emerge victorious. Armed with effective strategies and resources, logistics teams can navigate the negotiation process with ease and confidence. These tactics include:

  • Implementing industry-leading technology
    In today’s increasingly competitive landscape, innovation isn’t just an advantage—it’s a must. For businesses everywhere, a transportation management system (TMS) can prove invaluable: with detailed data on shipping spend, fuel surcharges, shipping zones, and sizing, this groundbreaking technology provides much-needed insight into the negotiation process.
  • Pursuing the right carrier partnerships
    Shipping and transportation can make up more than a third of a business’s operational budget. That’s why choosing the right carrier is critical—especially in today’s market. How might businesses optimize their carrier partnerships?
  • Diversify carrier networks. Diversification is a tried-and-true risk management tactic. By partnering with a different carrier in each shipping zone, for example, businesses can build a strong network of reliable partners.
  • Turn to a TMS. With precise data on delivery times and shipping spend, TMSs provide powerful insight into carrier efficiency.
  • Consider a freight broker. As experienced intermediaries between businesses and carriers, freight brokers harness their own networks of carriers to help businesses build the most relevant and cost-efficient partnerships.
  • Keeping up with industry developments
    Knowledge is a simple-but-crucial resource. Without the information they need, businesses may end up readily accepting a contract with less-than-desirable terms. Researching essential contract topics—including market rates, potential fees, dimensional (DIM) weight pricing, and cargo ready dates (CRDs)—can demystify the negotiation process.

Favorable contracts don’t have to be a pipe dream

Nowadays, customers want more—faster. Industry-leading carriers know that—and the proof is in the contracts.

Luckily, the right tools can make all the difference. CTSI-Global’s advanced software—including Honeybee TMS—gives businesses the data-driven insights they need to make effective decisions. Despite everything, a simpler negotiation process isn’t so far away.