Shipping Contracts - How to Negotiate Terms to Reduce Freight Costby Press Release on 2012-07-18 02:02:23
The most important thing to consider before entering negotiations regarding shipping contracts is knowledge: Freight cost is determined by numerous factors; more factors than the majority of shippers think. Knowing HOW the shipping prices are structured will give you a better understanding as to WHERE you can negotiate terms. Small savings in numerous places is equivalent to one large saving, but is a lot more achievable when considering shipping contracts.
This approach will be a more drawn-out process, but it is the best way to improve your negotiating position and give you the best chance of succeeding with your negotiations.
Firstly, let's determine what defines a 'good deal'.
A good deal can be the saving of time, more value for money, incentives for repeat custom or simply offering you more for your money in terms of a better service to customers etc.
A bad deal is a deal that comprises of none of the above.
Things to look for and keep in mind
1. Better rates can often be misconceived and made to appear as 'good' rates. This is not always the case. If you were paying over the odds in the first place and the carrier reduced your rate by 5%, then you could still be paying an inflated price when compared to other shippers. Carefully consider the quote and compare it to quotes from other carriers.
2. Number of items, weight, destination and size of a load can all determine the price of a carrier's quote. But not everyone knows that considerations such as shape, packaging, stackable options, road conditions, whether the consignment is hazardous or not and miles between stops are also taken into consideration from the carrier's end, hence they should to be taken into consideration before any quote can be issued fairly.
3. No two items are the same in the eyes of the carriers and no two carriers are the same also. Recognising which carrier can collect, handle and efficiently deliver your cargo based on its contents will stand you in the best position for negotiation.
4. The cheapest haulage company isn't necessarily the best carrier. Often in the world of freight the general consensus is that you get what you pay for. Ensure that your freight company are legitimate and have a strong reputation within the industry. Read reviews about their service to customers and pass judgement about them using other people's experiences rather than jeopardising your own experience first. A quick search on Google will generally give you as much information as you need.
5. Carefully read through a company's terms and conditions before entering into any agreement with them. Do your homework and make yourself familiar with any pitfalls that may be hidden within the contract. If done properly, it will only need to be done once. Finding a great service that is pitfall-free first time could see the beginning of a long and fruitful business relationship between both parties.
6. Remember that collections are just as important as the actual safe delivery of your consignment. In today's busy hustle, you want to ensure the collection of your cargo is as hassle-free as possible. Carriers who go the extra mile to make the customer experience as easy as possible will be an added bonus as their view towards quality will far outweigh the quantity that other carriers depend upon.
Things that can determine cost
The most common mistake that shippers make is attempting to knock down the overall price of the carrier's service without taking into consideration the complications and structure that determines the price of a quote.
Each haulage company has needs and preferred types of cargo etc. A well negotiated business partnership will take into consideration the needs and preferences of both the supplier and the carrier. They will then agree on a rate which will be beneficial for both parties.
This is why it is so important to understand what each carrier prefers to handle as this can be an important factor that determines whether a quote is considered fair or greedy.
If the carrier prefers not to take the supplier's type of cargo then there should be no business exchanging hands. However on the flip side, if a carrier's preferred cargo is that what the supplier is looking to consign, then a business deal should be struck and, more often than not, the negotiations will go smoothly and everybody will be happy.
Here is a quick list of some overlooked factors that can determine a carrier's quote:
- How easy or hard the consignment is to handle;
- Business overheads to cover;
- The distance between stops once the consignment is in transit;
- Potential detours in order to refuel;
- Fuel consumption of certain loads;
- How many staff are involved in the shipping process;
- Vehicle changes to cater for certain roads;
- Efficiency of loading/unloading at depots;
- Quality of road and drainage capabilities;
- Overall surface area and weight of consignments;
- The costs incurred in case of damage to goods;
- The weather forecast;
- Whether there is an opportunity for a return load.
These are just a few factors that many shippers fail to notice as important. Rather than trying to hammer down the overall price of a service, suppliers will find it more rewarding to try to hammer down the prices of these individual factors.
For instance, carriers will over-price on all of these factors to cover their costs in case of any sort of mishap. So if there is an opportunity for the carrier to return with a full load after dropping off a consignment then bring this to their attention and look to knock down that particular price. The same can be said for the weather forecast: Carriers will offer a higher price in case of hold-ups due to bad weather. If the weather forecast is due to be 30 Degrees Celsius then attempt to negotiate terms to bring down this particular cost.
Picking pennies here and picking pennies there will amount to huge savings once you add these saved costs together.
Action plan to get cheaper quotes
1. Work out your needs and research haulage companies that would suit them. Fill in enquiry forms and offer as much information as you can. Include things like the likelihood of repeat custom for good service etc. Compare the quote prices and match them with your needs to determine which company is the best for your situation.
2. Work out maximum budgets and areas where you think you may be able to haggle the price down with the haulage company. Organise a meeting with them to talk over the potential business partnership.
3. Once in the meeting, take a journalistic/fact-finding role and ask them questions to find out how far they are willing to stretch with their service and recognise areas where you think they can be moved on pricing. Ask them to give you a definitive quote.
4. Now it's time to get cheeky. Rates are always negotiable with all freight forwarders – remember they have profit on the jobs they quote you and always quote high with the aim that they can come lower if asked. Be cheeky and ask them to move on price in certain areas. Lead them to believe that they a deal if they budge. You’ll find that they will.
5. Once they move you know they can be persuaded. Now it's time to squeeze them even further. Be careful not to push too hard or you may lose their interest. However a little more cheekiness will not go amiss: Tell them they have your custom if they reduce the price a little bit more. If they offer you a £20 reduction when shipping to Romania for instance, ask for £30 – being cheeky is the key!
6. Repeat this process in all quote determining areas and then agree on an overall price. Shake hands and request the agreement to be written into a working contract. Sign the contract and business can proceed.
Once you get the final shipping contract written out and forwarded to you, you should be able to see the huge savings you have made when you compare it to the original quote made by the carrier.
To further confirm the amount you have saved, compare it to the quotes from the other haulage companies who failed to make it to the meeting stage. If done correctly, you will be pleased with the outcome as your quote should be lower than the other haulage companies’ quotes.
About the author
Adam Veitch writes on behalf of First European, a group of road freight forwarders based in Burnley, Lancashire, UK.