why use a parcel transportation consulting company july 2010

Why Usea parcel consulting company

WHAT SHIPPER

KNOWS WHAT THEY ARE PAYING any KNOWS WHAT THEY ARE PAYING any parcel transportation companyparcel transportation company

AND AND HOW WILL A SHIPPER EVER COMPARE HOW WILL A SHIPPER EVER COMPARE

WHAT THEY ARE PAYING TO ANOTHER WHAT THEY ARE PAYING TO ANOTHER CARRIERS OFFERCARRIERS OFFER

Parcel Magazine & Morgan Stanley SURVEY RESULTS PARCEL TRENDS REVEALEDRate Your CarriersPart 1: Results of the Annual Best Practices Survey:Over 250 Respondants, Over 90 million parcels

• 11 percent of survey respondents use consultants to negotiate rates.

• Consultants negotiate more favorable rates, driving discounts 49% lower than if the company negotiates.

WHY USE PARCEL CONSULTING SERVICES

• Most shippers bid out their business once every three years, four years, five years– The market changes every three months depending on

what part of the parcel pie they are promoting.

• Consultants usually have decades of experience negotiating parcel contracts 24/7/365– Just like the carriers’ representatives, who do it every

day.


• Shippers don’t generally compare notes.– The carriers tell you that the “contract is proprietary and

confidential” and that you can’t share the contract with other carrier representatives or other shippers.• Ever wonder why?

• Consultants have the benefit of having read, reviewed, and/or negotiated hundreds of national account contracts with all of the parcel carriers.


• Shippers don’t always know how to package their “basket of business” to make it most appealing to the carrier– There are many services a carrier offers, some which you

may not be aware of, that would make the “bundling” of your buy far more appealing.

• Consultants are well versed in what services are most important, at this point in time, to the carriers.


• Consultants know where the carriers are most likely to make concessions based on their client’s business

• Consultants usually have the tools to analyze where clients are actually spending money and which accessorial charges would be important to negotiate with the carrier. – Example: 50% off DHL air matches 45% off UPS air

(10 lbs zone 5) when you consider the different base tariff and the different fuel surcharge


• Consultants are carrier neutral.

• The consultant’s objective is: to obtain the “best possible combination of services and price” for their client.

• Compensation can be predicated upon savings generated, or based on hourly fees.


• Negotiating Parcel Contracts is probably not your full time job!

• In addition to your normal business responsibilities, you would need to deal with data analysis, bid preparation, bid comparison, implementation, and then measurement of savings (assuming everything goes well).

• A consultant is staffed to give full and undivided attention to this process.

• Consultants can act as your full time dedicated employee(s) only as you need them, and only when you need them.


• Because they can get it done for you right now !– They have noting else on their plate– You don’t have to wait 3 months to put it all

together.– You can pay them out of that money you

would have forgone anyway.


• Are you familiar with gainshare and why it sounds like a good deal?– “If I don’t save you money then it costs you

nothing.”• Gainshare works for some,

– In particular the first year

Negotiating withConsulting companies

Negotiating withConsulting companies

• Their fees are negotiable.• Consider asking for both a flat fee for a project as well as a

gainshare model.– The project could be a combination of both by the way

• Ask for diminishing gainshare over time or as your volume goes up.– Vey important if your company acquires a company during the term

of the agreement• Ask for the first “x” percent for yourself as you would have been able

to achieve some discount without a consultant• Put a cap on the gainshare paid out• Ask for a performance guarantee• If they have ongoing services like reporting ask for that for free as

part of the deal

Negotiating with the Negotiators

• Make sure consultancy provides shipment level detail so you can audit their savings calculations

• Make sure contract states they can’t take savings for modal changes (e.g., they can’t take savings between FedEx Ground by switching you to FedEx Smartpost) unless this was a recommendation by the consultant and agreed to upfront and there is a valid way to discern for example what shipments now going Smartpost would have gone Commercial Ground with Residential add on fee prior to their recommendation– Or even more difficult to discern what shipments now moving

ground used to be the ones that formerly moved air


• Term of contingency is negotiable• State in contract that savings is for current

company and not applicable to acquisitions • Make sure contract states what ongoing

work is to be performed by the consultant (carrier management, Quarterly Business Reviews (QBR’s), impact model of carrier annual rate increase, reporting, etc.)


• A consultant may be willing to give a percentage of compensation to your favorite charity for the duration of the contract

• You may want to separate freight auditors from consultants specializing in contract negotiation. What’s the core competency?

• Most companies are not good at both– Auditing for correct rate application– Auditing for late shipments– Negotiating parcel contracts– There may not be a motive on the part of some companies to

negotiate the best for the shipper if it diminishes the audit companies income for late shipments or incorrect invoices


• If your shipping is significantly growing, you can cap the total compensation in Years 2 & 3 to Year 1 compensation (so the consultant is not getting unduly compensated simply based on your growth)

• A competitive bid of your business to the consulting community will get consultants to significantly come off their typical fees, however the low cost consultant may not maximize your net savings...evaluate capability, experience, the individual who will work your bid, and cost

• There is a list of some consulting companies at www.hempsteadconsulting.com


• Give each firm a sample of your distribution (one month Package Level Detail (PLD)) and ask them to model potential savings.– Granted this might get you thinking about trying to do

this on your own but the stakes are too high and the tariffs and offers too complex for shippers to get the very best deal on their own today.

• Compare results, you may want to go with the company that can save you the most – but make their compensation contingent on achieving that result (or better) ... .

– (To avoid a firm assessing unrealistic savings, you may want to add a clause to contract stating that if they don’t reach savings target, they’re paid nothing.).


• Ask your carrier rep to find out what their company’s experience is with consultancy. (Note, some carrier reps may try to disparage consultancy to avoid revenue dilution. Non-incumbent carrier may be better to ask about references.)

• Deal only with principals, not untenured junior associates that often don’t yield the same results... – Know WHO will be handling YOUR account, and their

experience...ask for resumes of the consultants who will be analyzing and negotiating.

For a list of parcel negotiating companies or If you would like information on what firm may be a good fit

• Jerry Hempstead• 1724 Buckhorn Pl• Orlando Fl 32825• 407-342-3825• [email protected]

mailto:[email protected]