The global logistics industry is projected to reach over $12 trillion by 2023 as companies seek to optimize their supply chain operations. A crucial but often overlooked factor in supply chain efficiency is negotiating the right UPS contract for your shipping needs.
With the right UPS contract, shippers can reduce costs, improve delivery times, and gain access to valuable UPS logistics resources. However, the complexities of UPS rates, surcharges and account offerings make it difficult for many shippers to secure favorable terms.
In this comprehensive guide, we examine how proper UPS contract negotiation leads to maximized logistics efficiency and cost savings.
What Factors Impact Your UPS Shipping Rates?
Before negotiating with UPS, shippers must understand the core factors that determine their rates:
Package characteristics – Dimensions, weight, packaging type and drop-off method significantly impact costs. Larger and heavier packages shipped via UPS drivers cost more than lighter parcels dropped at The UPS Store.
Time-in-transit – Overnight air is far more expensive than ground shipping for longer delivery windows. UPS 3 Day Select offers a middle ground for moderate urgency.
Fuel surcharges – These fees fluctuate monthly based on diesel prices. On average, fuel surcharges add 10-15% to base rates.
Zone-based pricing – UPS divides origin and destination points into zones to calculate distance-based rates. Farther zones mean higher rates.
Volume discounts – Higher shipping volumes provide leverage to negotiate better discounts from UPS benchmark rates.
Peak surcharges – Shipping during peak holiday periods incurs additional fees to account for higher UPS operating costs.
Use Account Analysis to Identify Ways to Reduce Spend
Thoroughly analyzing your UPS account data is the critical starting point for contract negotiation. This enables you to:
- Pinpoint shipping patterns – Where are most packages coming from and going to? What service levels and package types dominate?
- Identify opportunities to consolidate volume – Are there multiple accounts that can be merged to increase leverage with UPS?
- Assess scope for mode shifting – Can ground be used instead of air to cut costs while still meeting delivery timelines?
- Find rate audit issues – Are you being overcharged for any services relative to your negotiated contract terms?
- Uncover peak surcharge impacts – How much extra are peak season shipments costing? Can volume be strategically shifted?
- Calculate incentives earned – Are you capturing all discounts and rebates you qualify for under your current contract?
This spend analysis equips you with the details necessary to negotiate optimal UPS discounts and incentives.
Secure Favorable Rates with Targeted Negotiation
With a strong grasp of your shipping data, you can execute a targeted UPS negotiation strategy centered on:
Consolidating smaller accounts into one larger shipment volume provides increased leverage to earn steeper base rate discounts. Be sure to quantify expected annual volume across services like Next Day Air, Ground, 3-Day Select, etc. Higher volume guarantees enable you to capture the best rates.
Analyze if shifting from air to ground shipping for certain delivery lanes can reduce costs while fulfilling customer expectations. SECURE GUARANTEED TIME-IN-TRANSIT rates from UPS to ensure reliability.
Peak Surcharge Minimization
Forecast your expected peak season shipping volume. Ask UPS to apply volume-tier discounts to peak surcharges to minimize these extra costs.
Review all UPS incentives you currently earn. Identify new incentives like early payment discounts, loyalty rewards, retail rate incentives, etc. that you can negotiate into your contract.
Accessorial Charge Review
Scrutinize specialized handling fees for issues like address corrections, delivery area surcharges, or oversize package fees. Compare to benchmark rates to identify savings opportunities.
Choose the Right Account Setup
In your UPS negotiation, assess which account structure best supports your supply chain requirements:
UPS Standard Account
Ideal for companies with straightforward, transactional shipping. Easy setup but least customizable.
UPS Savings Account
Provides additional discounts beyond the Standard Account. Requires a yearly UPS shipping volume commitment.
UPS Retail Account
For shipping outlets like eBay sellers. Earns retail incentives but incurs higher list rates.
UPS Trade Direct Account
Specialized wholesale pricing for heavy air freight shippers. Requires very high volume.
UPS Freight Account
Designed for LTL freight, with unique negotiated pricing parameters.
Leverage Analytics to Continuously Improve
A successful UPS negotiation is just the beginning. Regularly analyze your account’s performance to identify further optimization opportunities over time:
- Monitor invoice accuracy to catch billing errors.
- Keep quantifying incentive eligibility and earnings.
- Track service metrics like on-time delivery and claims ratios.
- Audit shipments to find additional mode conversion options.
- Adjust forecasts and volume commitments as your shipping profile changes.
Proper analytics ensures you maximize the value from your negotiated UPS contract year after year.
UPS shipping is a complex endeavor, but a well-negotiated contract can provide major rewards on your bottom line. Comprehensive analysis of your account provides the foundation to negotiate discounts, incentives and contractual terms that optimize spend. Approach UPS negotiation as an ongoing process focused on continuous improvement and your company will be well-positioned to drive supply chain efficiency.
Frequently Asked Questions
What are the most important factors in a UPS contract negotiation?
The core factors are your annual shipping volume commitments, ability to shift across modes like ground and air, peak season surcharge minimization, and incentive maximization. Benchmarking your account against UPS list rates is also key.
How can I forecast my company’s UPS shipping needs?
Analyze previous year data to identify major traffic lanes and service levels used. Break this down by month to determine volume fluctuations and peak impacts. Factor in expected business growth or decline to estimate future needs.
What UPS discounts are attainable for small businesses?
Smaller shippers can still earn 10-20% discounts off UPS list rates. Multi-account consolidation, participating in UPS marketing programs, early payment discounts, and zone-based incentives are options. But significant discounts require substantial volume.
Can I negotiate custom UPS service guarantees?
Yes, larger accounts can often negotiate guaranteed time-in-transit commitments, expanded pickup windows, or special delivery guarantees from UPS to meet their supply chain requirements.
How often should we renegotiate our UPS contract?
Renegotiation every 1-2 years is recommended to adjust for changes in business conditions, shipping patterns, and new UPS incentives. You want to avoid getting locked into a long-term contract if shipping needs change.