PLANNING A FULFILLMENT PROGRAM

Parcel contracts challenge negotiators with their complex terms and conditions. You recently negotiated a contract with a parcel carrier and you find out that your discounts don't apply on certain shipments and that a general rate increase has raised your rates even though you have a contract and extra charges have added 20 percent or more to your total bill.

Below are our recommendations when you are negotiating a contract with a parcel carrier:

1. Get all the details and facts on your shipment characteristics defined in writing.

During negotiations with a parcel carrier, know your quantities, sizes, weights, applicable surcharges, and origins and destinations for each package you ship. Many shippers collect that information with software that can create package-by-package and aggregate shipping reports. Ask to see rate calculations based on your actual shipping activity for one or more sample weeks. Be reasonable about your volume levels because if you overestimate and then fall below negotiated volume and revenue levels, your discounted rate will not be in effect.

2. Find out what shipment characteristics are profitable for carriers and what's costly for them to handle.

Certain shipment characteristics are more attractive to carriers than others because they yield high-margin, premium shipments as well as those that are relatively cheap to handle on a per-package basis, such as a large number of parcels delivered to a single destination near a major package hub. Carriers are more flexible with discounts on high-margin business than they are on low-margin shipments such as rural and home deliveries. One way increase your discount is to ask if changing any of the undesirable characteristics would reduce their handling costs.

3. Understand the carriers' pricing policies.

Parcel shipping prices are based on rolling averages, revenue tiers, cell-by-cell pricing and net revenue per piece. Rolling averages represent average weekly revenue levels during the most recent 13-week period; in the 14th week, the first week drops off and is not included in the calculation. In the 15th week, weeks one and two drop off, and so on.  Rolling averages are used in conjunction with revenue tiers or ranges of weekly average revenue you provide to the carrier. The higher the tier, the deeper your discount. Which revenue tier and discount apply depends on the rolling average for that week. If your rolling average falls below a minimum level, moreover, you'll get no discount at all.

Parcel carriers also use "cell-by-cell" pricing, which applies to specific zone and weight combinations, because it lets them maximize per-package profits. (Zones are destination regions, numbered 2 through 8. The further the distance from the point of origin, the higher the zone number.)

Most parcel contracts also include a "minimum net revenue per piece" for individual parcels to qualify for the negotiated discount. If you have packages that fall below that threshold that effectively negates your discount on lower-weight packages.

4. Make sure you are aware of Add-ons charges, surcharges and excess fees.

Make sure you are aware of Add-on charges like fuel surcharges, rural delivery surcharges, excess tracking fees, and as many as 70 other individual surcharges that  can raise your shipping costs by 15 percent or more. Shippers often don't realize how many of their shipments are subject to extra fees and how quickly they add up, especially since they often are billed separately from the base freight charges. Examples include $10 per-package address-correction fees and over-dimensional charges that treat packages exceeding certain dimensions as if they weighed 50 or 70 pounds, regardless of their actual weight. Knowing which of your shipments will be subject to surcharges will give you a more realistic picture of how much revenue the carrier will be getting from your business.

5. Review the tariffs and terms and conditions.

You should thoroughly read and analyze your agreement, which may have numerous restrictions that shippers would find unacceptable in other transportation contracts.  It may be possible to negotiate a waiver of unacceptable terms, however if a carrier gives up a profit in one area, you can be sure they will make up for lost revenue with added costs somewhere else in the contract. No one wants to read all of the major national parcel carriers' terms and conditions before starting negotiations. These documents frequently contain "conditions" you'll want to know about such as:

·        If a carrier is unable to deliver a package and returns it to the shipper, it will automatically come back at the 3rd-Day Air rate, unless the shipper specifies otherwise.

·        Shippers are prohibited from participating in class-action suits against the carrier.

·        Carriers may designate tens of thousands of ZIP codes in the United States as being subject to a rural delivery surcharge. Carriers also can add a residential delivery surcharge for commercial buildings located in residential areas.

·        Carriers may allow you to track up to 50 packages or 20 percent of your weekly package volume, whichever is greater, for free. After that, you may be charged up to $3 for each track-and-trace.

·        Carriers will not honor claims filed by shippers that tendered packages through consolidators.

·        General rate increases (GRIs) apply to all shipments, including those under contract. When a GRI takes effect, you will still receive the agreed-upon discount, but it will apply on the new, higher rates. 

6. Control the pace and structure of your negotiations.

Set realistic objectives and don't let the carrier make the negotiation complicated or make you deviate from your objective. In some cases, giving carriers an objective goal such as cutting total costs by 6 percent, works best. The shipper also benefits by setting the tempo of the negotiations. Generally, the carriers want to make this a long, drawn-out, complicated process because they want you to give.

7.      Make sure the contract covers everything you ship with that carrier.

Do not just negotiate discounts on commercial deliveries or ground service, which make up the bulk of your volume. Include lower-volume (but higher-margin) air or home deliveries that you ship with the same carrier.  You should also include a "third-party" clause in your contract that ensures discounts will apply to packages that agents make on your behalf. These clauses apply only if the agents use your account number.

There are cases, of course, when shippers want to split their business among several carriers. To prevent that, a carrier may offer "portfolio pricing," with discounts for different types of service that apply only if you give it all of your business. Think carefully before accepting portfolio pricing because you may be able to get those same discounts by negotiating separate contracts for each service level, and allows you to switch some business to another carrier without affecting your other discounts.

8. Renegotiate your contract when business conditions change.

Contracts can last anywhere from one to five years, with two to three years being the most common. But you needn't wait until the end of the contract period to renegotiate. Most contracts allow renegotiation on 30 days' notice, and it's wise to do so when shipment volumes and revenue levels change to such an extent that it reduces your discount. Many shippers pay the price for failing to monitor their shipment activity after they've signed a contract.

When it comes to contract negotiations, the big parcel carriers will never be as flexible as smaller carriers. It is still worthwhile asking for what you want if you can make a strong argument that it is in the carrier's best interest to make those concessions. Ultimately, the strength of your negotiating position relates directly to how much you know.

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Promo Magazine estimates that Premium Incentives total sales dropped 2.4 percent to $26.3 billion in 2001 due to the economic downturn and corporate downsizing. Corporations reduced spending on business incentives to $21.9 billion while consumer-targeted programs increased one percent to $4.3 billion. These trends emerged after September 11^th including a very high demand for patriotic premiums (flags, stickers, pins, etc.) and employee incentive programs shifted away from travel to merchandise. In addition, marketers used premium offers to strengthen consumer responses and therefore premiums bacane stronger branding tools.

Marketers purchase premiums (merchandise and travel from the following:

The challenge with premium incentives is to deliver a unique promotional product with a high-perceived value at a low cost. Gift certificates and gift card programs have become popular incentives. Gift cards offer greater security against counterfeiting and provide improved data collection and makes execution more effective and efficient.

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Total expenditure for merchandise and travel items used by U.S. companies for incentive programs increased to $26.9 billion last year from $22.8 billion in 1996. The study also found that there’s a 6% increase in the number of responding companies that say they use incentives--from 26% in 1996 to 32% this year.

Of the 32% of respondents using merchandise or travel, 64% of the responding companies use merchandise and/or travel as sales and other incentives for sales management and internal/outside sales forces, dealer and distributor personnel and independent sales representatives. This year "business gifts" was added as a category.

Key findings and target opportunities

Room for growth
The study found that in spite of the increased use in incentives, 68% of U.S. companies are not using incentives at all, so there is room for tremendous growth in the industry. The top reason given for not using merchandise or travel incentives is concern about cost. Forty-eight percent of respondents who have not used incentive merchandise or travel in the past two years cited cost as a reason.

Companies with fewer than 99 employees are underdeveloped
Big companies are big users of incentive merchandise and travel. Of the responding companies with 1,000 or more employees, 53 percent said they use incentives. Another 40 percent of respondents that employ between 100 and 999 employees use incentives. Companies with 100-999 employee and 1000-plus employees currently have the highest use of incentives, however, according to statistics drawn from Dun & Bradstreet, these companies account for only 1.8% of the total universe of businesses. Incentive use declines as the size of the company decreases.

The distribution, retail and service industries are a key target
Compared to all businesses, these industries are relatively undeveloped with respect to usage of incentive programs.

Companies planning to increase their incentive budgets in 2001 represent an opportunity
Thirty five percent of those companies already using merchandise and travel incentives plan to increase their budgets in 2001 for an average increase of 17%. (Sixty percent plan for budgets to remain the same, while only 5% plan to decrease budget, on average 27%). However, the planned increases are not uniform across all company sizes or industry groups. Based on survey participants' responses, suppliers of incentives should consider focusing on the financial, transportation and manufacturing industries because these groups particularly plan to increase their spending in 2001.

Cash is rated most effective as a motivator
Cash is still high on the list for motivating consumers, sales people, dealers, distributors and non-sales employees. "Time off from Job" and "Cash Awards" were rated most effective in reaching non-sales goals. This index rating is based on the respondents’ indication of how effective they have found each of the items.

Future is bright for non-cash incentives
Nearly seven out of 10 companies surveyed use cash incentives, an increase from 63% in 1996, with respondents rating cash the most effective incentive in reaching both marketing/sales and personnel goals. This represents a large market for incentive suppliers to be convinced of the effectiveness and value of non-cash incentives. A promising sign: Since the 2000 study also revealed an increase in merchandise and travel awards since 1996, respondents are obviously becoming increasingly aware of putting non-cash awards in their motivational mix. Also, according to the study, the retail industry might offer a specific opportunity since the retail industry is over-developed in terms of using cash as an incentive and underdeveloped in terms of using non-cash incentives.

Promotional products distributors primary source of merchandise and travel items of organizations using Incentives
Thirty-seven percent (37%) of the survey’s respondents using incentives have acquired motivational items from a promotional products distributor within the past 12 months. Thirty-six percent (36%) purchased from a local retail store or direct from manufacturer followed by 35% from an incentive company/incentive house. Thirty percent (30%) purchase from a corporate travel agency. Fifteen percent (15%) have used the Internet for motivational programs.

Companies with Web sites could benefit from incentive programs to develop and increase traffic
Eighty-three percent of respondents had a Web site for their organization, but only 16% used incentives to build traffic to it, concluding that this could be a whole new market to tap for incentive suppliers to pitch and develop incentive programs. Additionally, the Internet is also an untapped area for the incentive industry overall, with only 15% of respondents using it. Of this group, 48% used it to source incentive vendors/suppliers-a key reason incentive suppliers could consider and developing their own Web presence. Other common uses included communicating a program to participants (31 percent), purchasing merchandise or services (30 percent), and obtaining information on creating an incentive program (26 percent).

In 1999, the Incentive Federation requested that the Center for Concept Development conduct focus groups with incentive users in the New York, Los Angeles, Dallas, Chicago, and Atlanta areas. The purpose of this qualitative research was to identify issues regarding the following:

In 2000, the Incentive Federation requested that the Center for Concept Development execute the second, quantitative, phase of this research. This research consisted of a mail questionnaire sent to 8,000 executives in a cross section of American enterprises on a national basis. The questionnaire, designed by Ralph Head & Associates, was sent with a $1.00 bill and a postage-free return envelope and reflected issues that were learned in the focus groups conducted among incentive users in 1999. A test mailing of 1,000 was made to ensure that the desired results would be obtained. Once it was determined that the desired results would be obtained the full mailing was made.

The mailing was sent to Sales, Marketing and Human Resource executives in organizations where such titles existed. In others it was sent to the ranking individual (President, owner, etc.), but in all cases it was sent to an individual and not just a company name. The names were provided by Dun & Bradstreet.

Of the 8,000 questionnaires mailed out, 315 were returned as non-deliverable resulting in a net mailing of 7,685. When the mailing was closed for tabulation on November 18, 2000, 808 useable returns had been received. Subsequent to the close 27 additional questionnaires have been received bringing the total return to 835.

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