How to negotiate for better shipping terms: Everything you need to know

The BOL is the most important and comprehensive document governing the shipment. You must ensure accuracy so that all parties understand their obligations and a third party can understand the terms of the shipment in case conflict arises. 

Request for Proposal (RFP)

A Request for Proposal (RFP) is a document you create when seeking quotes or proposals from different vendors. If you are trying to select a shipping company and you want different ones to describe the shipping terms they would offer, you can put out an RFP.

RFPs are common when your shipping needs are complex or when you have a significant ongoing need for a carrier to make regular shipments. 

You should include all of the key details about your desired shipping terms, including:

• The scope of work involved
• A detailed profile of the freight you want shipped
• Information about any fluctuation in shipment volume that you expect throughout the year
• Details about specialized services needed, such as when you have specific requirements for drop off or pick up
• Details about the duration of the agreement
• General terms and conditions, such as payment terms and operating procedures.

Providing accurate and comprehensive information ensures you’ll get accurate and detailed proposals. 

LTL and FTL

Less Than Truckload (LTL) shipping and Full Truckload shipping are different options when you need a carrier to transport goods or materials.

• Less Than Truckload (LTL) shipping allows you to combine your shipment with others to share a large truck. This is a cost-effective option for smaller shipments, although you lose some flexibility in dictating the specific terms of the shipment.
• Full truckload shipping is appropriate for larger exclusive shipments where the volume of your own shipment is large enough to justify the cost of exclusive transport. You have much more control over the process, but incur higher shipping costs.
• Parcel shipping is perfect for smaller packages. It is efficient and often more cost-effective when only a few items need to be shipped. 

Ways to negotiate for better shipping terms

When you arrange to ship your goods and services, you will want to shop around to find out who has the cheapest shipping rates. You do not just have to accept the rates and shipping terms offered, though. You can (and should) negotiate the terms and conditions to see if you can secure a better deal.

Guaranteed capacity

Guaranteed capacity is a service designed to ensure your car will ship via a specific mode of transport.

Negotiating a guaranteed capacity arrangement is often best when you need to ensure you have space available during peak times. As long as you and the carrier know the volume of goods to be sent, the carrier can reserve space and time for you, allowing you to avoid delays and ensure timely delivery during periods of high demand.

When you enter into this type of shipping arrangement, you will sign a contract specifying the agreed-upon capacity or the volume and size of the items to be shipped.

The contract should also specify the duration of the arrangement. All parties must also understand the consequences if the carrier fails to meet the guarantee.

24/7 service

When your shipping terms include 24/7 service, the carrier agrees to be available when and if you need them. This ensures that you can get immediate assistance with urgent or last-minute issues. This arrangement is likely best if your company operates outside of standard business hours.

If you arrange 24/7 service for the shipment of your goods or materials, check with the carrier to ensure that all support functions are available 24/7. This includes tracking of your shipment and someone to contact to make a claim if there is a problem.

You should also review the communication methods used by the carrier and their typical response time so you can have the peace of mind of knowing they really will be available when you need them.

Liability and insurance

When trusting a shipping company with valuable goods or materials, you need to know the items are insured in transit in case something goes wrong.

Here's a process you can use to make sure your items are fully covered:

1. Find out the shipping company’s maximum liability limits to determine if the value is high enough to replace your goods if a problem arises. Often, you will find it is insufficient.
2. If the carrier does not have enough insurance, explore options for third-party shipping insurance. Look for a policy that offers declared value coverage, as that means the insurer will pay what you say the goods are worth and what you insure them for, not what they determine the fair market value is at the time an incident occurs.
3. Since you want to ensure a seamless and simple claim experience if a problem happens, familiarize yourself with the carrier's claim process, including the documentation required and the deadline for making a claim.
4. When buying insurance through a third party or working with a carrier that can provide you with the desired insurance, you should also do a cost/benefit analysis to determine exactly how much you want to spend insuring your shipment.

This process may vary depending on the value and fragility of the items you are sending, so if you send various shipments, it may need to be determined on a case-by-case basis.

Incoterms (for international shipping)

International Commercial Terms (Incoterms) define the rights and responsibilities of the shipper and carrier when items are shipped internationally.

Incoterms should determine who is responsible for customs clearance, loading, and unloading goods or materials. The parties will need to agree on who bears the risk of damage at each stage of the journey as the goods are transferred overseas and to their final destination.

Because of customs and import costs, the landed cost of your goods will be different when you ship abroad. When setting your pricing strategy, you should factor in the added expenses associated with overseas shipments.

Because international trade rules are often complex and can change quickly, companies shipping items internationally may wish to work with a professional to help them establish the right processes.

Hidden costs and accessorial charges

You don't want to be surprised by shipping terms, especially when you are exploring who has the cheapest shipping rates and trying to find a low-cost shipping company. 

To ensure there are no unexpected costs, always ask for a comprehensive list of potential charges that go beyond the base rate. 

If there are accessorial charges that you expect to pay often, you may be able to negotiate a flat rate with the company that saves you money for these add-ons.

You'll also want to make sure you understand exactly when extra charges are applied so you don't experience an unpleasant surprise on your invoice. 

Volume discounts and association discounts

Some shipping companies offer volume discounts to large shippers. If you have a large volume of goods to send, ask your carrier about whether discounts are available.  

You will need to have an idea of what your shipping volume is going to look like and should provide the carrier with a realistic forecast of the volume of goods you plan to ship so they can set their pricing appropriately. 

It's also worth asking if your business qualifies for any industry-specific or association-based discounts. Some companies provide savings if you are a member of certain professional organizations, for example, and your company should take advantage of that. 

Companies that offer a discounted rate on volume also typically set minimum commitment periods during which you must maintain the agreed-upon volume to qualify. Find out these details and include them in your shipping contract so everyone is on the same page.

Building relationships with carriers

You will become a valued customer when you provide a carrier with more consistent business. 

This will help you get more favorable shipping terms, including more personalized attention and better service, as the carrier doesn't want to lose a repeat customer—especially a large volume one.  

Working consistently with the same shipper and developing a strong working relationship can also facilitate communication and enable swift and effective resolution of any issues that arise. 

Loyal customers may also have more leverage when negotiating contracts or new service agreements because their carrier is already set up to work with them and knows details about things like how promptly they pay their bills. 

The bottom line is that regular communication with your shipper is good for everyone because it helps your company stay informed about cost-saving opportunities or potential other offerings.

Researching the competition

One of the best tips for choosing shipping options is not to just go with the first company that offers reasonable shipping terms, as there may be better options out there. To find out who has the cheapest shipping rates, you will need to check out all of the competition.

As you get quotes from carriers, be sure you are comparing prices for similar service levels and types of shipment. 

You can use online freight marketplaces to get an idea of the available options and pricing, but you may need to get personalized quotes and may have to share competitor quotes during negotiation in order to demonstrate the market value of the shipping contract.

The role of Third-Party Logistics (3PL) providers

Third-party logistics providers offer management and logistics services for other companies. This can include warehousing, inventory management, order fulfillment, and transportation and shipping.

Often, negotiating with a 3PL can simplify your shipping process. It may be the way to get cheap shipping rates for your small business, as it can result in you being offered more favorable shipping terms since the company handles multiple steps of the transaction.

Start negotiating for better shipping terms

A weak supply chain can be a job costing mistake, so take the time to research shipping companies carefully, find out who offers the best e-commerce shipping rates, and choose a company that offers the shipping terms you're comfortable with. 

QuickBooks can help you manage your shipping costs better and understand your budget for shipments so you can make informed choices about shipping terms during negotiation.  

Don't wait to research shipping companies and find the one that works for you. Once you have the right company, QuickBooks Online can simplify paying the carrier and tracking shipping costs.  

Start using accounting software like QuickBooks today to streamline your supply chain management. This will simplify operations, help you manage your budget, and maximize your business's chances of financial success.