BY MIKE ERICKSON AND DWIGHT SIGWORTH, AFMS, INC.

In today's competitive card manufacturing environment, the on-time delivery of ICMA members' products to the end users is more important now than ever. Along with the importance and urgency associated with the actual distribution of cards, is the difficult task of controlling the cost of freight for small parcel shipments, airfreight and LTL truck shipments.

With this in mind, getting the maximum savings from your freight providers can have a significant impact on your company's bottom line.

Most medium-sized and larger companies have personnel responsible for negotiating rates with carriers. Many do a good job, but most can do better. Many negotiate hard for less-than-truckload rates, but ignore the small-package carriers, or airfreight forwarders and carriers.

Before we get into how to successfully negotiate the best rates possible for your company, we wanted to give you a little background on who we are at AFMS, Inc. and why our advice is worth reading about.

Can you imagine how much more you could save if you knew exactly (within a few percentage points) what type of shipping discounts that your company really deserved from FedEx, UPS, Airborne Express, DHL and the other carriers?

AFMS has the inside information to help you. AFMS is a company composed of some of the shipping industry's top former managers. All of our advisors are former managers from UPS, FedEx, Airborne Express and others.

Wouldn't it be more effective to negotiate with UPS or FedEx if a former UPS pricing manager was advising you on what kind of discounts you really deserve from UPS? What about having the knowledge of a former FedEx manager to help advise and guide you through their contract and rate negotiation? What kind of discounts do you qualify for, but don't know about?

Most companies are in the dark when it comes to negotiating transportation contracts. All freight sales reps, including those from FedEx, UPS, & Airborne, are paid good money and are trained to sell their company's services at the highest margins possible. When thousands, if not millions of dollars are at stake, why would you not listen to advice from the experts?

Understand your freight business

Perhaps the most important thing to understand in the freight negotiation process is how the carriers view your business or freight. Carriers try to analyze your company's shipping profile and figure out how it fits into their own existing network (is it the freight they want, is it profitable and easy to handle, etc.) That's why it is critical to know, in freight carrier's own terms, if your shipments are favorable to them.

Here is a very basic chart of things to look for in a shipping pattern and how it may define your rates:

Obviously, the more favorable attributes your freight has, the more demand there is for it and in turn, better discounts or prices could be offered by the carriers.

There are things that can be done to increase favorable aspects of your freight. A shipper can, for instance:

• reduce the number of carriers and offer more to those primary carriers
• package shipments in smaller boxes to eliminate wasted packaging space
• reduce the number of pickup locations
• use new shipping technology to shop for rates and choose your carriers and service levels.

For example, if two-day delivery is the service needed, don't ship it two-day air express if it could be shipped UPS ground - guaranteed two-day delivery.

All carriers are getting far more sophisticated in how they use internal pricing models and are trained more thoroughly to look at their costs when proposing rates.

Following is some advice on how your company can get the best rates possible.

Gather your own data

Companies often ask their transport carriers to come in and "look at their rates" in hopes that the carrier will see enough favorable aspects to increase their discounts.

It is not uncommon to receive a small, incremental discount from this process. But the transport planner who prepares carefully and analyzes the company's own data can open significant new, perhaps breakthrough, opportunities for their rates. Here are some things to remember about the information you gather:

• Data can be combined from all locations and all carriers to increase the opportunity for an individual carrier. Don't forget the mailroom and other shipping locations as well as inbound shipments.
• Your internal information should be much more accurate and should be from a larger sample pool (preferably one month) than the small samples done by some carriers.
• Allow all potential carriers to bid on the business, not just the incumbent carrier.
• There may be opportunities to segment the business for specialized carriers (for instance, messenger services, local or regional parcel carriers). Often this information begs the question, "Why are we shipping from different locations on different carriers?"

What kind of data is helpful? For a representative period (at least a month), prepare summaries of the following:

• Number of shipments, weights, and average retail cost by service level, and/or zone
• Primary shipping locations
• A to-and-from Zip/Postal Code analysis, including number of shipments and weights
• Dollars spent, by retail cost, for each segment of the business
• Current rate charts or contracts.

Gathering and summarizing this data will help the decision-maker understand the transportation business much better and put any transportation planner on a more even footing with the carriers.

Negotiate

Many companies have developed partnerships with their carriers, which preclude them from aggressively negotiating for better rates. Incumbent carriers obviously encourage these relationships.

Partnerships sometimes work well, particularly with very large companies. For large and medium sized companies, however, the benefits are less clear and are very one-sided, in favor of the carrier. The proper Request for Proposal (RFP) may actually improve relationships with carriers in many instances.

It can make a carrier attentive to your business, and it may also lower your rates and gain your company new services and technology.

The process is relatively straightforward. Decide which carriers you want to bid on your business, contact them through a formal letter, and tell them your intentions. Consider carriers that may have improved service since the last time you used them, including national and international carriers and regional operators such as Pony Express, Western Parcel Express or California Overnight. Don't leave out the Postal Service, which has worked to improve its overnight express services and added international services.

Incumbents are often unhappy to hear what you are doing. But the opportunity to get some new business or the chance of losing some or all of what they have, usually gets their participation.

When sending out an RFP, give all the carriers all the information. Let them decide what to bid on. You may be surprised at the business some familiar carriers may seek outside of their well-known specialties. Federal Express has been making inroads in traditional ground and heavy freight markets, for instance, and many regional ground carriers offer overnight guaranteed service.

Some questionable shippers even share their current rates with carriers bidding on the business. They believe that by doing so, it gives the others a benchmark to beat. That may defeat your goal, since the carriers don't like their competitors to see rates. A transport carrier that expects to see their rates displayed in the next bid may be stingier on prices for the current contract.

Analyze

When the carriers make their proposals, shippers need to closely weigh the benefits of each bid. It is extremely important to have a competent analyst with spreadsheet experience working on the project. In addition, someone like AFMS, Inc. or another knowledgeable consultant with strong carrier knowledge to help guide you could be of considerable help.

Get a solid sample of actual shipping data and run the rate proposals for each scenario. Rate charts are not a good way to evaluate rates. One carrier may have an excellent rate for letters and one-pound pieces, but the cost will be misleading if most of your shipping is 10-pound boxes.

Before selecting a new carrier, compare guaranteed service levels to the Zip/Postal Codes your company actually ships to. For example, you may find that your shipping pattern may not need the carrier that delivers "to the most locations in the U.S. by 10:30" because you don't ship to many obscure points.

If you have solid proposals from regional or local carriers, have the analyst segment that business against the major carriers to evaluate the benefits of further segmentation. Sometimes niche carriers will offer excellent savings for shipments that the major carriers don't really want.

Implement for the future

When the program is decided, let all carriers who participated know your decision right away. Keep good relationships, if possible.

If incumbent carriers who have lost the business offer to keep their programs in place in the interim, accept it. This will lower costs during the transition. In addition, if the new carrier drops the ball, you still have a good transportation program to fall back on.

Using these five strategies to analyze and implement package programs for your company will result in a stronger freight program and lower your overall costs. But remember, the carriers go to a lot of effort to understand your business. So should you.

Keep in mind that what you don't know may be hurting your company's bottom line - so when thousands of dollars are at stake, follow these steps and don't be afraid to ask for advice.