Negotiating Freight Contracts
The art of negotiation is perhaps one of the most complicated, yet most important business acumen one can possess. Negotiating a contract can have a significant impact on a company’s bottom-line; and it is therefore reasonably necessary for managers and / or personnel who are involved in contract discussions with freight companies, and other service providers to ensure they understand the best practices involved during negotiation, for the benefit of their business operations and in order to achieve their organization’s goals.
Below are some of the most important points to bear in mind when negotiating a contract:
- Do your homework and research
“Know everything about the companies and people you are going to be negotiating with. Insist on getting the names of everyone participating in the negotiations. Leave no stones unturned: find out as much as you can.” – Kevin O’Leary, Canadian businessman and author.
As suggested, knowing the party you are entering into a negotiation with will allow you to understand their strengths, weaknesses, and what they have to offer.
Try to identify if the carrier is reliable. What is their reputation. Are they financially stable; what systems and coverage they have in place. You can then comfortably enter into discussions knowing full-well if they are a right fit to carry out your business’ needs and requirements.
Compile a list of possible carriers and draft a request for proposals using an RFP – Request for Quote; which is a formal document presented to a group of carriers requesting them to bid on your freight. Upon receiving the proposals, analyze carefully the best contract for your business. Remember this – “Price is what you pay, value is what you get!” – Warren Buffet.
- Know what you need
Understanding the nature of your own business goes a long way when negotiating a contract. Speak with your management team and discuss if you require a long term rate, short term rate, quarterly rate, or a capped rate system.
Determine what seasons you need to ship. How much capacity you need. What is / are the nature of your products. Presenting carriers with current and future projections of your commodities and shipping volume will allow the carrier to draft a contract based on where your business is going. It is worth noting, the more volume you ship, the better rates you can negotiate.
Lastly, on this point – if you don’t go into the negotiating table knowing what you need, carriers will charge you for services that are completely irrelevant to your business!
- Read the fine print and terms of sale
Be careful of extra charges. You need to be aware of the terms and conditions without any ambiguity. According to some estimates, there are more than 350 different surcharges applied worldwide!
Negotiate the clauses for lost, damaged, or stolen merchandise. Determine in advance who is responsible for what, so that you are not caught with any surprises later on.
- Seek expert advice
At Network Global Logistics, not only can we help you find the right transportation rates and ocean freight contracts, but we can also draft an RFP and carry out a freight audit of your business.
We will work closely with you to determine the best possible solutions, in order to help you meet your organization’s goals and requirements.