INDUSTRYINSIGHT
WHAT MAKES A PARCEL CONTRACT "GOOD" IN TODAY'S MARKET? By Keegan Leisz
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istorically, parcel contract negotiations have been judged almost entirely on one metric: projected transportation savings. Other contractual terms certainly mattered, but many procurement teams ultimately awarded business to the carrier with the lowest modeled cost. While transportation costs remain the primary consideration, today's parcel market demands a broader definition of a successful agreement. A strong parcel contract should do three things: provide competitive pricing today, deliver predictable costs as carrier pricing evolves, and maintain the flexibility to adapt as a shipper's business changes. Organizations that evaluate contracts through this broader lens are better positioned to realize value throughout the life of the agreement — not just on the day it's signed. Predictability: Protecting Against Tomorrow’s Costs In today’s environment, carrier pricing doesn’t just change from year to year, it changes month to month. As carriers continue to focus on yield management and profitability, pricing mechanisms have become increasingly dynamic rather than relying solely on annual General Rate Increases. It used to be enough to negotiate rate caps on the base freight charges, but that’s no longer sufficient to provide year-to-year cost predictability. Carriers
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now frequently revise fuel surcharge methodologies, introduce new surcharges, increase existing surcharges mid-year, and modify the rules governing charges such as Delivery Area Surcharges, Additional Handling, and Oversize. With protections limited to base transportation rates, shippers remain exposed to many of the pricing changes that ultimately drive transportation costs. Another area that deserves careful attention are spendbased discount structures. While discounts contingent on spend or volume are commonplace in parcel agreements, they can be structured with significant reductions when a shipper falls below a target tier, while providing only marginal additional benefit for growth above that threshold. In these situations, a downturn in business or changing economic conditions can quickly turn what appeared to be a competitive agreement into one that no longer delivers expected value. As carrier pricing continues to evolve, negotiations should also evolve to include protections that extend beyond transportation discounts. Depending on a shipper's leverage, these protections may include: Rate caps on surcharges in addition to base freight charges. Fuel surcharge tables frozen as of the effective date of the contract.
Contractually defined limits for rule-based surcharges like Additional Handling and Oversize charges, rather than relying on service guide limits. Negotiated exemptions or predefined discounts for any new surcharges introduced during the contract term. Spend-based discount structures that remain competitive during periods of business contraction while still providing meaningful upside as volume grows.
Not all shippers will have enough leverage to incorporate all these provisions or fully insulate themselves from future cost increases. However, every additional protection — from surcharge caps and fuel stability to predictable spend-based discount structures — helps reduce uncertainty and creates value that extends well beyond the initial discount percentages negotiated. Business Flexibility: Planning for Change A strong parcel agreement should also be flexible enough to remain competitive as the business evolves. Many agreements are optimized around a company's current shipping profile. While that approach may maximize short-term savings, it can become problematic if the business changes over the course of a multi-year agreement.