Inflation Nation: Mitigating 2022 Shipping Rate Costs

This year, as companies face inflationary pressures, we expect to see a large uptick in RFP activity as manufacturers across the board look for places where they can save. In October 2021, the Bureau of Labor Statistics announced that the Consumer Price Index rose 6.2% over the last 12 months, the fastest rise since 1990. This is a jarring increase after years of bouncing around under 3%. As supply chain disruptions and a lack of drivers has slowed the transportation of goods, manufacturers are now also contending with the prospect of higher prices for last mile delivery of their goods. 

How can you manage the search for better rates and mitigate logistics cost increases?

One of the first steps buyers typically take in circumstances like these is to shop the market for price options. But landing agreeable rates means more than finding a number that’s attractive at face value. In fact, there are a number of strategic approaches that can help you keep your costs manageable, often without having to transition to new vendors. Before making any switch, apply these strategies from our USPack experts to get the best rates on your final mile delivery services.

1. Determine what a strong, attractive RFP looks like for your business

Building a solid framework for your last mile delivery RFP is a crucial step to negotiating better rates. You’ll want to start by clearly establishing activity levels based on seasonal demand over the last six months, or even longer. If your business has heavy seasonality—for example, your business is subject to the 4Q holiday rush—you’ll want to make sure to include that in your activity time frame.  

Next, analyze your forecasts for 2022. How confident do you feel about them? The goal should be to be as transparent and honest as possible with your vendors so that they can give you a price that’s sustainable for you—and them. While contracts are written to cover a two to three year timeframe, parties can elect to terminate with notice. Along with driving a divide in trust, a logistics provider that finds a customer has significantly overestimated their delivery needs to get better volume discounts can decide the agreed-upon terms are not profitable, and cut their losses rather than continue the relationship.

Your RFP should also address your digital transaction requirements for vendors for tendering orders, providing status updates on orders, and invoicing and billing customers. Will your logistics vendors need any specific integrations for your systems, and vice versa? For example, if a delivery vendor stipulates that you’ll need to connect to a specific technology platform that your company currently doesn’t have, you’ll need to factor that into your cost. Conversely, you’ll also need strong indication that vendors have the appetite to buy into any technology platforms that your company mandates.

2. Consolidate vendors to exchange volume for better rates

By consolidating your vendors, you’ll increase volume with each provider. In doing so, you open the door to negotiating intelligent discounting strategies—and realizing savings for your company. 

For instance, logistics vendors can employ a tiered volume discount structure based on your transaction volume or spend, providing the opportunity to reset rates, usually quarterly. Quarterly resets are a valuable tool on both sides, enabling terms to align with shifts in market conditions. A system like this doesn’t just open the door  to better rates—it can provide both business entities a safety net, and peace of mind.

3. Examine the relationship between the cost and quality of services

It’s not enough to make a terrific product. You may damage your relationship with your customers if short-term cost cuts negatively impact the quality of your services. Performance leakage as a result of choosing lower-cost, lower quality service adds up, too. Billing errors, poor operation reports, damages, missing packages, a lack of timeliness in deliveries—these flaws, and their costs, can pile up if your sole criteria in picking a vendor is lower rates. 

Furthermore, you may be putting pressure on your internal operations team by making them shoulder a heavier workload. Depending on the situation, you may actually end up spending more if ops team members demand higher salaries to compensate for the extra time and pressure—or even worse, seek a more hospitable work environment elsewhere.

4. Analyze transportation network density in important regions

Not all geographic areas are equal. It’s important to take stock of each vendor’s network density in the critical regions where you operate. Last mile providers with higher density networks where you have the most deliveries—both in number of packages and dollar volume—are more resilient in supporting changes to costs and market shifts. With today’s inflation-prone economic situation, those shifts can come fast and frequently. 

Companies with greater network density are also better able to support extra costs and network changes as a result of route and operations staff additions. You should delve into whether a potential new logistics vendor has the network density to justify their pricing and support service quality before transitioning.

5. Calculate the costs you’ll incur from transitioning to new vendors

The process of transitioning to new last mile vendors itself can carry significant costs—and not all of them can be paid in dollars. Consider the required communication timeline to notify your current vendors of a transition to a new provider. If you anticipate that you’ll be giving short notice to a current vendor, is it worth the potential damage to this relationship if the new vendor doesn’t work out? 

Due diligence on your existing contracts is important here. Note any previously agreed-upon termination requirements when weighing whether to change vendors. Does your contract with a current vendor stipulate a pricey severance fee? Calculate and fully understand all costs (and penalties) before making any switch. Now is the time to do a cost-benefit analysis of immediate costs versus potential long-term savings. 

Smarter strategies today can yield better last mile rates tomorrow

Tempting as it may be to simply shop the market for more attractive logistic rates, there are strategies you can employ today to optimize your ROI tomorrow, and ensure high-quality service always. Contact the last mile experts at USPack to learn how we can help you mitigate against inflation creep on your 2022 delivery charges.