Negotiating Effective Logistics Contracts: Tips for Ecommerce Retailers

A streamlined supply chain is more than just a necessity, it sets you apart from the competition. With consumer expectations around delivery speed and service quality increasing, the efficiency of logistics operations becomes paramount.

This is where integrating logistics services into your business can move your company forward. Negotiating your logistics contracts and combining warehousing, transportation, order fulfilment, and even returns into one cohesive strategy can reduce costs, simplify complex logistical challenges, and enhance overall efficiency.

Before diving into negotiations or revamping your logistics, take a deep dive into your existing setup. Identify any shortcomings, plan for future growth, and pinpoint specific needs, be it global shipping capabilities or specialized storage solutions.

To kick-start your preparation, consider this checklist for analysing your business before entering into negotiating a logistics contract:

Create Accurate Forecasts

• Use past sales data to predict future demand, especially during peak periods.
• Keep an eye on market trends, record your promotional activities and seasonal events that might impact sales.

Detailed Freight Profile

• Outline your inventory specifics, including SKU numbers, packaging needs, and product types.
• Understand the average weight of your product
• Make note of your popular SKUs
• Decide on inventory management practices, like “First In, First Out” (FIFO), and consider the need for unique logistics services (cold storage, secure transport, etc.)

Packaging Optimization

• Ensure your packaging is protective yet cost-efficient in terms of sizing. Bear in mind some carriers implement volumetric measurements when charging for services. Cubic or volumetric weight is a calculated weight that considers the density of a package. It’s a theoretical weight that represents the space a package occupies in relation to its actual weight. Couriers and postal services use this measurement to ensure that they are efficiently utilizing their capacity, especially for parcels that are large but lightweight. It is based on your shipment’s dimensions (length, width and height), and then a conversion factor or volumetric divisor is applied. A conversion factor or volumetric divisor is a number set by the shipping company or carrier that represents the amount of space one pound/kilogram of weight takes up on their transportation.

Shipping Destinations and Timelines

• Identify your primary shipping destinations, both domestic and international.
• Understand customer expectations for delivery speeds.

Intention to scale

• If you plan to expand your business to new regions, approach negotiations with your business expectations and anticipated volumes in mind.

Armed with a detailed understanding of your shipping and fulfilment needs, the next step is to engage with potential partners and/or carriers. Discuss your requirements, negotiate rates, and seek the best fit for your business. Here are a few tips for talking points:

• Leverage Sales Data: Use your sales forecasts and historical data as bargaining chips to secure volume discounts. Ensure the contract is flexible enough to accommodate your growth.
• Competitive Rate Comparison: Gather quotes from various providers to facilitate rate matching and secure more favorable deals.
• Transparent Cost Structures: Aim for a pricing model that aligns with your business, keeping an eye out for hidden charges. Make sure you request example invoices on a sample set of shipments so you aren’t hit with surprises later down the line.
• Establish SLAs and Penalties: Define clear performance metrics and include penalties for non-compliance to uphold service quality.
• Manage Ullage and Other Fees: Negotiate terms for inventory loss allowances and other logistics-related costs to ensure they are fair and conducive to your operations.
• When ullage is factored into logistics contracts as missing stock allowances, it means that the contract recognizes and permits a small, predefined percentage or volume of the product to be missing upon delivery to the warehouse without penalty to the supplier or transporter. Establishing clear terms regarding ullage can foster better relationships with your suppliers and logistics partners. It shows an understanding of the complexities involved in shipping and handling products, and by agreeing on acceptable loss thresholds, you can avoid conflicts over minor discrepancies, fostering a more cooperative and long-term partnership.
• Incorporate Risk Management Plans: Discuss insurance and liability to safeguard against unforeseen circumstances.

Consider a Logistics Partner

Selecting the right logistics partner is a strategic decision that can improve your supply chain and give yourself a competitive advantage. By partnering with a logistics provider, you gain access to not only efficient logistic operations but also valuable insights and technology that can refine and enhance these processes. This partnership has the potential to significantly boost your scalability, ensuring that your supply chain supports your business goals now and in the future.

One of the key benefits of such a partnership is the access it provides to a global network. This network opens the door to a diverse range of logistics and courier solutions, enabling you to leverage the best options available worldwide. Additionally, a strong logistics partner brings enhanced negotiating power to the table. Their collective bargaining strength can secure terms and conditions that might be beyond reach for individual companies, providing you with better deals and a wider range of services.

Cost reduction is another significant advantage. By tapping into the economies of scale, you can enjoy lower service costs across the board. This includes everything from reduced pick pack fees to more affordable warehousing options and favorable carrier rates. Finally, strategic network design is where a logistics partner can truly shine. They possess the expertise and resources necessary to design a logistics network that is perfectly aligned with your business needs, optimizing efficiency and supporting your business strategy.

In summary, choosing the right logistics partner is about much more than just outsourcing operations. It’s about strategically enhancing your supply chain with a partner that offers a global network, enhanced negotiating power, cost reductions, and strategic network design, setting your business up for success in the competitive global marketplace.

Embracing a partnership with a skilled logistics provider not only ensures cost-effective operations but also aligns your business with a strategic ally focused on optimizing your supply chain and distribution strategies. This collaboration allows you to concentrate on your core offerings and customer engagement, confident that your logistics are in expert hands.

Want to chat to a logistics partner who can help optimize your supply chain costs so you can tap into global markets, why not get in touch with Borderless360 today? Contact us.