In recent years and especially since COVID, nearly all the integrated national and regional parcel carriers have been updating their pricing agreements to include a stronger emphasis on minimum revenue requirements. These changes in parcel carrier pricing behavior are partially driven by both direct-ship retail merchants and ecommerce order fulfillment service providers aggressively pursuing updated and more aggressive discounts from the parcel carriers to drive reduced shipping costs. Inflation, increased labor expense and capacity constraints are driving up operating costs for the carriers and those costs are being passed on to ecommerce shippers via rate increases.
Additionally, other market changes and conditions are impacting the national integrated and regional carriers:
- Quick commerce, forward stocking distribution solutions that support same-day delivery and that also siphon away shipments away from the legacy parcel distribution models.
- Declining ecommerce growth trends.
- Carrier diversification initiatives are gaining traction and driving some business away from the legacy integrated carriers to the regional parcel carriers.
- The growth of Buy On-Line/Pick-Up in Store, (BOPIS/click & collect) out-of-home consumer pick-up solutions that bypasses the legacy parcel carrier’s home delivery.
5 Shipper Tips for Managing Parcel Carrier Minimum Revenue Requirements
- If negotiating with a parcel carrier, shippers must realize that minimum shipping revenue requirements and related verbiage defining those terms is complicated. They must take the time to fully understand the impact of failing to meet minimum shipping requirements and should negotiate more favorable terms and conditions as needed.
- Understand the impact of minimum shipping revenue requirements in the context of all other agreement terms and conditions and exposure via penalties for not attaining the minimum revenue requirement.
- Remembering that minimum net revenue requirements are based on net transportation spend after discounts, not including surcharge expense.
- Minimum net revenue spend requirements are not related to earned discount, gross revenue schedules, which drive discounts and are based on list price shipping expense but not including surcharges.
- A shipper must be prepared to perform the necessary predictive analysis to accurately project future carrier usage across all qualifying services and may require the assistance of a pricing consultant to correctly determine that spend.
It is important to understand that the integrated carriers are normally open to granting a shipper additional discount, but only in return for higher revenue. However, they are only going to improve pricing discounts with a commitment from the shipper that volume/revenue will not be shifted to another carrier. These types of terms and conditions tend to drive near exclusive carrier usage and the carriers will not be open to renegotiating the pricing agreement prior to the stated termination date.
Finally, the most aggressive carrier discount programs will always be accompanied by minimum net revenue requirements. This condition tends to benefit 3PL order fulfillment shippers and their customers as a 3PL can consolidate shipment volume/revenue across multiple customers, and we know it’s volume that drives the best carrier discounts possible.