Imagine that you’ve taken your car in to get the brakes replaced. As you’re filling out the paperwork, the person behind the desk offers you a deal: They’ll give you a 5% discount if you’ll agree not to sue the mechanic or ask for a refund if the newly installed brakes fail.
Or suppose you’ve hired a nanny. You’ve both agreed upon a fair and equitable salary. But now she’s insisting that you also give her a three-year contract with a large severance clause.
Now imagine this: Parcel carriers offer similar deals to shippers every day. And many shippers have no problem with saying yes to them.
Door Number One: The Tradeoff
One such deal is the GSR waiver, a common arrangement that allows shippers to enjoy lower shipping rates or reduced surcharges in exchange for relinquishing their right to ask for carrier service refunds.
On the surface, it’s financially enticing, because you get to enjoy lower shipping bills. But in the long run, it’s rarely as economically advantageous as it promises to be. In fact, most shippers who sign GSR waivers usually wind up with less, rather than more, money in their pockets.
To illustrate, check out the table below. The first row reflects the amount of savings you’d enjoy if you accepted some of the typical GSR waiver discounts that carriers offer. The second reflects the amount of refunds you’d collect if 5% of your shipments got delivered late and your GSR was still in effect.
|Annual Spend||Weekly Shipments||Cost Per Package||Discount Or GSR?||Estimated|
|Total Savings Or Refunds|
|$650,000||250||$50||Discount – 4% (GSR Waived)||95%||$26,000|
|$650,000||250||$50||GSR (No discount)||95%||$32,500|
Door Number Two: The Gift Horse
The second dubious deal happens when carriers present their customers with special amendments or addendums in the middle of a contract term.
Unlike GSR waivers, these documents usually don’t ask for any financial trade-offs. Instead, they’re presented in the form of an eliminated surcharge or extra rate reduction that’s being issued as a thank you for being a loyal customer — or as a way to soften the blow of a new charge or change in policy. Who wouldn’t be happy with such a proactive, something-for-nothing offer, right?
The kicker is in the fine print, because acceptance of these amendments or addendums sometimes goes hand-in-hand with extending the length of the existing contract — and delaying a company’s ability to negotiate a better deal than the existing one for another six months to a year.
Needless to say, such extensions and delays are rarely in the best interest of the shipper.
Door Number Three: The Shackles
And then, there’s deal number three — a lopsided arrangement that essentially serves as a contract on top of a contract.
We’re talking, of course, about early termination clauses.
Many shippers say they sign these clauses because they’re “not going anywhere anyway.” But like the nanny contract mentioned earlier in this piece, there are a lot of things wrong with that mentality.
For one thing, these clauses lock you into using a carrier exactly as contracted regardless of how your business changes over the life of the contract. (Would you have enjoyed paying your nanny thousands of dollars simply because you got transferred a few months after you’d hired her?) And that, in turn, restricts your ability to be nimble and choose the best carriers for your various markets, customers, products and lines of business.
For another, these clauses essentially neutralize one of the most effective methods your company has to hold any carrier accountable for bringing its “A” game — aka the threat of taking your business elsewhere if service levels decline — since parting ways too early would be too expensive.
Just as important, your company has very little to gain from agreeing to such an arrangement, because the financial penalties for early termination usually only apply to shippers. In fact, you might even say this arrangement is a giant Zonk. (Go ahead and look it up. We’ll wait.)
There’s far more we could share about this subject, including addressing the pitfalls of making minimum volume commitments to your carriers. But we’ll leave it at this for now — and provide you with the helpful takeaways:
- Don’t automatically agree to waive your right to GSRs or other service promises. It’s rarely beneficial for your bottom line or your customer service.
- Reserve the right to be skeptical about any new discounts or offers that don’t seem to have downside. Read the fine print before you hit “okay.”
- Make certain your carrier treats you like a valued client, not just a generic shipper. Don’t agree to any concession on your end — like an early termination clause — that doesn’t have an equally significant concession on the carrier’s side.
Above all, if you need help with any of these things, or any other aspect of your carrier contract, don’t hesitate to ask for help. Companies like AFS manage a huge number of parcel contracts — and many companies’ parcel spend — and we’re always available to help you deal with the details.