Reducing Carrier Surcharges

Reducing Carrier Surcharges

Copyright 2008, Traffic World, Inc.

Did you know that, on average, 10 to 30 percent of a carrier''s invoice amount consists of surcharges? Did you know that out of those surcharges, approximately 30 percent are charged incorrectly?

Surcharges may be added to your invoice as special handling surcharges, or, in other words, as Saturday package delivery surcharges, declared value surcharges, delivery area surcharges, extended area surcharges or early AM package surcharges. They may also be added as shipper-caused exceptions, such as invalid account numbers, address corrections, dimensional weight, additional handling and shipping to residential packages.

Special handling surcharges and shipper-caused exceptions may seem like valid additions to your invoice, but how do you, the carrier''s client, really know what gave rise to these costs?

The truth is that carriers can add surcharges to your invoice without explaining why or how they accrued. Carriers have learned that high surcharges are in their best interest. Indeed, higher costs and new types of surcharges have been created as savvy clients have learned ways to lessen or eliminate them.

Do you know if your company is one of these savvy clients, or do you suspect that you are currently losing money due to unnecessary surcharges?

In order to take the guesswork out of surcharges, it is important to understand exactly why they have occurred. The reality is that carriers will automatically add surcharges; it''s the shipper''s job to review and analyze invoices, and then request credits where they are due.

Consider delivery area and residential delivery surcharges. Delivery area surcharges may be added when shipments are delivered to particular ZIP codes that lie beyond a designated radius dictated by the local carrier hub. Residential delivery surcharges may be added when a shipment is manifested as a commercial shipment but is delivered to a residential location, or when a parcel is shipped to a commercial location where there is no one to sign for the package.

Now, let''s say that you sent a shipment that was delivered to a ZIP code outside of the local carrier hub radius, and that the shipment was delivered to a store that had no one to sign for it when it arrived. When you receive your invoice, it may look something like this:

1Z1234569876 = $20.00

$12.95 Freight

$3.45 Fuel surcharge

$2.20 Residential surcharge

$1.40 Delivery area surcharge

You may have thought that your carrier was giving you good discounts, but you had not weighed the significance of the surcharges that you were eligible to receive.

Fortunately, you can reduce the amount of surcharges within your weekly carrier invoice in two ways: 1. by reducing or eliminating surcharges when negotiating your carrier contract, and 2. by auditing each carrier invoice and proving that your company was wrongfully charged.

In order to successfully negotiate to lower or eliminate surcharges during the contract negotiation process, you must prove to the carrier that your company''s shipping characteristics are more profitable to the carrier; in other words, you will want to be able to prove that your company''s shipping characteristics mean low operation costs for the carrier. Some shipping characteristics that make for low operation costs are: a relatively low number of "ship to" locations, a high number of commercial vs. residential shipments, a high number of packages going to the same location, and a high amount of packages that will be delivered within 30 miles of local carrier hubs.

The best way to obtain lower rates is to request a formal Request for Pricing. The carrier should utilize your company''s prepared shipping data to come up with competitive pricing. By proving that your company''s shipping characteristics make for low operation costs, your carrier should start to view you as a real partner with valid concerns. An open-door policy between you and your carrier may even mean that your company will, at some point, be able to view the carrier''s operational costs and make additional assessments and/or conciliatory changes that benefit you both.

You should never feel that you are in the dark when it comes to the surcharges you are paying. You have the power to reduce the amount of surcharges added to each invoice, and ultimately, to achieve significant savings when it comes to your company''s overall parcel spending.

-- Michas is president and CEO of Bridgenet Solutions, a supply chain technology provider.