Shipping and transportation providers are experiencing margin leakage due to new sales channels like eCommerce and increasingly complex business processes.
Here’s a scenario that’s becoming increasingly common in the shipping industry:
A global shipping provider receives a large order from one of its top clients through its online customer portal. The bill of materials is particularly tricky because multiple shipping lanes will be used to transport a wide variety of items, some that this customer buys regularly and some it rarely does, to offices in multiple countries. Most items carry standard delivery, but the largest line item is marked for two-day shipping.
On the surface, this is great. A big chunk of revenue and a chance for the company to display its multi-dimensional logistical prowess for an important customer. And it’s an online deal no less, helping to justify that no-doubt sizable recent eCommerce investment.
Aside from the logistical hurdles, this deal comes with risk under the surface from a profit perspective. The company stands to suffer serious margin leakage even if delivery goes off without a hitch. The result could be happy customer, unhappy sales and finance executives.
Let’s closely examine the risks. First of all, this customer has negotiated a pricing agreement with our shipper that gives it discounted rates in recognition of its loyalty. But in many cases, it’s a blanket agreement that covers the shipper’s full breadth of services. Shippers do themselves a disservice by not asking the following questions when putting together a rate agreement:
- Should this customer receive the same generous discount for two-day shipping that they receive for standard, even if they rarely require expedited shipping?
- Most orders are delivered to headquarters, but this specific deal requires multiple shipping zones, each carrying significant cost to the shipper. Should they get their standard 20% discount even for these nonstandard delivery requirements?
- Does the customer agreement differentiate between weight tiers, international delivery, unique delivery instructions or special one-off situations?
- Does our online portal provide automated negotiation, or does an inside sales rep need to intervene?
- Is there a regular review and renegotiation of the agreement?
If the answer is no for any or all of these, there’s trouble brewing under the surface of this great-on-paper order. Without understanding the full scope of the customer relationship, services that should fall in a rate matrix wind up on agreement lines, giving away pure profit.
Without an agreement expiration date or periodic reviews, rates can fall below the floor or even below cost over time. Companies must be able to evaluate costs in the context of agreement performance and adjust quickly as needed.
Lacking automated negotiation, an inside rep has to spend time away from his or her primary focus (driving net-new business) and the customer may get frustrated with the back-and-forth. After all, the customer opted for eCommerce for expediency and convenience – if expectations aren’t met it’s easy for dissatisfied clients to set up an Amazon Business account.
The good news? There are practical solutions to each of these insidious margin killers. If any of this story rings true to you, it’s time to take a hard look at deal and agreement management, rate optimization, automated negotiation and intelligent rate guidance.