When was the last time you took a look at your UPS agreement? When is the last time you compared the agreement discount rates to an actual invoice charge? How can you approach a UPS shipper agreement negotiation with confidence?
Most shippers find agreements too complex or structured in a way that is too confusing to understand. In contrast, most companies only view the discount incentives and do not consider any other aspects of pricing.
We see lots of agreements here at Refund Retriever, a UPS agreement can be 4 to 25 pages long. Fortunately, they all follow a similar structure, therefore this article will help you better understand the UPS agreement structure and pricing terms. In addition to understanding the agreements a little more, we will also give you some tips to get the best UPS agreement for your company. Keep this in mind,
- Every part of your UPS shipping contract is negotiable.
- You can re-negotiate at any time with UPS.
- Never wait for your agreement to end, this could cost you money.
The UPS Contract: General Structure
The first page of most UPS carrier agreements consists of the contract terms and appropriate signatures. These include the following provisions: pricing, automation, payment terms, service, confidentiality, term, offer expiration and prior agreements.
Here is a short synopsis of what you need to know from page 1 of the UPS Agreement.
- Incentives and the minimum rates are based on and derived from the most recent UPS Daily Rates
- UPS requires a timely upload of electronic Package Level Detail (PLD)
- New agreements supersede all previous agreements
- Either party may terminate the UPS agreement at any time upon 30 days with prior written notice
UPS Addendum A
This section is more important than most people realize. The UPS agreement incentives are only available to the locations and account numbers approved and identified in addendum A. Your account numbers and affiliates, each of which is more than fifty percent (50.0%) owned by your company, may be added or deleted. But only by mutual written agreement of you and UPS, this requires seven business days notice to UPS to become effective.
UPS prohibits shippers from reselling or offering incentives to any other party without the prior written consent of UPS. Failure to comply with this prohibition may result in immediate cancellation of the agreement and all applicable incentives. The addresses and account numbers in this part will not be subject to the UPS 3rd party accessorial fees.
Also, note that the commodity tier number will be noted here. This number reflects the hundredweight tier that applies to your account. The lower the tier number the better in terms of discount quality, lower tier numbers reflect products that are denser.
UPS Addendum B – Incentives
Incentives and the minimum rates in Addendum B are based on and derived from the most recently published UPS Daily Rates. Each eligible package (or shipment) and accessorial will receive its applicable Incentive for the term of the agreement. Most shippers only focus on this section during a UPS shipper agreement negotiation. Incentives are split into two categories: guaranteed discounts and tier incentives.
Guaranteed Discount Incentives
Guaranteed discounts apply regardless of your volume, these discounts are a set percentage off you the published daily rates. However, there could be a low volume threshold for these discounts. But they do not increase in discount percentage with higher volumes like the tier incentives.
Generally, these are broken down by service, weights, and zones. UPS ground commercial and ground are generally separate. Express and international services (commercial versus ground) are not separate.
Portfolio Tier Incentives
The next set of discounts are not a guarantee reduction in cost. Portfolio tier incentive discounts are basically an additional percentage off the publish daily rates. These are discounts that are in addition to the guaranteed discount incentives above.
A client can expect to see 6 to 7 shipping volume levels. Your shipping volume is based on the gross weekly revenue, this is the pre-discounted transportation charges from the past year. Finding the appropriate level is key during your UPS shipper agreement negotiation, this is where reporting and analytics come in handy. Refund Retriever has reporting that will help for this.
In summary, it is crucial to understand that UPS wants all of your shipping business. Any downturns in volume can affect what tier discounts will apply. I always recommend trying to get the guaranteed discount levels as high as possible, have less of your overall discount applied to shipping volume.
Stay tuned for part 2 of our UPS agreement blog series. We will go over the following information:
- UPS Minimum Net Charges
- UPS Accessorial Fee Reductions
- Dimensional Weight Issues, and
- How do you get the best UPS agreement?