Shippers must understand FedEx termination fee provisions and how they affect small parcel shipping. FedEx agreements are not easy to understand. Therefore, we will explore a FedEx termination fee and some options if one presents a new FedEx agreement.
What is a FedEx Termination Fee?
Early termination language is a contractual language FedEx includes in aggressive pricing agreements. FedEx can assess an early termination fee if certain events occur due to the customer’s actions. The penalty fee could be a set dollar amount of a percentage of yearly small parcel shipping spend.
FedEx reserves the right to assess a Termination Fee in the amount of $——. For purposes of this agreement, “Early Termination Event” shall be defined as the customer taking any of the following actions:
- Terminating the contract before the latest end date of the pricing terms defined;
- Transitioning 20% or more of volume from FedEx to a competitor before the latest end date of the pricing terms defined; or
- Soliciting bids or pricing more than 60 days before the latest end date of the pricing terms defined in this Attachment.
A contract breach usually means the customer pivots their business to a different carrier, including UPS, DHL, USPS, or one of the many regional carriers. Clients with this provision cannot even solicit bids from competitors until the agreement is 60 days from termination.
For example, say your company is shipping approximately a million dollars annually with FedEx. FedEx may offer a revised agreement with some improved discounts. However, those improved discounts often require you to commit to keeping your shipping with FedEx for the length of the contract.
Drawbacks of an Early FedEx Termination Fee Provisions
Shippers might not want to commit to an early termination provision for many reasons. To begin with, it could restrict your options. Operational issues are common, and you want to switch to another carrier. Early termination language will prevent you from changing and keeping a competitive advantage. Make sure you have options to do what’s right for your business.
Carriers change the application of accessorial fees and introduce new prices regularly. A new application, zone adjustment, or fee could cause your product to become unprofitable when shipped. If a single accessorial cost increases by 100%, the only profitable shipping could be using a whole new carrier. The FedEx termination fee provision, in this case, will bind you.
Alternatives to Early Termination Provisions
We always advise against signing FedEx termination fee provisions. But shippers can also do things when they’re presented with early termination language FedEx.
First, the most reasonable thing to do is to push back. Fight the provision, especially if you don’t have early termination language in your current agreement. If you have a long-standing relationship with FedEx, there’s simply no reason to sign an early termination provision because of the partnership.
Alternatively, ask the carrier to guarantee the rates will only increase by a certain amount each year. Similarly, request shipping surcharges to stay constant for the term of the agreement.
If you’re a FedEx shipper with questions about responding to a FedEx termination fee provision, we’ll be happy to discuss some strategies with you. Our contract negotiation experts can analyze your shipping and logistic usage to reveal shipping intelligence that will allow significant yearly shipping savings.