Leveraging Your Bargaining Power in Logistics Service Provider Negotiations

Leveraging Your Bargaining Power in Logistics Service Provider Negotiations

by LSCMS Shippers’ Council

The logistics industry is a complex and constantly evolving ecosystem that plays a vital role in the global economy. Shippers, who are responsible for moving goods from one location to another, have traditionally relied on logistics service providers (LSPs) to manage their transportation needs. Over the last 3 years, the balance of power has shifted considerably, with LSPs gaining more control over pricing and service negotiations.

Shippers have until quite recently been faced with a daunting challenge when it comes to negotiating with LSPs. One reason for this is that many LSPs in recent years have undergone considerable consolidation initiatives and as a result have become larger and more powerful. In some sectors, this means they can now dictate terms to shippers.

To compound matters, some LSPs have developed sophisticated and convoluted pricing models, making it difficult for shippers to understand the true cost of transportation.

As the dust settles after the pandemic, many shippers find themselves under pressure to reduce costs yet again. Coupled with softening customer demand and the return of air-cargo belly capacity, the current airfreight market condition presents a perfect opportunity for shippers to regain, maintain and balance influence and control. Logistics is a derived demand. Over the extended and complex supply chains we manage or support, collaboration and a long-term view are necessary to weather and overcome the challenging business environments in which we operate. Yes, COVID was (hopefully) a black-swan event of a scale and magnitude none of us has ever imagined or had to overcome but as a Logistician, dealing with challenges, big and small is simply what we do on a daily basis.

In this article, we will share a few tips shippers can leverage to increase their influence and gain better insights and bargaining power during negotiations with logistics service providers:

Do your research

The more you know about the logistics industry and the specific services you need, the more leverage you will have during negotiations. Before entering into any negotiation, do your research on the market trends, industry standards, and pricing models. This knowledge will help you better understand what you are paying for and what you should expect in return.

Be clear on requirements

Shippers need to be clear about their transportation needs and requirements. Many shippers are not specific enough in their requests, and this can result in LSPs offering solutions that may not be ideal. The more detailed data and information you can provide, the more accurate a quote you can get from your LSPs. Shipment size, weight, location, frequency, peaks and troughs and seasonality, temperature control or hazardous material handling requirements (if applicable) are just some of the relevant information to include in an RFI, RFP or RFQ. By being specific about their requirements, shippers can avoid the risk of LSPs overcharging for services that are not necessary and allow them to provide a comprehensive and accurate quote.

Consolidate your volume

Explore ways to consolidate your volume with a few LSPs. By doing this, you will be able to demonstrate a higher volume commitment, which can help you negotiate better rates and service levels.

Always go to bid

Shippers should consider implementing a bidding process. By inviting multiple LSPs to bid on a shipment, shippers can create a competitive environment, encouraging LSPs to offer higher-quality services. This process also allows shippers to compare pricing and services offered by different LSPs, enabling them to make more informed decisions.

Know yourself and your provider

Network alignment is key. Do they have what you need? And do you have what they need? If you align on lanes where the primary strength or needs are, you have more negotiating capital. Additionally, there needs to be a fit between your organisation and the LSP. Are they or are you simply too big or too small to engage in a commercial relationship effectively? This is not a one size fits all situation.

Build relationships

Logistics is still very much a people business. Establishing strong relationships with LSPs can give you an edge during negotiations. By building trust and demonstrating a commitment to the relationship, you will be able to create a collaborative environment that brings forth more productive negotiations.

Be willing to walk away

Shippers should be prepared to walk away from negotiations if they are not getting the deal they want. This requires a willingness to be patient and persistent, as well as a clear understanding of the alternatives available. Taking some risks may open up new opportunities.

Concluding thoughts

Shippers have the opportunity to leverage opportunities and buying power, to achieve better logistics and supply chain deliverables. Improving on their marketing and procurement skills would help them achieve such aspirations.

The Shippers Council has a broad collective group of expertise in its membership. The group advocates a proactive and enhanced approach to Logistics procurement. Price will still be of primary importance but will not be the only criterion. Building on shared and collaborative values of strategy, alignment on network, technologies/tools and sustainable elements to strengthen and leverage the relationship to keep it on track is fundamental. Business relationships, whether simple or complex, cannot be created and sustained in short time frames. They need time to develop and be nurtured, to achieve mutual aspirations.

The LSCMS Shippers Council is open to partnering and sharing their work, tool kits and papers, to help Shippers achieve better results. Collectively Shippers can positively shape the logistics landscape. Shippers are not alone in the challenges they face. They just need to reach out and find new avenues & sources of support.

This article and the views contained therein was prepared or accomplished by the LSCMS Shippers Council. The opinions expressed in this article are strictly those of the LSCMS Shippers’ Council and not attributable to a specific individual or enterprise.