How can you negotiate transportation contracts with 3PLs?

I like to share my KPI expectations up front. The more details shared up front the better. I also like to break down the bid; every number is made up of cost and margin; understanding those 2 will help get a beneficial result.

Information and data is a valuable tool. It would be best if you had your priorities top of mind that align with your own brand customer experience: 1. What is the committed time in transit for your end consumer or distribution partner? 2. Are routing guides involved? 3. Are there transport or parcel companies or services you don't use? Evaluating your 3PL brings other considerations: 1. Does your 3PL have an effective rate shipping program? 2. Are their rates better than what you have today? 3. How do the locations of your evaluated 3PL affect your origin in/ destination matrix and cost model per parcel?

Here's your roadmap: Define clear objectives. Do your homework on market rates. Seek transparency in pricing. Build a win-win partnership. Leverage technology. Set performance metrics. Flexibility is key. Review and adapt. Effective negotiations fuel successful logistics partnerships!

Start by looking for and selecting the right business partner. Do not settle for only low rates, quality is key for success and for building business relationships. Shop around and see what options you have. Build your decision on the matrix that best serves your purpose and above all your clients.

Once our requirements are firmed up, send out for RFI and follow by FRQ. To review and shortlist 3 companies for initial meeting. Base on; -Organisation Structure/ strength - Quality Manual/ plan - Safety Manual n System - Fleet master list and warehouse system - Audit their performance N safety records - negotiation, begin with higher cost, use CPK….

Honestly, few shippers are running it properly. It's an ongoing and frustrating analysis of the market. Launching tenders every year is a way to assess the market and understand how logistics providers are facing their increasing costs. Theoretically, they should consider the best effective-costs and reliable options, not just the cheaper ones. Cheaper solutions last for a while, then market fluctuate, costs raise for carriers every year, and we have consistent shippers failures and money-waste. Control the market, stay flexible and be ready to split volumes in a strategic ways between forwarders.

In addition to this an efficient forecasting will also help when constructing any supply chain related contract in which logistics and transportation happen to be one.

Identify the 3PL’s capability in terms of infrastructure, landscape presence. This is very important in ensuring smooth logistics connectivity

Having a realistic budget is the main crucial challenge. Shippers are not sharing it. Logistics is influenced by the global economy. Nowadays, we are seeing more shippers relaunching contract negotiations to push down rates. They are also looking to agree longer terms, 1-2 years to reduce their costs. So, 3PLs and forwarders focused on grabbing volumes almost at any cost to increase their market share will continue to sacrifice their margins, and likely continue to fuel an irrational market. Freight rates fall deeper the market and they are bleeding cash. Shippers often stick with their current provider but expect them to adjust their rates accordingly to this lower market level. It doesn't work, but everyone is minding his own business.

The best way to establish your budget is considering the type of vehicle and setting a price benchmark to that route with respect to the vehicle plying that route. Example: for every 40ft truck plying zone abc is xdollar, also for every 20ft plying zone abc is ydollar. This makes budgeting easier and feasible.

In my experience, the objective of the budget will be determined by cost associated with the project. The cost will be determined based on low, mid to high expectation on delivery time.

As a transport provider, my experience is that shippers mostly are aware of their budget, but not necessarily always realistic about how this budget affects the quality of their transports. In too many cases, expectations are too high and the shipper ends up with a solution that lacks logistical experience, understanding of the shipper’s needs and problem solving skills. Transport purchasing should be seen as an investment in quality not savings, and as a way to ensure end client satisfaction.

Negotiating contracts with 3PL providers is key contributing factor to the profitability of an organisation. The transport related costs will be factored into COGS. For an organisation to concentrate on thier core businesses, we need competent 3PLs in the areas of traportation i.e. understanding the market, well trained staff, advanced technologies and adaptability to dynamic business environment. Once a competent player is identified, the negotiations phase should be collaborative with a win-win situation taking into consideration the external environmental factors such as taxes, increase in fuel prices and other levies. SLAs and KPIs should be in place to monitor performance with continuous reviews.

First of all step back and look at the bigger picture. What is the strategy of your company ? How the supply chain will support this strategy? what are your current bottle neck or challenges ? what your customers are expected? what about your suppliers ? what are the geopolitical context which can impact my supply chain ? how do i prevent it ?what do you want to achieve? This should give you the priorities and where you should focus. By experience, build a real partnership with your 3pl, be clear on your objective, your budget, your red line. If you don't communicate clearly your needs, how do you expect the 3Pl to do what's good for you. lastly, be open, embrace diversity in solution, be curious and keep exploring.

With constant change in the economy or the AGO/PMS rate in a country, negotiating should be as flexible as possible. Having an open communication would foster a long lasting relationship with the 3pl

You need to have a combination of procurement models like Annual contracts, seasonal contracts, short term contracts and SPOT rate model.

Depends on what type of products distributed, business nature and expectations. For example Inorder to get the right price you can get into a REVERSE AUCTION for high volume products through out the year. Purchase power can increase if the volumes of first mile, middle mile and last mile are consolidated and negotiated with player having presence and capability to execute the entire value chain. This will enable to reduce the unit cost of transportation

Identify potential 3PL partners based on their experience, reputation, and ability to meet our needs. Should evaluate the proposals considering factors like pricing, service levels, technology capabilities, and any value-added services they can offer. Engage in negotiations with the 3PL to reach a mutually beneficial pricing structure. Consider factors like volume discounts, fuel surcharges, and any seasonal fluctuations. Clearly outline your transportation needs, including the type and volume of shipments, specific services required, and any special requirements. Clearly define SLAs that specify service expectations, transit times, communication protocols, and what happens in case of service failures.

Establish what your needs are. Determine their capabilities. Attempt to marry the two with a rate structure that works. Everything else stated in here is a valid point of consideration. The one problem I have found wherever I have gone, is that the people dealing with the 3pl, and the functions within the operation, do not know enough about it. I have worked on both sides and my one piece of advice to distributors and the like, that make use of 3pl, is to get someone in your employ who knows the ins and outs of the business. They will know what is possible and what is not. So they can tell the 3pl, as well as the user, what can and cannot be done. They will know how to manipulate the rate structure and service levels in your favour.

Just to add my insight! One thing I found helpful is to develop a two way relationship with 3PL. Mostly of 3PL's are income centered fewer are focused on services realization. This two way relationship should include clear guidelines in terms of market rates and values. Then there should be rewards and opportunities in terms of KPI and SLA's achievements. Most importantly is the payment terms, it should be clear and followed. This is the bottom line of the services they rendered, fulfillment translate to a better services and relationship. Regardless how good is the negotiation output it will be immaterial if we don't develop a two way relationship.