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Most parcel agreements signed in the last five years contain a revenue component. In many cases, the bulk of the total incentive is contained in this segment of your discount program. These revenue-based incentive programs can be based on gross or net charges, or based on a 52-week rolling average, a 13-week rolling average, or conceivably any calculation. Many shippers simply assume that they will continue to receive the discounts they’ve always received, or at best assume the carrier rep will alert them prior to losing discounts. But we all know what happens when you assume... you wind up losing your discounts. However, there’s a simple way to avoid this problem. It’s not complicated, but it does require diligence.
The first step is gaining an understanding of how your revenue-based incentives are calculated. Know what revenue tier you are currently achieving, and the impact to your discounts should you fall out of that tier. Know how far you are from the next tier, and what that would mean in terms of additional discounts. This information is contained in your carrier agreement, but it is often cloaked in technical jargon and legalese. You might choose to engage a third party to assist you with this step.
Step two is monitoring your revenue attainment. UPS provides your current revenue attainment on page one of your weekly invoice. For FedEx, you will need to request that your account executive forward you an Earned Discount report weekly. This report will provide you with everything you need to see where you stand. While it is valuable to review this information weekly, it is much more valuable to track this data over time. Seeing the attainment tracked visually can allow you to see the trend; just as importantly it can convey the velocity of the trend.
Finally, be proactive. As mentioned previously, many shippers rely on the carrier to notify them if they are about to fall out of a revenue tier. This is a mistake. You are essentially relying upon a vendor to act against their own best interests. The burden lies with you. If you see that you are trending downward on your revenue tier, act now. Do not wait until you are a few weeks from falling out of your revenue tier to reach out to the carrier. It will take time for the account executive to put together a change to your pricing agreement, which is a needed step. Contact your carrier rep and explain the situation. Assuming you are single-sourcing with the carrier, explain that you remain a loyal customer, and they continue to receive all of your available business, but a revision to your revenue-based discount structure is needed. In most cases we have seen a certain level of fairness from the carriers in these situations. But, whether they’re reasonable or not, remember that you do have leverage. Do not be bullied into accepting substantially lower discounts just because you spent $100 less this week than you did last week. Protect yourself. Understand your agreement. And take action.
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