Long Walk, Short Tier: The Price Tag of Shipping "Incentives"

Posted on May 26, 2010 9:08:00 AM

man falling into water

Everybody loves a good deal, or at least the perception of a good deal. We signup for the credit card with the most points, fly on a specific airline for the miles and keep a dedicated keychain for all the loyalty cards from retailers we hardly ever visit.

The result? Junk mail, spam, auto-renewing subscriptions, black-out dates and the realization that the fine print just extended the contract by another two years.

National carriers play the same game. They'll entice you with what appears to be an aggressive discount and then try to buy your allegiance with incentive tiers. All wrapped in a contract loaded with contingencies, and so complicated that it's practically responsible for the creation of an entire industry (Google "Freight Consultants").

What are incentive tiers? They're a scale that uses shipping revenue to determine a percentage reward. The more you ship, the more you get back. Just like all those loyalty cards in your wallet, incentive tiers were created to "motivate" you into using one shipping company instead of multiple carriers.

That sounds dandy, but consolidating carriers strictly because of incentive tiers or perceived discounts may not be in your company's best interest. National carriers offer these kinds of programs because they know there's competition and tier incentives are the best way to distract you from what other carriers have to offer.

That's where regional carriers come in. They are extremely flexible and aware of the capabilities within their service area. That knowledge allows them to not only push the limits on transit times, but also operating expenses. As a result, you get later pickups, faster transit times, fewer fees, earlier deliveries and rates much lower than national carriers. And, thanks to technology, regional carriers are well-equipped to provide the same features that you've come to expect from the other guys.

Not enough to change your mind? Well, before you leap off the tier-incentive cliff, be aware of a few things:

Fees & Surcharges Don't Count
Tier incentives are based strictly on package revenue. The fees that account for up to one-third of your bill with national carriers are not added.

Beware of the Little Details
According to a presentation by the Navigo Consulting Group, your tier status is most often calculated every 13 weeks as opposed to 26 or 52 weeks. In other words, if your business has "busy seasons" you'll likely wind up on a tier roller coaster.

Mind the Gaps
Know the range of your tier incentives and volume discounts. You may be able to benefit from other carriers without modifying your current rate and incentive structure.

Industry Trends
Thanks to technology, innovation and standardization, companies can easily incorporate multi-carrier software solutions to take full advantage of each shipping company's particular strengths.

In the end, all it takes is some number crunching and fact finding to learn that the incentive tiers and percentage discounts offered by national carriers may not benefit your shipping goals. What you may lose in incentives and discounts from one carrier pales in comparison to what you stand to gain from the rest. The tiers aren't worth the tears.

OnTrac offers free, detailed price comparisons. Interested? Email shippinganalysis@ontrac.com to get started.

Topics: regional package delivery company, carrier consolidation, shipping price comparison, tier incentives