Three Tips For Negotiating Ocean Contracts

If you've ever been involved in negotiating a contract with an ocean carrier, you know how complicated it can be.

You're bombarded with hundreds of surcharges, and each carrier uses their own system, structure, and rates.

These contracts are comprehensive because they have to cover every possible contingency. But that doesn't make negotiating them any easier.

So how do you make sure that you're not chained to an unfavorable contract for years?

Take a look at what to do BEFORE you negotiate any ocean contract for the best results.

First - Find Out What You Actually Need

Do you only ship freight during certain seasons? How much capacity do you need? Do you need extensive customer service or do you just want barebones freight?

These are questions you need to ask yourself before you begin negotiating. Carriers assume certain things when you're getting a quote. If you don't go in knowing exactly what you'll need you'll be slammed with charges and fees for services that are completely irrelevant to your business.

Know the level of service, security, and price that you're willing to accept and you're already halfway to a favorable outcome.

Second - Take Current Market Conditions Into Account

The key to getting what you want in a contract negotiation is being able to anticipate the responses of the other party. How are the rates looking in today's market? Are they likely to try to lock you in to a yearly contract? Will they be trying to push more services on you than you need?

The more you study, the more likely you'll know what they're going to offer before you even begin to talk with them! This will let you lead the conversation in the direction you want, and most importantly, to the price you want.

It'll also let you avoid any surprises when they start naming numbers.

The last few years have been terrible for ocean carriers, and they've raised rates tremendously to combat that. Experts suggest that you always look for short-term contracts in today's climate, simply because the pricing is so volatile. Certain carriers have been dropping prices quite drastically to attract more business.

Short term contracts will also let you slip out of any agreements if the conditions on the ground change suddenly (as they have recently).

Third - Don't Just Focus On Price

Whoever you're trusting with your freight is going to be responsible for a major segment of your business. Any problems on their end will mean problems on yours.

Therefore, don't just look at price when you're looking for a carrier.

Are they reliable? What level of product security and insurance do they offer? Would they be able to accommodate your needs in terms of capacity during peak seasons?

There's nothing worse than having tons of willing customers who want to buy your product - and not being able to get your product to them.

All these tips share a common factor if you want the best results from ocean contracts...

Do your homework.

Proper research and planning before a contract negotiation will ensure that you come out ahead.

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Manage your ocean rates and contracts more efficiently. Work faster, quote smarter with QMS and QMSlite from Catapult International - www.gocatapult.com.

Negotiating Tips Part #2 - Logistics Services

Here is part #2 on some tips for negotiation with logistics providers. Missed part #1?

Never be the first person to name a figure...
This is an expensive lesson to have to learn, but a good one. I do a lot of contract work, and one of the first questions I'm usually asked is "What's your hourly rate?". This is a high pressure question, and I often found myself blurting out a figure that was lower than what I really wanted.

These days, I've learned the importance of getting the other person to say a number first. Now, I respond to that question by asking "What's the budget for this contract?". Often, I'm surprised to discover they're offering me a better deal than I thought they were.

Ask for more than you expect to get...
Once the other person's given their figure, even if it's much better than you expected, say something like "I think you'll have to do better than that". Don't be arrogant or aggressive. Just say it calmly.

When they enquire about your expectations, ask for more than you expect to get. Few people will walk away from a deal once it's commenced, and you can let the other person feel as if they're winning by lowering your "unrealistic expectations" a bit at a time.

Let them believe the final decision doesn't rest with you...
Once a negotiation starts, most people want to get it over with as quickly as possible. Let their impatience beat them. One great way of doing this is to let them believe the person they're negotiating with isn't actually you, but some other "authority figure".

Say something like "Well, I'll have to talk it over with my boss before I can give you a definite yes".

A skilled negotiator will always want to talk to the person who has the final decision, but don't let them do it. Say the person with the authority over the deal wants you to sort things out but still needs to have the final say. Tell them you'll discuss it and get back with an answer tomorrow. Ask them to make sure that's their best offer you can take to your "authority figure".

Don't act too interested...
Just giving the impression that you're willing to walk away can do wonders for getting a better deal. Always play the reluctant buyer or seller.

Don't leave the other person feeling as if they've been cheated...
Many people try to screw every last drop of blood from any negotiation. This is a mistake. If the other person feels they've been cheated, it can come back to bite you. They may not fulfill their part of the deal, or refuse to deal with you in the future.

Most negotiations should leave both parties feeling satisfied with the outcome. Be willing to give up things that don't really matter to you in order to create a feeling of goodwill. For example, if I'm renegotiating my order fulfillment per pick charge, or pack and ship rates downwards, I'll often offer to sign a longer legnth contract. That way, the provider has a commitment for my business for a longer time.

Ken is a 15 year veteran of supply chain logistics and has founded companies in the ecommerce fulfillment and transportation management software markets.

Negotiation Tips Part #1 - Logistics Services

As a logistic professional, negotiation is crucial part of managing relationships with your supply chain vendors - whether it is negotiating carriers rates and contracts, pick and ship rates for fulfillment, or an implementation of a new logistics software to support your operation's Routing Guide.

Don't take it personally...
A mistake that people often make when negotiating is to become too emotionally attached to winning. They shout, threaten and demand to get their way. This is counter-productive.

Most deals are only possible if both people feel they're getting something out of it. If the person across the table feels attacked, or doesn't like you, they probably won't back down. Many people hate bullies, and will be more willing to walk away from a transaction if it involves one.

Keep calm, patient and friendly, even if the other person starts losing their cool. Make sure you leave any pride or ego at the door. You're much more likely to do well that way.

When you are reviewing a proposal from a vendor, don't get suckered by the "rules" trick...
When someone sends me a contract to sign, if there's something on there I don't like, I'll cross it out. I'm also happy to write things I want added in if I think they should be there. Sometimes, the other party will come back to me and say "You're not allowed to make changes to our contracts like that".

This highlights a common tactic used by experienced negotiators. They know many people are sticklers about following rules. So they'll make up official sounding pronouncements and insist that "this is the way it's done" or "you're not allowed to do that". If someone starts trying to box you in by adding rules to the deal, ask them to provide proof that such rules really exist.

Look for Part #2 of this post next week.

Ken is a 15 year veteran of supply chain logistics and has founded companies in the ecommerce fulfillment and transportation management software markets.