Many companies assume their parcel agreement is performing well. Discounts seem competitive, service levels appear stable, and invoices are generally paid without issue. Or even worse, they take their carrier reps’ word for it and believe they have the best available deal. Yet in practice, parcel spend usually rises faster than shipment volume, even in years with little operational change.
In most cases, the issue is not a single rate increase or surcharge. It is the cumulative effect of how parcel contracts evolve over time. From an advisory perspective, this is one of the most consistent and least visible cost challenges across shipping programs.
Parcel contracts rarely age well
Parcel agreements are typically negotiated based on a snapshot of a company’s shipping profile at a specific point in time. That snapshot includes shipment volume, average weight, dimensions, service mix, and destination profile (zone and density). What is often underestimated is how quickly those inputs change.
Product assortments shift. Packaging changes. Residential delivery grows. Average dimensions increase slightly, but consistently. Over time, these changes move a shipper away from the assumptions that underpinned the original agreement.
At the same time, carriers continuously refine pricing mechanisms, surcharge structures, and incentive models. Examples of this include changing Additional Handling and Large Package rules (January 2026), carriers rounding up all dimensions, changing zip codes aligned to DAS, and revising fuel matrixes to increase fuel. When contracts are not reviewed regularly, the result is a growing misalignment between how the shipper operates and how the carrier prices that activity.
The cost drivers that quietly erode savings
In many agreements, base rate discounts receive the most attention during negotiations. However, they rarely tell the full story of total cost.
Dimensional weight and minimum charges are a common starting point. Changes to DIM divisors, dimensional rules, and minimums can significantly affect lighter shipments, often rendering negotiated discounts largely irrelevant. This impact tends to be gradual, which is why it frequently goes unnoticed.
Accessorial fees are another major contributor. Residential surcharges, delivery area fees, additional handling, fuel, and peak-related charges now represent a meaningful share of total parcel spend for many shippers. These fees often increase at a faster rate than base transportation charges and are rarely protected by any contractual increase caps. It is not uncommon to see shippers take on an annual increase higher than 10% even though the carriers announce a 5.9% rate increase.
Peak and demand-based surcharges deserve particular attention. Many were introduced as temporary measures but have since become recurring or semi-permanent features of carrier pricing. Without clear definitions or limits in the agreement, they can create ongoing budget uncertainty as the carriers continue to look for ways to not only extend the peak period, but also charge incrementally higher rates as the peak season drudges along.
Finally, incentive structures can appear attractive on paper but prove difficult to achieve in practice. Volume thresholds, service mix requirements, and performance conditions can lead to incentives being partially or fully missed, reducing expected savings. A common mistake shippers make when bidding their parcel business out is giving the carriers a snapshot of the total spend then accepting agreement terms that have factored the entire spend into the incentives, often making those incentives impossible to achieve if multiple carriers will ultimately be used.
Why deadline discounts can be misleading
Two companies with similar published rate discounts can experience very different outcomes in terms of net cost. This is because discounts usually apply only to a portion of total spend (base), while many of the fastest-growing cost elements (accessorials) sit outside that structure.
From a financial perspective, metrics such as net effective rate, cost per package, and cost per order provide a more accurate view of performance than discount percentages alone. These measures account for the full mix of charges applied to each shipment. As we’ve seen over the past couple of annual General Rate Increases, FedEx and UPS published rates have diverged enough that identical discounts from each carrier may result in significantly different net rates.
The carriers understand this distinction well. Many shippers, however, still rely heavily on discount comparisons when evaluating their agreements, which can mask underlying inefficiencies.
The data imbalance in parcel negotiations
One of the less visible dynamics in parcel contracting is the data advantage carriers hold. Carriers price millions of shipments across industries and business models. Shippers, by contrast, typically rely on their own historical data and carrier-provided analysis.
When negotiations are based primarily on carrier models, it becomes difficult to test assumptions, evaluate alternative scenarios, or understand how changes in volume or behavior might affect costs. This imbalance often leads to agreements that favor pricing stability for the carrier, while leaving the shipper exposed to cost variability.
Independent analysis and scenario modeling can help address this gap, particularly in periods of demand volatility.
Further, carrier agreements are difficult to understand and compare. This complexity by design promotes the advantage carriers have over shippers.
Signs an agreement may be underperforming
There are several indicators that a parcel contract may be costing more than expected:
- Parcel spend increasing faster than shipment volume.
- If your spend % increase outpaces your volume % increase more than two years in a row, it’s time to reevaluate.
- Accessorial charges representing a growing share of total cost.
- If accessorial charges are more than 20% of your overall spend, it’s time to reevaluate.
- Incentives frequently missed.
- If you miss your target incentive tier, or even outperform it, it’s time to reevaluate.
- No formal contract review in the past 18 to 24 months
Individually, these issues are enough to trigger concern; in combination, they often point to structural inefficiencies within the agreement.
What effective shippers do differently
Companies that manage parcel costs effectively tend to view contracts as living documents rather than static arrangements. They monitor performance regularly, audit surcharge application, and reassess assumptions as their business evolves.
When renegotiation is appropriate, they focus less on headline discounts and more on total cost, contract protections, and flexibility. Timing also matters. Market conditions, carrier capacity, and network dynamics all influence negotiating leverage.
In many cases, meaningful improvements can be achieved without a full RFP, simply by addressing misalignments that have developed over time.
A quiet opportunity
Parcel contracts rarely fail in obvious ways. Instead, they tend to lose effectiveness gradually, through small changes that compound year after year. For most shippers, the opportunity for improvement already exists within their current shipping profile.
Regular, structured reviews help ensure that agreements continue to reflect how a business actually ships today — not how it shipped several years ago. In an environment where parcel costs remain under pressure, that understanding is often one of the most effective tools available.
Best-in-class organizations ensure contracts are reviewed by experts, whether in-house or external. The biggest risk is allowing the carrier to be both the seller and the referee.
Paul Yaussy is Head of Parcel Contract Intelligence at Loop, where he leads parcel contract strategy and cost-reduction initiatives across parcel transportation. He brings more than three decades of experience in logistics management and advisory roles, with a proven track record as a transportation cost-reduction specialist. Over his career, Paul has led teams managing and routing more than $80M in parcel, truckload, intermodal, and LTL freight, and has advised dozens of companies on parcel contract strategy and negotiations.
