WHEN IS A SERVICE GUARANTEE NO LONGER A GUARANTEE?

One of the major benefits of shipping packages with the nation’s largest parcel carriers, (either domestically or internationally), is that both FedEx and UPS guarantee delivery for almost all of their delivery services.  If a shipment is delivered late and is not a result of causes beyond the carriers’ control, the shipper is typically entitled to a full refund of the shipping charges.  The guarantee applies as specified in each of the carrier’s service guides which can be modified by the carriers at their discretion.  There are of course exceptions to the service guarantees published by both carriers and every shipper should make it their business to fully understand when the guarantee is applicable and when it is not.

Of course, if a shipper does not use an independent third party to perform a forensic audit of their parcel carrier invoices and file claims for refunds for these late deliveries, (as well as other invoicing errors), then the service guarantee really is of no value to the shipper.  Sure shippers can perform an audit on their own invoices seeking to find out what packages were delivered late and then apply directly to the carrier for a refund  however the time the shipper would spend on that process would far outweigh any cost benefit of performing the audit service internally.  Third party auditors typically get paid a percentage of the actual credits a shipper receives and only when those credits are actually received as a result of the auditors work.  The real value therefore to the shipper is that there is no need for them to find money in their operating budget to sign up for the third party audit service.  So the decision to hire a third party auditor falls under the category of what we like to call a “no-brainer.”

While the Service Guarantees were initially implemented as part of a great marketing strategy for both FedEx and UPS, both carriers reserve the right to withdraw the guarantee, not only for specific services they provide, but they can implement a full waiver of the guarantee as part of their negotiation strategy when their shipper customers are seeking revised contract pricing.  In the carrier’s defense, there is obviously a cost to research and provide the refunds to their shipper customers, so you can see why they may be inclined to implement these waivers.

On the other hand, the shipper must have a clear understanding of exactly what they are giving up if and when they agree to the full waiver.  In some cases, the parcel carrier may offer additional discounts and incentives to the shipper in exchange for the waiver.  In those cases, the shipper must have the ability to analyze whether the additional incentives the carriers are offering will provide more bottom line savings than they obtained from the refunds they were actually receiving as part of the audit process.

Obviously, if the savings are greater with the additional incentives offered by the carrier, by all means they should agree to those additional savings and sign off on the waiver.  On the other hand, if the shipper cannot assess the true value of the additional incentives in relationship to the refunds they had been receiving previously as part of the audit process, they may want to rethink giving up the ability to file claims for late delivery refunds until they can prove it is in fact a better deal than they currently have.

Some shippers might agree to contract terms that allow them to file claims for late deliveries when the carriers overall on-time delivery service level falls below a certain level, say 98%.  But what if the shipper negotiated that provision and found out that the carrier’s overall service level was in fact better than 98%, but that for certain services it was not.  And what if those services happened to be the most expensive services the carriers offer.  Think that can’t happen, think again.

And what if you are in negotiations with your parcel carrier and they provide you with a snapshot of the actual discounts and incentives they have agreed to publish for your account.  Take our advice and insist that the carrier not only provide you with the snapshot analysis of the discounts and incentives they have agreed to publish but also make sure they present you with the pricing agreement or contract they will be asking you to sign off on.  Make sure you understand all of the pricing agreements terms and conditions before you sign on the dotted line.  The reason, you may find out that after you agree to the new discounts and incentives that your contract agreement now has a full waiver against filing claims for late delivery refunds that your sales representative just might have forgotten to mention to you.  Think this can’t happen…..Think Again!  As always, our advice to shippers is “Caveat Emptor, Let the Buyer Beware!”

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