There has never been a more favourable time for shippers to procure freight services. Even as transportation companies desperately try to reduce capacity to bring it in line with demand, shippers will find carriers that have capacity and are ready and willing to negotiate freight rates. However, the good times will not last forever. They may not even last until the end of this year. When the economic dust settles and demand starts to increase, there will be a shortage of capacity and freight rates will increase.

While this is an opportune time to lock up your freight rates for the coming years, every shipper must proceed with caution. The “brave new world” of 2009 is quite different from what we have seen before. The severe downturn is causing almost every company to reassess its’ business strategies.

1. Engage your Key Stakeholders Early in the Process

Before launching any freight procurement initiative, it is essential to look at the big picture. Basing any procurement exercise on last year’s strategies and volumes could be fatal. To avoid a faulty procurement initiative, engage your key stakeholders (e.g. executive management, customers and vendors) early and gain an understanding of their priorities, cost cutting plans and the key markets and customers that they intend to serve. Your supply chain strategy and freight procurement program should be directly in line with your company’s updated business strategies.

2. Update your Freight Procurement Process

Look back at the previous procurement exercise and think about what should be done differently. Since cost reduction is the mandate for everyone in 2009, this may be the time to combine and leverage your inbound and outbound volumes, to compare non-asset based 3PL solutions with those of asset based transportation providers, to look at opportunities to consolidate shipments on certain lanes to build truckloads on specific days, to ship these loads to certain destinations and then deliver in LTL quantities from these central points, to look at continuous moves or sharing space on a trailer with other divisions of your company.

3. Focus on Risk Mitigation

Risk management must be near the top of the list of variables to consider. Many carriers are trying to replace lost business, to rebalance certain lanes, or to move out of certain markets and into others. There are carriers leaving the market on an ongoing basis, others that are hanging on by their fingernails and still others that will merge. You owe it to your company to surround yourself with carriers that are going to make it through the storm. This means that you have to do more detailed due diligence on your carriers than you may have done in the past. This can include asking for their customer list and on-time service reports, performing reference checks, reviewing their asset list (to see the age of their fleet and what they are doing to maintain its’ viability), obtaining a “D & B” report and/or asking for a report on their current financial situation from their bank manager.

While some carriers may “push back” on these requests, they are necessary in 2009. Do you want your company’s future tied to a carrier than does 70 percent of its business with a major U.S. automaker? With some carriers “cheating” on service to reduce costs, do you want to risk losing a key customer due to late deliveries? In 2009, it is all about managing risks. You need market intelligence to mitigate these risks. You need to ask probing, and sometimes unpleasant questions, to obtain the information you need to protect your company.

4. Revise Historical Shipping Data to Reflect Current Realities

For many companies, there is a requirement to revamp volume projections by mode and by lane. Exchange rates and fuel costs are very different from where they were a few months ago. The U.S. economy and many other economies are so much weaker than before. Therefore, it is important to modify your shipping data to reflect the forecasted realities of this difficult year. It is also important to revisit near sourcing versus off shoring strategies to make a determination of which approach is currently more cost effective.

5. Disaggregate Freight Spend Data

If your truckload rates from last year include fuel surcharges, you cannot conduct an effective freight procurement exercise until you disaggregate your freight spend data. Each of your modes must be looked at individually with each component of your spend (e.g. line haul, fuel, accessorial charges) displayed separately and negotiated individually.

6. Negotiate Capacity, Service and Rates

A company’s freight rate negotiating strategy must be brought in line with current realities. As the year unfolds and the economy improves, some carriers will disappear while others will allocate their capacity to shippers with deep pockets and higher yields. To protect your company, it is important to add carrier bench strength. In other words, it is advisable to insert additional backup carriers in your routing guides and to provide these carriers with volume so they have a vested interest in your company. It is also important to create multi-year rate and capacity commitments. At some point there may not be enough capacity to go around. You don’t want to be the shipper in this position.

Also, remember that it is not all about price. While almost everyone in 2009 has a mandate to reduce costs, it is important to maintain a quality service. Your carrier selection process should strike the right balance between rates, capacity and service.

7. After the Procurement Exercise, Focus on Compliance

The effectiveness of your freight negotiation process will depend on what you do after you select your carriers. It is very helpful to put in place effective compliance tracking tools. With good tools and KPI’s, this will help you track service, load refusals, freight costs by mode and other metrics that are essential to the successful management of the business.

“He who hesitates is lost.” Now is the time for shippers to make their move and lock up freight capacity at attractive (but not necessarily the lowest) rates for the next few years. The good (freight rate negotiation) times will not last forever.