Executive Observations

During the first quarter, Ariba’s project activities remained at a record high similar to the previous quarter with project activity focused on Less than Truckload, Truckload, Ocean Freight and Small Parcel. Savings levels remained very aggressive with average savings for all modes in the double digits. Carriers have been very eager to participate in sourcing events and have proven to be assertive with pricing in order to secure or increase freight levels.

Shippers have not only been able to achieve savings through sourcing activities but also through behavior changes such as mode optimization. In order to ensure one is shipping in the most cost-effective and time-efficient manner that adequately supports operations, shippers have also been very interested in optimizing their shipment profile. Shippers have been able to realize savings by limiting air shipments for those goods that are not time-sensitive and by examining shipment patterns to consolidate less-than-truckload shipments into truckload shipments.

Another thing that Ariba has observed is that companies are examining areas of spend that have previously been left untouched. Areas that had previously been deemed too difficult to source competitively such as freight bill auditing and payment are being examined to see if the cost of doing this activity in house outweighs the benefits and efficiency of outsourcing this area of spend to a third party provider.

Carriers and shippers alike continue to experience relief from high oil prices, which has brought lower diesel prices. The Energy Information Administration is predicting that highway diesel prices will average approximately $2.30 per gallon through the rest of this year and will average approximately $2.69 per gallon throughout 2010.

A great deal of attention has continuously been brought to taking advantage of market conditions and negotiating lower rates, but shippers should also take a step back and look to develop a contingency plan for the future during this recessionary period. What will happen if your primary carrier goes out of business? How will your freight move if your major trade lane is removed from the market? As the industry continues to worry about carrier consolidation and bankruptcy, shippers need to prequalify carriers now so they can quickly move business if needed. Throughout the next few quarters, shippers should not be dependent on carriers to provide cost savings but they need to look inward and focus on ways to operate more efficiently. By developing a strategy that envelops rate negotiations, a carrier prequalification plan and an efficient operational strategy, shippers will position themselves in an ideal situation regardless of how the economy moves.

U.S. Focus

by Nicoleta Diaconu