It's a buyers' market for trucking right now and that can be the worst possible thing for a logistics buyer. Why? Because what goes around comes around.

During a buyers' logistics market, the tremendous temptation to focus solely on rates and re-bid truckload and less-than-truckload (LTL) contracts out to achieve short-term price savings that can come back to bite the logistics buyer when demand for trucking rebounds and capacity tightens. But at the same time, a logistics buyer that's not bringing reduced trucking rates to their CFO right now probably won't have a job for very long.

In short, the advice of experienced buyers and carriers is simple: don't go overboard during a buyers' market and look for carriers that take the same approach when the tables turn in their favor. Using a buyers' market to build stronger relationships with carriers can pay off more in the long-run than negotiating a dramatically reduced rate with a carrier desperate for business.

"After decades of relative excess capacity, brought on by tremendous productivity gains by the carriers, the swings in supply and demand that we have witnessed over the last several years have definitely impacted and often strained some carrier/shipper relationships," says logistics industry analyst Lee Clair at Norbridge Consulting in Deerfield, Ill. "The degree of the strain has been a function of the character and foresight of the individual people responsible for maintaining the relationship and how they approach rates and terms of the relationship."

Clair says his advice to logistics buyers is a simple reminder that not all trucking firms deserve equal treatment and buyers should strive to work more closely with carriers that did not abuse the power when they had it. "Just like when the balance shifts not all shippers will have earned the right to be treated the same by the carrier base," he says, adding that shippers should plan their approach with individual carriers based on how vital the carrier is to the shipper's operations rather than using the same approach for all carriers.

One way to build that kind of relationship with more valued carriers is to focus on non-price productivity improvements during a buyer's market instead of drilling carriers on rate. Clair points out that a buyers' market should be viewed as a "big opportunity to improve operations and help the carrier lower their costs and then share in the savings. In doing so the shipper can gain long-term benefits, while not bankrupting their best service providers."

"I think that clearly, we are in a loose capacity environment in the short term," says Mark Whittaker, vice president of transportation at PepsiCo Transportation in Plano, Texas. "But changing LTL providers can be a significant business change in some cases and as this industry continues to consolidate, long-term pricing will be in favor of the carrier."

So working under the assumption that—like the house in Las Vegas—the carrier wins out in the long-term, Whittaker says Pepsi keeps "agreements with our transportation providers through our contract periods. We do not go back on our agreements to take advantage of a short-term pricing upside. We are more concerned about developing and keeping a strong customer-oriented transportation core carrier base. We typically do not remove incumbents based on price as much as we do for service outages."

And that strategy is typically repaid by the carriers, Whittaker says. For example, in 2004, when trucking capacity was extremely tight, of the more than 100 carriers in Pepsi's core carrier base, only two came to Whittaker for interim pricing increases during the contract period. "We worked through it with those two, but we have not grown our business with those carriers since that time," he says. "Relationships and capacity commitments are very important to us, and we do take some pride in the fact that we keep our agreements."

Whittaker says the most common mistake shippers can make during a buyers' market is taking for granted that the buyer has the leverage. "Don't get me wrong, we do have a fiduciary responsibility to our businesses to get the best service at a competitive price, but it just needs to be a sustainable model, not a short-term pricing focus," he says. "If the buyer has their end customer in mind, then developing relationships that ensure capacity in any environment should be more important."

Ed Conaway, executive vice president of sales at LTL carrier Con-way Freight, echoes those sentiments and says one of the strategic errors that shippers make in a soft LTL market is driving prices below the level at which the service providers can reasonably deliver reliable transit times.

"The net result is that the shipper may experience short-term cost gains due to lower pricing but they are also likely to experience service degradation," Conaway says. "Many times we see shippers that do this almost immediately change lanes back to the original carriers." This, Conaway says, can be expensive in terms of routing changes and the customer experience.

Perhaps no one knows more about matching customer requirements with the carrier's capacity than a third-party logistics provider (3PL). As manager of carrier relations at Koch Logistics, a St. Paul, Minn.-based third-party logistics provider (3PL), Meg Duncan is constantly striving to balance trucking cost and service levels in a way that meets the customer's needs. "[3PLs] are not as cost-driven as other companies," Duncan says. "We consider how much the customer is focused on price when we line up the carriers for their business."

That said, in a buyers' market, Duncan strives to gain some price advantage but also explores accessorials and nonprice factors such as multimodal offerings, depending on the customer requirements.

Duncan says logistics buyers should have a specific goal for a bid and not just bid it because the calendar says it's time to. "Maybe price is part of that but there should be other reasons for running a trucking bid."

A 3PL's position as a "middleman" between shippers and carriers can be viewed in two ways by carriers, Duncan points out. First, a carrier may view the 3PL as a partner that can bring more business. Or secondly, the carrier can view the 3PL as a vehicle only aimed at reducing rates on behalf of a customer who may never know what carrier is being used. So, just like a direct buyer, if a 3PL is too focused on price when dealing with carriers, they are not likely to get the best service from a carrier, especially when capacity tightens up down the road.

Will O'Shea is chief marketing officer at 3PD, an Atlanta-based 3PL specializing in last-mile logistics, and says the 3PL's role as middleman and focus on supply chain optimization can help minimize the buyer-carrier price conflict if approached in the right way.

"Because our clients are asking us to manage more than just the trucking, many of our customers are looking more at total cost instead of just pricing and rate," O'Shea says. "That said, right now it's difficult for a logistics buyer to go to their boss and say they found a provider and overall the price is 5% higher but it's a good service level. That's not the environment we're in. We have to be able to clearly quantify total cost savings. It's tough to argue that service lowers total cost without some numbers or proof."

O'Shea says the success of a shipper-carrier relationship often comes down to corporate compatibility and "just looking at a short-term rate will always come back to haunt you" because "transportation margins are pretty thin to begin with so most carriers are competitive already. If there's not a shared vision and objectives, that's where the relationship will fail."

Dennie Carey, senior vice president at LTL carrier FedEx Freight in Memphis, Tenn., points out that "Carriers and shippers both have to focus on the long-term as much as possible and understand each other's business better than they do today."

"There are a lot of components to transportation costs beyond the transaction price," Carey says. "That's especially true of industries that have chargebacks to vendors for late deliveries and that can really add up quickly to undo any rate reductions."

Dan Van Alstine, senior vice president and general manager of truckload services at Schneider National in Green Bay, Wis. says that "prudent shippers recognize they have an obligation to their own organization to leverage the current market. I think those not focused on the long-term do that by focusing solely on lowering price. I think the smarter shippers are asking how they can leverage their volume to get more from their carriers and maintain those all-important carrier relationships."

As a prime example, Van Alstine points to the driver shortage that plagued truckload capacity, especially during times of high demand. While shifting to a carrier with lower rates during the current market may provide short-term savings, when demand increases, will that carrier be able to recruit and hire the necessary drivers?

Tony Albanese, senior vice president of sales and operations at LTL carrier Saia in Johns Creek, Ga., says it takes as long as seven weeks to find, recruit and hire drivers so planning for the uptick in trucking demand is difficult. But from Saia's perspective, a shipper-carrier relationship overly focused on price will be a short-term relationship.

"There's always a natural gravitation towards price, but if one or the other—carrier or shipper—takes too much advantage during a certain cycle in the market it will usually result in a short-term relationship," Albanese says. "If the carrier puts the shipper in that kind of position the shipper won't forget and eventually they'll look for another provider."

Albanese agrees a focus more on business goals and less on rates benefits all involved. For example, during a buyers' market, a carrier may only be able to go so low on rate before the business becomes unprofitable. However, if given detailed shipment data, the carrier may be able to find areas to reduce costs and transit times.

Albanese points out that, conversely, "when we allow customers more insight to our costs and focus on how we can reduce each others' costs, we see customers go the extra mile to help us and we're willing to do the same when we can. Those are the relationships that will last throughout the various market cycles."

There are some telltale signs to determine if the shipper-carrier relationship is a match made in heaven or destined to be the marriage from hell. Roy Slagle, senior vice president of marketing for ABF Freight Systems in Fort Smith, Ark., says LTL buyers specifically should be wary of carriers being too aggressive in a down market.

"If a carrier sales rep comes in unsolicited without the buyer asking for a meeting and offers a new price to get them to move from their incumbent, that's a sign of a carrier that is trying to be too opportunistic during a down cycle and is trying to stave off losses," Slagle says. "If I were a buyer, I'd ask 'this is your price during the down cycle, but what happens when capacity tightens again?'"

Slagle adds that during periods of strong freight demand, CEOs of reputable trucking companies regularly say they plan to "fire" their least profitable customers. "We all focus on the most profitable business, but from the shipper's side, there's a lot of upheaval and hidden costs and a learning curve for most carriers in working with new shippers."

On the flip side, while a buyers' market may drive logistics buyers to take a more aggressive approach to contracts—and contract negotiations themselves—carriers say there are some telltale signs that a negotiation is not going to go well for either party. Van Alstine says that when it comes to negotiations, education and awareness are the keys to a productive meeting. Buyers bringing detailed business objectives and shipping data can help the carriers develop a cost-effective option.

"Typically our meetings with carriers are centered on managing the business," Whittaker says. "Service and capacity commitments as well as volume visibility are usually key discussion topics. We also look at how to drive costs out of the system. We hold our transportation providers as well as ourselves accountable for continuous improvement of our supply chain networks."