As Pat Furey said yesterday, it is a buyer’s market right now. And transportation, which has seen a serious downturn in a very short period of time, currently provides sourcing, negotiation and procurement opportunities. Let’s look at the numbers:

• International Air Freight: Volumes have declined for 4 consecutive months, dropping 11% in Asia, 7% in North America and 6% in Europe.
• Ocean Freight: Rates have dropped more than 50% from highs reached in May and June of this year. And US freight volume is down 8.3% compared to 2007. That’s a shocking reversal of fortunes, which has resulted in major ports experiencing declines in volume all while shipping companies are receiving new vessels. In other words, excess capacity is available at and growing.
• Rail and Intermodal Traffic: The US saw a decline of 8% in September versus last year.
• Truckload: Volume has declined for 3 consecutive months at a 2-4% clip.

Historically, buyers have avoided transportation contract negotiations during the 4th quarter to allow the holiday surges to work their way through the market and capacity comes at a premium - but not this year. The combination of a recession, low expectations for retail this holiday season and direct materials purchases being put on hold while buyers wait for prices to bottom out, there is a great deal of excess capacity.

We are seeing healthy competition in every mode of transportation due to excess market capacity. And as transportation companies look to make up for a disappointing Q4, they’ll likely be ready to negotiate some attractive contracts in order to assure they begin 2009 on a positive note.

From a strategy standpoint, I believe few transportation companies will be likely to lock into fixed prices on fuel as the industry has seen a wide swing in oil prices in over the last six months but some transportation companies may be enticed to offer extremely aggressive freight rates to secure volume. But operating under low fixed prices when future volatility and price increases hit would cripple their operations, forcing some vendors under and leaving you scrambling to find an alternative.

***Data for this post was pulled for a broader mid-quarter SupplyWatch update, which will cover the categories that provide opportunity for buyers in this market. Subscribe here if you’d like the electronic version to be delivered via email.***

Rachel Rutkoski is a Category Manager for Transportation and Logistics in Ariba’s Global Services Organization. Rachel is recognized by the Institute for Supply Management as a Certified Professional in Supply Management (C.P.S.M.) and has several years experience as a supply chain and transportation analyst in Fortune 500 companies.