Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Used Data to Negotiate Freight Rates Down 22 Percent
Transcript
- Lucas: If you've been watching freight costs over the past eighteen months, you know the story. Spot rates have jumped about 30 percent year-over-year, capacity is tight, and carriers are in the driver's seat. Most procurement teams just take the rate increases and move on. Luna: Right, because what are you going to do? You need the trucks. Lucas: Exactly. But one procurement leader I spoke with — let's call her Sarah — decided to fight back. She's the director of strategic sourcing at a mid-market manufacturer, about 500 million in annual revenue, shipping out of three plants in the Midwest. Their freight spend was around 8 million a year, and it was climbing fast. Luna: So what did she do that was different? Lucas: She started with data. Not just what they were paying, but a lane-level total cost model that included accessorial charges, fuel surcharges, detention fees, the whole picture. She then benchmarked their rates against public indices — the DAT rate database, the Cass Linehaul Index — for each specific lane. Luna: So she wasn't just asking for a lower price. She was building evidence that their current rates were above market. Lucas: Exactly. And the data confirmed it. On their top 10 lanes, which covered about 60 percent of their spend, they were paying 12 to 18 percent above the index average. Some of that was because they had long-standing relationships with two primary carriers and hadn't renegotiated in over a year. But a lot of it was simply inertia. Luna: So once she had the data, how did she use it in the negotiation? Lucas: She went to each of her incumbent carriers first, showed them the lane-level benchmarks, and asked them to match the index or come close. Both carriers pushed back, saying the indices don't reflect their specific cost structure, that capacity is tight, et cetera. So she gave them a choice: either match within a certain range, or she'd open the lanes up to a competitive bid. Luna: And they still said no? Lucas: One of them matched on a couple lanes but not all. The other wouldn't budge. So she moved to the next step: a sealed-bid reverse auction. She invited six carriers total — the two incumbents plus four new ones that had capacity in those regions. Gave them all the same lane-level data package with volumes, pickup windows, delivery requirements, everything transparent. Luna: I love that she included the incumbents. Keeps them honest. Lucas: Right. And sealed bid is important here. If she'd done an open auction where everyone sees the lowest bid, carriers might lowball to win and then try to renegotiate later. Sealed bid forces each carrier to submit their best and final based on the data alone. They don't know what the others are doing. Luna: So what were the results? Lucas: On the 10 lanes, the weighted average reduction was 22 percent from their current rates. That's 1.7 million in annual savings. But here's the interesting part: the incumbents didn't win all the lanes. One of the new carriers actually won three lanes, because they had backhaul capacity in those regions and could offer a much lower rate. Luna: So Sarah ended up diversifying her carrier base, which also reduces risk. Lucas: Exactly. And the incumbents still kept seven lanes, just at lower rates. Everyone won in a sense, except maybe the incumbents' margins. But the key takeaway is that Sarah didn't just negotiate on price. She negotiated from a position of information asymmetry — she knew more about the market than the carriers expected her to know. Luna: That data piece is what most procurement teams skip. They just ask for a discount without knowing what the market actually is. Lucas: Totally. And it's not that hard to get. DAT has a public rate database. Cass has indices. You can also use a TMS to pull your own historical data. The investment is maybe a few days of analyst time to clean and match the data. The ROI is huge. Luna: I want to ask about the psychology of the sealed bid. Did the carriers know who else was invited? Lucas: No. That's deliberate. If they know their competitors, they might try to collude or signal. Sealed bid with blind participants keeps the focus on the lane economics, not the competitive dynamics. Sarah also set a reserve price on each lane — the maximum she was willing to pay, based on the index plus a small premium. If no bid came in below that, she'd reject all bids and negotiate bilaterally. Luna: So she had a walk-away point. That's smart. Lucas: It prevents the auction from dragging on or from accepting a bid that's still too high just because it's the lowest of the bunch. And she communicated that to carriers upfront: 'I have a budget floor based on market data. If you can't meet it, don't bid.' That sets a clear expectation. Luna: Did any carriers drop out? Lucas: One of the new carriers didn't submit a bid at all on two lanes because they couldn't hit the reserve. And that's fine. Better to know upfront than to waste time negotiating later. The whole process from data prep to final contract took about six weeks. Compare that to the typical annual bid cycle that takes three months. Luna: So it's faster too. What about the carriers that lost lanes? Did they come back and try to negotiate? Lucas: One did. The incumbent that lost three lanes called Sarah and asked if she'd reconsider if they could match the new carrier's rate. But Sarah had already signed contracts. She told them they'd have a chance in the next cycle, but that moving forward, she expected them to be more proactive about pricing. Luna: That sends a message. It changes the relationship dynamic. Lucas: It does. And that's actually a bigger win than the 22 percent. Because now those carriers know that Sarah's team is data-savvy and willing to run a competitive process. They'll be more likely to offer their best rates upfront next time. The procurement team gains leverage that lasts beyond a single negotiation. Luna: So the long-term benefit is almost as valuable as the immediate savings. Lucas: Exactly. And this approach isn't limited to freight. You could apply the same logic to any category where there are published benchmarks and multiple capable suppliers: raw materials, packaging, IT services. The playbook is: gather data, build a total cost model, set a reserve price, and run a sealed-bid process with incumbents and new entrants. Luna: It's essentially a market-making exercise. You're creating a mini-market for your own spend. Lucas: That's a great way to frame it. And the more you do it, the better your data gets. Each cycle refines your benchmarks, your lane-level models, your understanding of supplier cost structures. Over time, you build a proprietary dataset that gives you even more leverage. Luna: I can see why Sarah's CFO was happy. 1.7 million is real money. Lucas: And that's just the freight category. Imagine applying this to multiple categories. The cumulative savings can be massive. But it does require an upfront investment in analytical capability. Not every procurement team has that. Luna: But you can start small. Pick one category, one set of lanes, run the process. Prove the concept, then scale. Lucas: Exactly what Sarah did. She started with the top 10 lanes, which was a manageable scope. Once she had the results, she had the credibility to expand to other categories. Now her team is looking at inbound raw material freight, which is a whole other beast, but the same principles apply. Luna: You know, we talk about all these tactics on the show, and I often think about the fact that we keep this ad-free because we want the information to be as clean and useful as possible. If you're listening and these conversations have moved your work forward in some small way, there's a link to support the show at buy me a coffee dot com slash fexingo. It's just a way to keep this resource available to everyone. Lucas: Yeah, we don't do ads, no sponsors, no interruptions. That's a deliberate choice. If you find value in it, that link is there. No pressure, but it helps. Luna: Alright, back to the playbook. One thing Sarah mentioned that I thought was interesting was the importance of timing. She ran the auction in a month when capacity typically softens — March, after the holiday peak and before the spring surge. That gave her more leverage. Lucas: That's a great point. Seasonality matters in freight. If you run a bid in October, you're going to get much higher rates because of holiday demand. Knowing the seasonal patterns of your category is part of the data advantage. Luna: So she combined market data, timing, and a smart process. That's the recipe. Lucas: Right. And she also communicated to her internal stakeholders — the plant managers, the logistics team — what she was doing and why. That way, when she switched carriers on three lanes, there wasn't pushback. They understood the savings and the new carrier had been vetted. Luna: Change management is often the hardest part. Suppliers don't like being disrupted, and internal teams don't like changing processes. Lucas: Exactly. So Sarah spent a lot of time upfront explaining the methodology and getting buy-in. She even shared the benchmark data with the plant managers so they could see that the current rates were above market. That turned them into allies. Luna: So it's not just a procurement project. It's a cross-functional initiative. Lucas: Exactly. And that's why it succeeded. The data was transparent, the process was fair, and the results spoke for themselves. Now, a few months later, the new carriers are performing well, on-time delivery is actually slightly better than before, and the savings are hitting the bottom line. Luna: So if someone listening wants to replicate this, what's the first step? Before even talking to carriers? Lucas: Get your own data in order. Pull at least 12 months of freight invoices, clean them up, and build a lane-level view. Then get access to a public index — DAT is the most common for truckload. Compare your rates lane by lane. That'll tell you where the biggest gaps are. Then pick the top five or ten lanes and design a sealed-bid process. Luna: And be prepared for some pushback from incumbents. They'll say the indices don't apply, or that your volumes are too small, or that your requirements are unique. Lucas: They will. But if you have the data, you can have a constructive conversation. You can say, 'I understand your cost structure is different, but the index is a reference point. Show me your data that justifies a 15 percent premium.' And if they can't, then you know you have room to negotiate. Luna: That's a much stronger position than just saying 'we need a lower rate.' Lucas: Night and day. And in the end, the best outcome is that your incumbents step up and become more competitive, because that saves you the switching cost. Sarah's incumbents did improve on seven lanes. That's a win-win. Luna: So the process itself, even if you don't switch suppliers, creates value. Lucas: Absolutely. The mere act of running a competitive process with good data puts pressure on the market. Carriers know that if they don't bid well, they lose the business. That pressure alone can yield better pricing. Luna: It's a tool for continuous improvement, not just a one-time event. Lucas: Exactly. And that's the mindset shift that Sarah's team made. They now run these mini-auctions on a rolling basis, lane by lane, as contracts come up for renewal. It's become part of their sourcing rhythm. Luna: That's smart. It keeps the market honest year-round. Lucas: And it builds a culture of data-driven decision-making in procurement. Which, if you ask me, is the real competitive advantage. The savings are just the proof. Luna: Great episode. Next time I'm in a negotiation, I'm going to remember Sarah's playbook. Lucas: Me too. That's all for today. See you next time.