Follow us on Twitter!
Blog Header Logo
DG&A's Transportation Consulting Blog
Posted by on in General
  • Font size: Larger Smaller
  • Hits: 21447
  • 1 Comment
  • Print

Dedicated Trucking is One Answer to Potential Capacity Problems

On several occasions I have commented in this blog about a looming truck capacity shortage.  A soft North American economy coupled with political uncertainty and concerns about Europe and China, are discouraging carriers from making investments in their fleets.  Truckers are seeking to maximize the utilization of their existing assets and improve yields, particularly with rising equipment costs, increasingly burdensome government regulations, and a shrinking pool of qualified drivers. However, the on demand truckload model creates uncertainty as truckers wait for shippers to book a load and/or to balance a lane.   

Shippers are becoming increasingly concerned about finding the capacity they need to move their freight.  They are also concerned that tight capacity will lead to rising freight costs.   Capacity shortages in various North American markets this year have caused shippers to seek out options to current transportation processes.

A “Mutually Beneficial Antidote” to Securing Capacity and Rate Stability

One solution to these problems is dedicated contract carriage—the practice whereby, as the name implies, a trucker dedicates equipment and drivers to serving an individual shipper, allowing that customer to lock in rates and capacity with that carrier for a multi-year period.  John G. Larkin, lead transport analyst for investment firm Stifel, Nicolaus & Co., calls dedicated trucking the "mutually beneficial antidote" for carriers that want to get paid for capacity and shippers that want to know it's available.

"Both shippers and carriers are increasingly realizing that dedicated trucking may be just the solution that meets both their needs," Larkin wrote in early October.  He stated that shippers who own and operate private fleets could "see 10-percent savings right off the bat" from switching to dedicated service. That's because specialized operators can usually manage fuel, insurance, maintenance, equipment utilization, and driver schedules more efficiently than a shipper that operates its own trucks can, Larkin notes.  What's more, companies that outsource their fleet needs can free up their balance sheet capacity and reinvest more of their cash into their core business, which is generally not transportation, Larkin says.

It should also be noted that many private fleets lease their equipment from companies like Ryder Truck Leasing and Penske Truck Leasing, which charge premiums for using their vehicles. Those premiums may go away when a shipper converts from a private fleet to dedicated carriage.  A company that shifts from private fleet ownership to a dedicated operation can shave its costs by up to 15 percent, while securing dependable capacity for constant, or "baseload," volumes while using third parties like asset-based on-demand trucking services or freight brokers to handle unexpected surges in demand.

Some Shippers Have Seen “The Light”

Michael Cole, senior director of transportation for food and confectionary titan Kraft Foods, recently stated that Kraft this year will have 400 rigs at its disposal for dedicated carriage, up from 220 in 2010. About 30 percent of Kraft's total 2011 rig count will be privately held or dedicated, up from 22 percent in 2010, according to Cole.  Since converting part of its fleet to dedicated, Kraft has seen an eight-percentage-point improvement in its on-time delivery metrics from its distribution centers to retailer warehouses, Cole adds.

The Criteria for a Successful Dedicated Trucking Operation

Dedicated trucking is not for everyone.  For shippers with sporadic or erratic freight flows, with significant seasonality requirements, it may not work as well.   Ideally this option works best for companies that move commodities (e.g. food, consolidated loads of LTL freight to stores or warehouses) that have consistent flows throughout the year, where forecasts can be made with reasonable accuracy, where there is the possibility to create round trips and continuous moves, and that can commit to specific volumes and sign multi-year agreements.  For shippers that meet these criteria, the dedicated option can provide capacity at a reasonable rate.   For carriers, they can purchase and allocate their assets in the knowledge that they have a predictable, profitable revenue stream over a 3 to 5 year time horizon.  Watch for dedicated trucking to become more popular during this period of tight capacity and rising freight rates.

 

 

0

Comments

  • Guest
    Kristen Wilson Thursday, 04 October 2012

    Trucking Services

    Good article, thanks for the information. All trucking services companies have great dedicated workers. Thanks again for the post!

Leave your comment

Guest Friday, 29 March 2024

Most Recent Posts

Search


Tag Cloud

peak season Politics freight forwarders Whole Foods Global Transportation Hub freight costs technology FCPC Surety bond CRM NCC Canadian freight market computer protection cheap oil Canadian truckers TMS Otto Regina e-commerce BlueGrace Logistics computer security APL future of freight industry Wal-Mart RFP Swift Colilers International UP Carriers CSA scores Sales Training Electric Vehicles Cleveland Cavaliers Software Advice 2014 freight volumes Online grocery shopping driverless Leafs Hockey Job satisfaction shipper-carrier roundtable 2013 Economic Forecast routing guide Sales Management BNSF Doug Davis laptop last mile delivery University of Tennessee dynamic pricing Microsoft Habs Social Media in Transportation Management Adrian Gonzalez CITA Shipper Pulse Survey Inbound Transportation Freight contracts Harper Davos speech Outsourcing Sales Associates Truckload Impeachment consumer centric Training cyber security Freight Shuttle System freight RFP Business Strategy network optimization CP Rail Sales Strategy 2015 Economic Forecast FuelQuest 3PL freight rate increases Right Shoring Loblaw US Economy freight payment Social Media Hudsons Bay Company ProMiles Career Advice Accessorial Charges Celadon hiring process 2014 economic forecast Driver Shortage mentoring driver shortages Infrastructure fuel surcharge Covid-19 MPG rail safety Amazon FCA NMFC digital freight matching capacity shortages CSA Geopolitics computer Education Canada U.S. trade buying trucking companies LTL Trucking solutions provider broker bonds David Tuttle Schneider Logistics bulk shipping Warehousing Rail Conway Horizontal Supply Chain Collaboration derailments Canadian economy Consulting Freight Rates LinkedIn Retail transportation EBOR economic outlook Freight Management dark stores small business Finance and Transportation autos Government NAFTA LCV's Emergent Strategy General Motors truck driver Anti-Vax freight payment freight audit freight cost savings freight marketplace 2012 Transportation Business Strategies. Jugaad small parcel Value Proposition USA Truck Canadian Protests KCS President Obama pipelines intermodal Doug Nix Load Boards Ferromex Climate Change New York Times freight agreements recession China Rotman School of Business Deferred Packaging 2014 freight forecast economic forecasts for 2012 Dedicated Contract Carriage Omni Channel Blockchain Freight Capacity US Housing Market Masters in Logistics Comey freight audit Global experience transportation newspaper CSX drones Transcom Fleet Leasing Digital Freight Networks financial management coaching FMS YRCW Transloading Broker shipping Life Lessons freight transportation in 2011 Business skills Training New Hires carrier conference TransForce economy Distribution Rate per Mile $75000 bond Transportation Failure Toronto shipper-carrier contracts Bobby Harris business security Retail supply chain management TMP Worldwide CN IANA Transportation Buying Trends Survey automation Entrepreneur Facebook transportation audit truck capacity MBA trucking company acquisitions Canada Packaging autonomous vehicles Business Development capacity shortage FMCSA Freight business start-up the future of transportation Grocery Map-21 Leadership Transportation service Freight Recession shipping wine Business Transformation Strategy online shopping driver pay employee termination Derek Singleton Freight Matching CN Rail Trump natural disasters Montreal Canadiens US Election Uber Freight Driving for Profit Sales Stephen Harper Trade Vision Crisis management Muhammad Ali home delibery US Manufacturing tanker cars Yield Improvement JB Hunt freight transportation Trucker Protest risk management shipper-carrier collaboration selling trucking companies Success failure entrepreneur Canadian Transportation & Logistics Canada's global strategy asset management NS Transport Capital Partners (TCP) ELD Digitization Search engine optimization customer engagement ShipMax Freight Carriers Association of Canada Load broker Success broker security freight broker Twitter Dedicated Trucking Spanx Dan Goodwill 3PLTL Keystone Pipeline driver Toronto Maple Leafs Coronavirus Crude Oil by Rail trade Reshoring cars 360ideaspace energy efficiency robotics freight bid Shipper Blogging freight transportation conference transportation news Transplace US Auto Sales home delivery Werner Railway Association of Canada Tracy Matura marketing Donald Trump Canada-U.S. trade agreement YRC Justice Scott Monty professional drivers Tariffs Fire Phone USMCA truck drivers dimensional pricing

Blog Archives

March
February
December
October
September
August
June
May
April
March
January