DC Velocity - December 2010

transportationreport DEDICATED/CONTRACT CARRIAGE

Armstrong & Associates Inc. give some indication of how hard the segment was hit. In 2009, gross revenues for the nine asset-based dedicated service providers Armstrong tracks declined 16 percent year over year. Net revenues—or revenues after paying for purchased transportation—fell by 15. 9 percent in the same period.

The firm expects dedicated gross revenues to grow in 2010 by 6. 6 percent over 2009 levels. By contrast, it forecasts 13. 4 percent year-on-year gross revenue growth for the 3PL sector as a whole.

Armstrong believes dedicated will continue to lag behind other types of outsourced services when it comes to growth. The dedicated segment is a “mature market” with “very limited” growth potential, says Evan Armstrong, the firm’s president. “The large private fleets that were going to be outsourced have already been outsourced,” he adds.

Difference of opinion

Those in the trenches take issue with the idea that the dedicated category has little life left. With trucking capacity continuing to shrink, a looming shortage of qualified drivers, and one-way rates on the rise, shippers and their customers will increasingly turn to dedicated carriage to secure predictable service at fixed rates, they say.

Some shippers are already moving in that direction.

RockTenn Co., a Norcross, Ga.-based producer of paperboard, containerboard, and corrugated packaging, is looking to expand its use of dedicated from its current 15 percent, according to Josh Webb, the company’s supply chain manager. “We are adding dedicated fleets to avoid increasing freight rates and tightening capacity,” says Webb. “We feel this is a long-term sustainable transportation solution.” Simone of Greatwide says his largest customers are growing more and more concerned over the outlook for capacity, and are seeking certainty in what is becoming a clouded market. That anxiety has in part fueled a 15-percent year-over-year increase in Greatwide’s dedicated revenue, he says. Simone estimates that 80 percent of Greatwide’s customer base came from private fleets, while the rest had been relying on irregular-route truckload capacity.

Transport logistics giant J.B. Hunt Transport Services Inc. has also seen a pickup in its dedicated business. During the third quarter, revenue and operating income from Hunt’s dedicated services rose 18 percent and 17 percent, respectively, from year-earlier levels. (Dedicated accounted for slightly less than one-fourth of Hunt’s total revenue in the quarter.)

As Hunt sees it, that’s a positive sign not just for the dedicated segment, but for the economy as a whole. “Load volume in our [dedicated services] segment, which we believe is a strong indicator of current customer demand and the gener-

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