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.
Speaking that same month at the Council of Supply
Chain Management Professionals’ (CSCMP) Annual
Global Conference in Philadelphia, Larkin said 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
also 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.
Menaker goes one better, noting 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 go away” when a shipper converts from a private fleet to dedicated carriage, he said.
All in all, 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 and using third parties like freight brokers to handle unexpected surges in demand, experts say.
A SHIFT IN THE WINDS
The upshot is more shippers will likely be giving dedicated
a second look, experts say. David S. Congdon, president and
CEO of less-than-truckload carrier Old Dominion Freight
Line Inc., said he expects to see an expansion in the use of
dedicated service, as well as private fleets, as shippers look
to build stability into their networks and reduce the risk of
paying for so-called empty miles. “If you can reduce empty
miles, you can beat any pricing game,” Congdon told a
gathering at CSCMP.
Some shippers have already seen the light. “We will rely
more on dedicated fleets to manage variability, and control
peaks and valleys in our traffic flow,” Michael F. Heckart,
manager, North American logistics and strategic sourcing
at agribusiness giant Deere & Co., said at CSCMP.
Michael Cole, senior director of transportation for food
and confectionary titan Kraft Foods, said at the conference
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 recent spike in interest in dedicated stands in stark
contrast to the 25-plus year period after trucking deregulation, when the service grew so slowly that no one took
notice. According to Menaker, shippers were intrigued by
the concept but were skeptical about service quality and
promised cost savings. Market pricing also sowed confusion, as carriers that charged premiums for providing a
“specialized” service were undercut by renegade operators
that priced dedicated at a discount. In addition, traffic managers who ran private fleets were loath to outsource their
operations for fear of losing their jobs, Menaker adds.
All of that changed starting in the middle of the last
decade, as oil prices became increasingly volatile, equipment
costs rose, the industry experienced an acute driver shortage,
and a freight recession pressured traffic managers to improve
the efficiency of their operations and drive out costs.
PROCEED WITH CAUTION
As the dedicated model gains traction, experts caution shippers and carriers not to enter into these arrangements with
blinders on. A dedicated relationship generally spans three
to five years, and is akin to a marriage with both sides contractually joined at the hip.
And dedicated fleet contracts can be complicated compared
with conventional truckload service agreements. For example,
because dedicated providers are paid based on an agreed-upon number of round-trip miles driven, the contract must
ensure an operator is properly compensated on low-mileage
as well as high-mileage days. A properly written dedicated
contract “should [be structured so that] the carrier gets paid
even if a load doesn’t move,” says Lana R. Batts, a long-time
trucking executive and a partner in Transport Capital
Partners, a transport mergers and acquisitions advisory firm.
In addition, contracts must be painstakingly detailed in
terms of fleet size specifications, and spell out provisions
and charges for driver stop-offs, detention, and layovers.
Fuel surcharge, loading, and unloading costs must also be
thoroughly addressed.
Menaker said the process has to be completely transparent, with shippers and carriers knowing from the start what
each expects of the other.
“Both parties need to establish quantifiable performance
measurements. There must be a sense of equal and shared
responsibility as if each party is an extension of the other.
And there has to be availability and sharing of quality information, especially if there are organizational changes that
could affect the service,” he said. ;
