Transportation Best Practices: Dedicated trucking helps shippers sleep tight
April 01, 2012
Issue #1: Drivers
The driver shortage in truckload is bad and just getting worse. A combination of demographics, increased scrutiny (including mandatory drug and alcohol testing), and the industry’s inability to market itself to minorities and women has meant that jobs that can pay as much as $60,000 are going unfilled—even in a time of 8.5 percent unemployment.
But let’s not forget that driving a truck, especially on the long hauls, is a tough job. A normal truckload (TL) driver with a 1,200-mile length of haul can be away from home as much as three weeks at a time. That means a lot of missed birthdays and little league games.
Dedicated truck driving, on the other hand, is totally different. Because the average length of haul is much shorter, drivers can be home nearly every night or every other night. The “loops” tend to be predictable, breeding familiarity with dock personnel and customers. Truck drivers can be the regular, familiar “face of the company” instead of some intruder arriving at a strange dock at 2:00 a.m.
Plus, because drivers are paid by the mile, dedicated offers a guaranteed base of pay that is often higher than that of their long-haul brethren. “It’s also a little safer because they know the roads,” Schmidt adds. “They know where the good truckstops are, and it all rolls up into a better situation for everybody—from the driver to the shipper to the receiver.”
Truckers are doing everything they can to retain drivers, and dedicated operations certainly help.
“From a carrier perspective it’s easier to hire drivers when you don’t have to keep them on the road for lengthy periods,” says Somsen. “For the shipper, they don’t have to worry about managing his own fleet and they can spend more time making the best product they can. In fact, a dedicated fleet allows the benefits of a private fleet with none of the headaches.”
Issue #2: Regulation
Trucking is clearly in Washington’s regulatory sights. The new Compliance, Safety, Accountability (CSA) standards threaten to sideline as many as 150,000 of trucking’s 3-million long-haul operators when fully implemented.
On top of CSA, HOS regulations are being tweaked so that drivers may be forced into more mandatory rest periods. Then there are tighter background checks, mandatory drug and alcohol screening, and other increased scrutiny of drivers in the wake of the Patriot Act and other responses to 9/11.
One of the biggest cost pressures is the new government-mandated, fuel-efficient truck engines along with the high cost of replacing a private fleet, common carrier executives say.
“It’s nice to have that billboard on the side of the truck, but you don’t want to spend capital expenditures and manage HOS, insurance, and CSA. Customers tell us that they don’t want to worry about their own fleet,” says Somsen. “When that happens, asset-based companies are putting them into dedicated operations.”
Somsen adds that proposed HOS changes are going to have a “drastic effect” on shippers—unless, of course, capacity is locked in through long-term dedicated contracts. And that’s only going to get worse as the dry van truckload market continues to tighten, she says.
Dan Van Alstine, senior vice president and general manager of Schneider National’s dedicated unit, which did nearly $700 million in business last year, says his company was focusing on providing value-added services such as reefer, store-to-store direct deliveries, and high-value goods. But Van Alstine says that there are some “interesting dynamics” that are creating growth opportunities for Schneider’s dedicated fleet of 4,000 trucks (out of Schneider’s overall fleet of 13,500 units). He adds that niche services, such as hauling aggregate and gravel for highway construction, are proving profitable.
Issue #3: Service, service, service
Dedicated carriage can take nearly every imaginable form. There can be team operations that emphasize transit time speed. Cartage can provide ultra-high levels of service with ancillary services such as store set-up and takeaway of old merchandise.
There can also be regional “loops” that carry the freight of two or more shippers who may have operations in the same area that can be linked in pickups and deliveries. That provides both shippers with very high levels of service, while reducing carriers’ empty miles.
“There’s the safety factor, improved fuel mileage, and the service the customer gets. If they don’t have product for shelf or capacity, that’s a lot of additional expense. You can virtually eliminate those costs with dedicated.”
Certain industries—automotive and retail are two—lend themselves more to dedicated business. Con-way’s Schmidt says the “biggest opportunity” is blending routes of two or more customers to create a continuous “triangulation” of business.
“The biggest opportunity is to bring dedicated solutions to multiple customers,” Schmidt says. “Sometimes if a shipper can change a pick-up time by two hours, that means I can synch up this lane and return the same driver tomorrow. You work with them on dedicated solutions that drive cost down for everybody.”
And if potential savings aren’t enough to swing a customer over to dedicated, sometimes the service can be. “It’s not just savings, but consistency of service. Capacity is a growing issue, especially in the last six-to-nine months,” says Schmidt. “A lot of [defunct carriers] have fallen off the tree over that time and capacity is a growing issue.”
Shippers are increasingly locating their distribution centers to take advantage of “continuous loops” that dedicated regional service provides. “That way you can serve three or four stores in a big loop, or you can feed the DCs by rail and distribute product as needed by truck. There are all kinds of different ways to skin this cat,” Schmidt adds.
Ryder’s Dedicated Contract Carriage, which did about $600 million in business last year, has 154 different customers with “sophisticated service requirements,” according to Cindy Haas, a Ryder spokeswoman. Ryder markets the services as a “turn-key” operation that allows shippers to control their product and service deliveries without the cost of investing in a private fleet.
“Dedicated is ideal for any business with specialized equipment requirements and multiple or complex transportation and distribution challenges,” says Haas. “Whether shippers need to deliver perishable products or high-value freight that requires high security, dedicated helps lower transportation costs and increase efficiency.”
Future is bright
By all accounts, top trucking officials agree that dedicated trucking will continue to outpace overall growth in the industry, at least in the near term.
Chuck Hammel, president of Pitt Ohio, a major Northeastern regional LTL carrier, says that what’s driving dedicated trucking is the fear of not having capacity coupled with uncertainty of rates. “It’s more of a proactive move to avoid being subjected to market conditions,” says Hammel. “We’ve all read the same headlines regarding the driver shortage and capacity limits, and this is one way of insulating yourself from the inevitable.”
Hammel says shippers will certainly benefit from capacity guarantees and rate stability, but adds there is a downside. If the economy tanks, shippers will be stuck with a contract they need to honor, and they will not be able to take advantage of lower spot market pricing.
“The benefits and downside to the carriers are much the same,” Hammel says. “We also get capacity certainty by knowing that a particular group of trucks with be getting steady work 12 months a year; and for that we give up the opportunity to take advantage of market conditions during periods of rising rates. There are trade offs on both sides of the dedicated trucking model.”
Van Alstine of Schneider says that his company regularly evaluates its dedicated business to make sure it’s contributing to the bottom line. “We’re inspecting those operations that aren’t meeting financial needs and have tough conversations with those customers,” he says. “Most often we’ve been able to retain a win-win relationship.”
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