For the trucking industry, the Covid-19 pandemic has brought into stark relief something that businesses have recognized for some time and everyday citizens are now starting to truly appreciate: Trucking is the foundation of not just the economy, but of virtually every product consumers rely upon to maintain their daily lives.
The past two months have presented unprecedented challenges. What were carefully planned and optimized distribution networks have been thrown into disarray. Some markets, such as “essential” grocery, consumer staples, health care, and medical goods, are bursting at the seams with freight. Other segments, such as the more traditional less-than-truckload (LTL) and truckload shipments generated by small-business commercial, retail, industrial, and manufacturing operations, have disappeared as these businesses have gone dark and workers sent home under shelter-in-place mandates.
The good news: Truck drivers are being widely lauded for their courage, perseverance, and professionalism, braving difficult and sometimes dangerous conditions to deliver critically needed goods. Seldom in history has the importance of trucking to America’s financial and physical well-being been demonstrated so clearly, particularly since some 71% of all freight tonnage moves in the back of a truck, according to the American Trucking Associations.
And while the majority of these volumes move on commercial, for-hire LTL, and full-truckload carriers, one outcome of the market’s pandemic-fueled disruption has been rising interest in:
- Purpose-designed dedicated operations, where truckload carriers assign a set of assets (trucks and drivers) and operate a “mini” network exclusively on behalf of that specific shipper, and
- Private fleet operations, running within a larger non-trucking organization and providing secure, predictable product velocity and flow for some of the nation’s biggest enterprises.
These fleet options are finding a growing window of opportunity as shippers scramble to lock in reliable capacity, operational consistency, and high-quality service—and to secure protection against dramatic supply/demand swings in the market.
LOCKING IN CAPACITY
Today’s environment—with its widespread uncertainty about the immediate future—is not unlike the market that occurred shortly after the 9/11 terrorist attacks, observes Don Digby Jr., president of Denver, Colorado-based refrigerated carrier Navajo Express. “The biggest demand is for secure capacity,” he notes. Shippers want “to know they’ll have the trucks. That [desire] has never been more relevant or prevalent than it is today.”
John Bozec, senior vice president and general manager, van truckload, at Green Bay, Wisconsin-based truckload carrier Schneider, agrees that predictable service at high levels is “a driving force” behind increased interest in dedicated. “The bar … is only getting higher,” he notes. Bozec cites three determining factors, especially for dedicated solutions addressing complex needs: “The ability to have capacity that is locked in and that [shippers] can rely on, at a price point they know, and [confidence in] the ability to get a great delivery experience. [That’s] why they want more dedicated and not less.”
The current environment notwithstanding, increased interest in dedicated services also continues to be driven by e-commerce–related traffic, observes Eric Downing, senior vice president, dedicated for Omaha, Nebraska-based Werner Enterprises. “Demand for dedicated services has increased, especially as e-commerce [volumes] have expanded and customer expectations for next-day and same-day delivery have increased,” he says. “As shippers move to get their products closer to customers, these types of transportation needs usually fit well within the dedicated model.”
Downing noted that while cost is always part of the equation, shippers looking to dedicated typically are pursuing a larger strategy, often around three primary goals:
1. High levels of service quality, normally 99% percent on time or better
2. Longer-term partnerships where the carrier is working closely with the shipper to drive improvements and efficiencies in the overall supply chain
3. Committed capacity that is consistent yet flexible.
“Customers who have volatility in their supply chain need the ability to quickly flex their fleets up and down, and a good dedicated provider can provide that kind of solution,” explains Downing.
Schneider’s Bozec adds that while “dollars are always important,” the decision to adopt a dedicated strategy often involves other value considerations that don’t show up on an Excel spreadsheet. One example, he notes, is the experience created for the customer. “We will do things like have drivers wear co-branded gear, and the equipment might be co-branded,” he notes. “When you make that delivery, countless times per day, that driver is creating a great experience, [and through that] there is brand equity for the customer that gets built up over time.”
He cites as well two key factors in launching a successful dedicated operation: getting the foundation right through open, frank communication, and effective change management. “We talk change management from the outset, from the C-suite to the loading dock,” Bozec says. “If both organizations don’t get that right, we won’t be as successful as the customer wants us to be and we want to be.”
Greg Orr, executive vice president, North America truckload for TFI International, and president of Joplin, Missouri-based truckload carrier CFI, noticed during March and April customer interest in what he terms “pop-up” fleets. “We’re being asked to provide short-term [60 days or less] committed capacity, deploying assets in certain lanes or between certain regions to address a surge in volume and ensure they’re delivering product to the end customer in a timely fashion,” he notes.
He also is seeing shippers looking to expand current dedicated arrangements. “Customers are coming to us saying, ‘You are handling five of these lanes, would you have interest in these other 10, and if so, could we be more flexible on rates with the additional volume?’” Ultimately, Orr believes carriers have to be more open and able to provide creative solutions that help shippers figure out how to better manage the ebbs and flows in their supply chains.
THE CHOICE TO GO PRIVATE
Why does a shipper look to a private fleet or dedicated operation, and what are the risks?
Ron Baksa is director of fleet procurement for Plano, Texas-based PepsiCo. Between its soft drink and snack products, PepsiCo, by one trucking industry ranking, operates the second-largest private fleet in the U.S. with some 62,400 total vehicles: 14,300 tractors and 48,100 trailers.
The very first question Baksa suggests that those considering a private fleet ask themselves: Are you ready for the commitment in capital, people, systems—can you manage it all? “The combination of people, process, and technology is a huge component,” he says. “You need all three to realize the full benefit.”
PepsiCo’s transportation footprint includes long-haul trucking between plants and distribution centers, and road trucks that deliver product from distribution centers to stores. Its trucks also go to market with products delivered to customer warehouses.
As for the advantages of operating a private fleet, Baksa says a key benefit is having “a cushion against [trucking] market conditions, both operational and financial. You are always able to support the business if you have a significant private fleet,” he says.
Another advantage is the ability to match equipment precisely to product needs. “A common carrier will have a generic 53-foot dry van for all business,” he explains. But that’s not always an efficient vehicle choice. “If you have a very lightweight or cube-sensitive product, you can haul quite a bit more by purchasing a large-cube trailer. Or for heavier product, you can spec more lightweight equipment,” he says.
The challenge is finding—and maintaining—the balance between the rate, the payload, and loaded miles, he adds. “If you can increase your payload [per trailer] by 10%, for every 10 loads you get a free load,” Baksa says, adding:
“The cheapest mile is the one you don’t run.”
A QUESTION OF BALANCE
Bart De Muynck, research vice president, transportation technology, at research firm Gartner, also emphasizes finding the right balance between factors that include priorities, needs, product perishability, velocity, management commitment, and the profile of freight within the shipper’s supply chain. He brings a unique perspective, having previously worked for many years in PepsiCo’s transportation group helping implement technology solutions before joining Gartner, where he serves as a leading transportation technology analyst.
“Companies in general who have private fleets [see] transportation as a very important part of execution,” he notes. “If you have your own fleet, you are guaranteed to execute, you don’t have to worry about [tender] rejections.” Quality factors into it as well, he adds. Shippers invest in private fleets for “high-quality, reliable service” and the guarantee of committed capacity at a relatively fixed cost.
Another benefit is attractiveness to drivers. “Private fleets pay better and have better driver retention,” offering stable runs, regular miles, and consistent home time, De Muynck says. He sees private fleets as ideal for scenarios such as intercompany transport, where truckloads move on regular routes between warehouses, factories and DCs, and/or retail locations, or where you have finished goods going from factory to warehouse, then raw materials moving in backhaul lanes to the factory.
Yet private fleets are not without risk, he warns. Shippers essentially are building and running a trucking operation within the larger enterprise. That means capital investment in rolling stock; building a team with specific transportation management skills, systems, and administrative processes; hiring, managing, and paying drivers; tracking hours of service and ensuring regulatory compliance; and maintaining the fleet.
Not every business is willing to make that leap. Which is where dedicated operations often become a viable solution, De Muynck notes. “Dedicated is almost like a private fleet—assets are dedicated to you,” he explains. “You can optimize routes, but the great thing is you don’t own the asset, you don’t have the upfront cap-ex investment or [responsibility for] hiring additional people. It’s [a good model] for having [secure] capacity, especially when the market tightens up.”
At the end of the day, opines Schneider’s Bozec, the decision on what route to take—private fleet, dedicated, common carrier, or a hybrid combination—comes down to one overriding goal: “It’s what I want to do for my business to win in the market.”
