Rounding the bend into year two of the Covid pandemic, fleet managers see hopeful signs as businesses reopen, albeit at an uneven state-by-state pace; vaccinations gain traction among more of the population; and a strengthening economy gradually puts more people back to work.
Yet no one is willing to claim the trucking industry is fully back on its feet. An e-commerce–driven surge in freight has sucked up capacity as stay-at-home consumers ratchet up online buying of everything from essential food and household supplies to home-office equipment, appliances, and home-improvement goods.
Equipment manufacturers, who just a year ago faced a tidal wave of cancellations for new truck and trailer orders, now are near fully booked, with few if any build slots available until 2022. A rise in volumes from big-box retailers—and their demand for drop trailers—is stressing operations planning as fleets struggle to get equipment returned and back in their networks.
At the same time, thanks to Covid-imposed closures of driver schools, 2020 saw 40% fewer new CDL (commercial driver’s license)-credentialed drivers enter the industry than the year before, exacerbating the shortage of qualified professional drivers. And the new federal Drug and Alcohol Clearinghouse has shunted some 50,000 drivers to the side of the road, with less than 15% completing return-to-duty requirements.
Going into the spring, fleet managers are faced with yet another challenge: getting enough parts and supplies to keep trucks serviced and on the road, as well as delayed deliveries of new equipment to replace aging, less-efficient trucks.
“The [parts] supply chain is very stressed,” observes Dave Bates, senior vice president of operations for Thomasville, North Carolina-based less-than-truckload carrier Old Dominion Freight Line (ODFL). “We are finding shortages in everything from lug nuts to semiconductors for computers in the trucks. Everything is behind,” he says. New tractor deliveries for ODFL expected in March were delayed to April. Trailer deliveries expected in April were pushed out to May or later. And everything seems to come with a 4% to 5% higher price tag, Bates notes.
All that has changed how Bates plans fleet replenishment for ODFL. “We are holding onto everything until new equipment comes online and we can assess our needs,” he says. “We don’t really want to get rid of old equipment too quickly when it still has some useful life for us.”
One of the pandemic's unexpected developments was how it affected the beverage business. Beverages are one of the most fleet-intensive local-delivery operations in transportation. For Southern Glazer's Wine & Spirits, responding first to an initial collapse in business and then a rapid uptick in demand from stay-at-home consumers stocking up on wine and spirits, while effectively managing its fleet resources and ensuring employees were protected, meant rewriting the operations playbook.
Based in Miami and Dallas, Southern Glazer's is the nation's largest distributor of beverage alcohol. The privately held, family-owned company handles about 32% of alcoholic beverages sold in the U.S. With over $21 billion in revenue, Southern Glazer's deploys a fleet of some 4,000 trucks operated by over 3,000 drivers, delivering around 180 million cases of beverages annually from 41 distribution centers. Its mostly straight-truck fleet typically delivers to restaurants, bars, grocery and liquor stores, and other retail shops selling wine and spirits.
It's a business where drivers typically interact with a dozen or more customers a day, making inside deliveries, and stocking backrooms and sometimes retail shelves.
"The biggest challenge was protecting our employees," says Ron Flanary, the company's senior vice president of national operations. "[Our drivers] go into retail accounts, facing the public all day long every day," he explains. Job one was "putting the controls in place to protect them and make them feel safe," Flanary says. That required adjusting how it operated, dictated by social distancing and disinfecting needs for trucks and facilities, and acquiring and providing sufficient personal protective gear to drivers and warehouse workers.
"We went to stop-and-drop operations," Flanary says. "Instead of taking the product inside the store, to limit contact we brought it to the back door, checked it in, and stopped there," he notes, adding that the change protected drivers by preventing close contact with store employees. And while initially, the pandemic reduced delivery volumes, for the most part, fleet operations weathered the storm and were able to adjust and adapt.
Southern Glazer's serves both on-premise and off-premise accounts, Flanary explains. During the heat of the pandemic, business with on-premise accounts, like bars and restaurants, "essentially went away," he notes. At the same time, volume with off-premise retail accounts went up some 35%. "It was just a shift in mix," Flanary says. The company was able to effectively redeploy resources idled by closed restaurants and bars to serve surging retail accounts like grocery and liquor stores.
Yet from a broader fleet-management perspective, even during the pandemic, the overall objectives remained the same: "How do you operate as safely as possible, support your drivers, and get the most productivity and utility out of your fleet," Flanary says. "How do you optimize operations to run the fewest miles, get the best stop density, and ensure a consistent level of quality service?"
Another trend over the past year and continuing in 2021 has been shippers and transportation managers embracing more dedicated operations as a way to reduce supply chain risk and lock in increasingly scarce trucking capacity.
Greg Orr, senior vice president, U.S. truckload for TFI International, is seeing accelerated demand for “dedicated committed fleet resources, where [shippers] are willing to pay substantially more or close the loop to make sure they have capacity for their business,” he notes.
Among the operations he oversees is Eagan, Minnesota-based truckload carrier Transport America, whose business mix typically is 75% for-hire over the road (OTR), and 25% dedicated. In the first quarter of this year, “the [demand] for dedicated versus OTR was about 50-50. It has never been that high,” Orr says.
Dedicated is a different conversation from spot market or for-hire negotiations, Orr stresses. Whether it’s taking over a private fleet or establishing a dedicated solution, “we really try to walk them through the commitment and the equipment and capital involved,” he explains, adding that in most cases, starting a new dedicated account means buying or leasing new equipment in the short term.
“We don’t want to be stripping [equipment] from one side of the business to [use in] another. So we try to take them through all the [staffing, asset, and operating needs] of [establishing a dedicated fleet],” he says.
Because of the market’s volatility and the resulting drastic swings in capacity, “the shippers we serve [have] become more creative than ever in terms of finding and capturing any and all capacity to support their networks,” notes Mark Sitko, vice president of dedicated sales for Van Buren, Arkansas-based truckload carrier USA Truck.
With rates at historic highs, some shippers have been reluctant to enter into longer, multiyear dedicated fleet deals, instead opting for “pop-up fleets.” These shorter-term dynamic capacity arrangements “get the capacity to the areas of the network [where] shippers need” immediate support, says Sitko.
In any case, creating a dedicated solution for each customer requires more than a cookie-cutter approach, notes Billy Cartright, senior vice president of dedicated operations at Chattanooga, Tennessee-based Covenant Logistics Group.
“One of our value adds is helping the customer optimize its network,” he says. “How does its [existing] network layer into ours, where can we find synergies?” He notes that in some cases, as part of a dedicated solution, his company will do backhauls and revenue shares, utilizing freight from one customer to fill empty lanes with another, essentially leveraging relationships among its customers to deploy available, unused capacity and increase utilization for all.
The strategic objective for the fleet manager or shipper’s VP of transportation should be “how do you take out cyclicality to have more predictability [with capacity] and understanding of what [transportation costs] will do to your P&L,” Cartright says.
It’s also important for the shipper to understand how operating structure and processes in its warehousing and manufacturing plants—which are to be supported by the dedicated fleet—can impact rates and costs in fleet operations, and where collaboration with its fleet provider can provide productivity gains and new efficiencies for both.
Thomas Regan, vice president of operations for dedicated transportation at Miami-based Ryder System Inc., makes a similar point about dedicated’s growing momentum. His group is seeing especially strong demand, he says.
“Prior to Covid, there were some secular trends driving transition of private fleets to dedicated,” Regan recalls. “Insurance was a big factor,” with some operators saddled with “50% to 100% increases [in insurance rates], depending on the type of business and incident rates,” he notes.
The primary decision factors for shippers seeking more dedicated deals: risk avoidance, committed capacity, and a predictable cost for transportation. And offloading the ever-more-difficult challenge of finding and keeping professional drivers.
“When Covid hit, it made people [operating private fleets] really take a step back,” says Regan. He recalls a lot of shippers having conversations like “My insurance is going up. Technology in trucks is getting more complex. I don’t have the right visibility platform. Can I grow [my fleet] on my own at the pace—and within the cost—that my business needs?”
At the same time, trying to gain reliable capacity in the common carrier market was just as stressful. You either couldn’t find enough, or the cost was exorbitant and service unpredictable.
All that has created an inflection point that’s tipping the scales increasingly to dedicated in 2021, says Regan. He notes that Ryder offers not just dedicated solutions, but also complementary resources and capabilities, all of which can be mixed and matched to help shippers establish stable transportation operations with secure capacity at a reliably budgeted cost.
The point he makes to shippers and transportation managers contemplating private versus dedicated fleet operations: know what you are good at.
“Some have been running private fleets for years; they have good, deep talent and technology to make it successful,” Regan notes. “Others realize they need some help on the transportation side, so they [choose to] focus on the core aspects of their business” and contract with a dedicated fleet provider for whom such services are a core competency.