Opinion: Dedicated Contract Carriage
By Gene Scoggins
President
NationaLease
This Opinion piece appears in the June 7 print edition of Transport Topics. Click here to subscribe today.
What a difference a year makes: Just one year ago, trucking trade publications were reporting on truckload rates plummeting 27% over the previous year, trucking companies beating down shippers’ doors looking for business, carriers dealing with 50% to 100% excess capacity over the previous two years, and thousands of trucking companies going bankrupt.
Since early March 2010, the steady stream of news appearing in publications such as this one has been relentlessly upbeat: “Truck Availability Shrinking as Freight Demand Increases” said one early headline. “Truckload Fleets Recruit Drivers as Capacity Begins to Tighten,” said another.
That’s all good news for truckload carriers, but how does the same news look to shippers? The forecast for them is higher rates, fewer trucks available and the possibility of a negative effect on delivery and customer service.
The pendulum is swinging, and it looks like shippers will be the ones paying now. The buzz at the National Private Truck Council conference in April suggested that in the year ahead, many shippers will react to their changes in fortune by embracing dedicated contract carriage services — or DCC — to control costs and optimize the flow of freight while still achieving customer-service goals.
As with a truckload carrier agreement, DCC dedicates vehicles and drivers to a single customer for its sole use, offering the service and convenience advantages of a private fleet. But unlike the truckload scenario, these advantages are achieved by means of a third-party contractual agreement with a company that allows the shipper to focus on its core competency, leaving tasks such as permitting, licensing, driver recruitment and training, and maintenance to the DCC provider.
Shippers are asking themselves many tough questions as the market adjusts to better times for trucking. For example, to control potentially prohibitive costs, do they want to:
• Start buying or leasing trucks, employing drivers, finding financing, managing maintenance and legalization, assuming the liabilities associated with private fleet operations and, in general, committing management oversight to the highly complex distribution business?
• Take the risk of putting relationships with customers in jeopardy by staying with the status quo and seeing delivery dates put back two days or a week?
• Eventually have to pass along the higher transportation rates to their customers?
For those who choose the DCC option, the answer to all of the above questions is “no.”
DCC can be a significant factor in controlling shippers’ costs, delivery efficiency, customer service, and mitigating liability. It is the DCC provider that makes the investment in the vehicles and residual values, driver recruitment and training, legalization and insurance, routing software and management.
Shippers know what their monthly transportation expenses will be during the entire contract period, usually three to five years, giving the shipper bottom-line stability. In fact, the predictability of the DCC agreement is a considerable budgeting and bookkeeping advantage in the current economic environment.
DCC is offered by a host of companies, including NationaLease and some of its biggest competitors, such as Ryder and Penske. Shippers dealing with a reputable DCC provider can rely on top executives in the transportation industry, as well as regional and field operations managers with extensive experience implementing a wide variety of DCC solutions for shippers.
Providers also maintain a pool of highly trained drivers so goods and materials are entrusted to a stable driver force.
Other dedicated services can range from sophisticated route optimization programs, specially tailored transportation planning and scheduling — including just-in-time deliveries — to onboard Global Positioning System tracking and branding programs that include custom painting, lettering and decaling vehicles.
New emissions regulations have brought a host of new considerations for shippers debating whether to embark on distribution business of their own. All new trucks put into service in 2010 are required to meet tough standards, and that raises questions for any shipper thinking about creating its own fleet: Will there be enough properly trained technicians who are knowledgeable about the new technology? If a truck breaks down on the road, will the shipper be able to find the right equipment and labor needed to get it up and running? Worries such as these are the direct responsibility of the DCC provider.
Types of businesses that are ideal candidates for DCC services include one-way and round-trip transport, job-site and home delivery, and high-security loads.
So, shippers worried about truckload capacity tightening, take heed: Even with truck availability shrinking and rates going up inexorably, dedicated contract carriage is a significant and, we believe, proven way to control costs, improve operational efficiencies and help to grow a shipper’s business. For many shippers, when the supply/demand balance shifts, DCC is the best way to eliminate the overhead associated with owning and operating a fleet and the challenges of managing it, while driving down costs and optimizing service.
NationaLease, Oakbrook Terrace, Ill., is a full-service truck-leasing organization with more than 600 service locations.
