Time to Lock in Rates

This Editorial appears in the June 16 print edition of Transport Topics. Click here to subscribe today.

By Joseph Gallick

Vice President, Dedicated Services

NationaLease

Recent articles have stated that truck capacity is running close to 100%. Industry experts have been saying the increased freight volume that comes with sustained economic growth, plus other factors such as a long bout of poor weather, could create a truly critical situation.

The Commerce Department’s May 29 revised report that first-quarter GDP contracted at a 1% annual pace, the first contraction since 2011, may be the only factor that’s staving off a worst-case scenario.

This, however, is all good news to truckload carriers, which downsized during the recession and most likely will not add capacity until the supply-and-demand economics restabilize. But for shippers, this means higher rates, fewer trucks available when they need them and the negative effects all this will have on customer service.

What’s a shipper to do? The solution is to embrace dedicated logistics service — perhaps for the first time.

In a normal environment, where a healthy amount of truck supply is available, shippers have the leverage. Those that implement transportation management systems internally or outsource the function to 3PLs are finding more carriers are turning down freight or may not be able to satisfy windows of delivery as easily as before. And the widely publicized difficulty of recruiting, hiring and retaining drivers adds to the problem.

All of these issues can be erased in the dedicated logistics scenario, which is an agreement among a dedicated provider, a full-service leasing company or truckload carrier that guarantees freight delivery in a specific lane or region by specific vehicles and drivers for the customer’s sole use. There are several reasons why a company should take a good look at dedicated logistics:

• Advantages over common carriage. Now that the supply-and-demand balance has shifted, common carriers can be more selective in the freight they agree to haul. While these carriers may guarantee a rate, they don’t guarantee capacity on the day the shipper may need it.

However, a dedicated fleet is one that is focused on the shipper’s exclusive needs over a contracted period of time. The shipper can leave tasks such as fleet administration, driver recruitment and training, regulatory compliance, and fleet maintenance to a dedicated logistics provider.

• Value of logistics engineering. A dedicated logistics provider, armed with the latest technological tools, can create more optimal solutions for shippers when it comes to engineering robust logistics. This can involve detailed needs analysis throughout the supply chain; sophisticated route optimization; and tailored transportation planning and scheduling, including just-in-time delivery systems.

• Flexibility and expanded resources. A dedicated agreement can be structured so that drivers, much like those in private fleet operations, perform additional “customer-facing” tasks. For example, drivers can be directed to load vehicles in a sequence based on their knowledge of the delivery stops, enhancing efficiency. Drivers can have more hands-on involvement, where they may not just deliver freight to the loading dock but instead off-load it into a store. Or with nonstandard cargo — not on a pallet or easily moved — drivers can be directed to manually handle or secure the goods that may be susceptible to damage.

• A quality program provides a shipper with 100% visibility of its freight throughout the supply chain. Typically, each driver and/or his truck is equipped with the latest technology, enabling him to notify the next stop of his estimated time of arrival or maybe, and more importantly, advises stops Nos. 3, 4 and 5 so staff can be redeployed because of an unexpected delay in the delivery schedule.

• In the dedicated logistics agreement, the shipper knows what its monthly transportation expenses will be over the contract period, whether for one year or five years. The predictability is a huge budgeting advantage, especially in times of economic variability and uncertainty.

While dedicated logistics service is used by a wide variety of industries — from bakeries to building materials manufacturers — many companies choose to outsource a portion of their transportation needs. One good example is a West Coast 3PL that manages the distribution needs of one of the world’s largest food companies. Yes, even a 3PL with a customer recognized as one of the most well-known and respected global brands is challenged to secure capacity.

The 3PL turned to a network of full-service truck leasing companies with dedicated driver pools. The network put together a complex system of dedicated lanes for the 3PL. The contract enables the 3PL to supplement capacity in its transportation management system. Instead of dividing the pie into different-size slices, it could be said the 3PL is able to enjoy a larger pie.

Just as homebuyers are trying to lock in today’s low mortgage rates, shippers need to take a page from that playbook. The way it looks now, rates are only going to get higher and available trucks more scarce. Shippers should investigate why dedicated logistics service is growing in popularity and how it can help them control costs and grow businesses.

NationaLease, based in Downers Grove, Illinois, provides fleet management services through its network of independent businesses with a combined fleet of 125,000 tractors, trucks and trailers.