As spot prices remain high and capacity may simply be out of reach for some shipments, shippers are turning to charter fleets for dedicated transportation. And fleets are responding by adjusting their lanes.
66% of Werner’s fleet is now dedicated, according to Craig Callahan, chief commercial officer and executive vice president.
“This continues to grow,” Callahan said.
Across the nation, there are no particular regional hot spots for dedicated, according to Avery Vise, FTR’s vice president of trucking. Instead, wherever spot rates have increased is likely where dedication is flourishing, he said.
“It’s pretty widespread because the spot market is widespread,” Vise said. “And this is [shippers] they’re trying to work.”
Escalating spot rates push shippers to exclusive rates
However, high spot prices are not the only incentive for shippers to take exclusive contracts. Shippers also want to secure capacity in a tight period. Exclusive contracts tend to be for three or five years, said Justin Harness, president of US Xpress’ specialty division.
Over the past decade, the market has been trending toward dedicated lanes, in part because fleets felt the pain and learned lessons during and after the Great Recession, Vise said. The goal for fleets is greater stability in a volatile driver market. E-commerce and retail’s need for stable inventory only reinforces the trend.
Shippers have felt the pressure, from ports to spot markets to shrinking inventories. Despite the occasional haggling in spot prices, shippers prefer certainty.
Dedicated to scale
Dedicated fleets are a major talking point when shippers discuss building their own private fleet. It’s a conversation Dollar General has had with its carriers, including Werner, which is Dollar General’s largest fleet customer.
In April, Dollar General said it planned to do so hire up to 20,000 peopleincluding drivers for its private fleet of trucks. The retailer had only 80 tractors at the end of 2017. It had more than 700 tractors and more than 550 drivers last spring.
Dollar General has about 17,000 stores and wants to double that in the long term. For a variety of reasons, including store size and inventory space, it is difficult for Dollar General to fully rely on exclusive use.
Other retailers also use dedicated carriers for hire, but also maintain a private fleet. Walmart is one such huge retailer.
But building a private fleet is no easy task. Equipment and maintenance become more complex. Many retailers with private fleets are well capitalized to deal with such issues.
“It’s really easy to talk about, but really hard to do,” Callahan said.
Then there’s the lack of a driver. The COVID-19 pandemic has slowed the training of new drivers and licensing branches. Retailers and shippers looking to go private face an even higher task of competing with carriers for hire.
Untangling from private fleets to exclusives
When customers approach US Xpress about their privacy, they get a short lesson in trucking companies. In short, Harness and US Xpress convince the retailer or shipper that trucking is not the core of what the retailer or shipper does.
Harness said that, in some cases, the potential problems of starting a private fleet have not been considered. There are other cases where a company comes to US Xpress and turns over its fleet and operations to the carrier, deciding to get out of trucking while keeping the lanes.
“We’re definitely entertaining those opportunities,” Harness said.
The next job is to convince shippers and retailers of reliability, which Harness said an exclusive contract will provide better than a 3PL. Penske Logistics it even features a chart on its website this suggests a “control curve” for loaders.
“[Dedicated contract carriage] it’s purpose-built for shippers who prefer to outsource the operation and maintenance of a dedicated fleet of trucks,” Penske said. “They don’t have to shoulder the day-to-day management of the vehicles, but they have transportation capacity at their disposal.”
Shippers are seeing the benefits of this control, according to Dave Heller, vice president of government affairs at the Truck Carriers Association, and are moving more in the special direction.
Vise said it’s not just a matter of carriers hard-selling dedicated lanes. Shippers want them, and carriers, attracted by the high profit margins Vise said compared to non-dedicated TL lanes, want to provide them.
The one downside to exclusive: Fleets also can’t react to hot spot markets if a large portion of their trucks are tied to specific lanes. Vise noted that the trucking sector has had ups and downs for “the better part of four years,” and the new uncertainty caused by the pandemic and the growing consumer recovery seems to be pushing everyone involved into loyalty.
What drivers want
Werner’s specific numbers (66%) reflect shippers’ trend toward dedicated fleets and match those of other TL fleets. In May, said Roehl Transportdue to a proprietary strategy, 60% of its drivers were returning home by the end of the week.
It’s a feature Roehl Transport and others are touting as they seek drivers who may want more reliable lanes, more reliable mileage pay and more time at home.
“Happy drivers make happy deliveries.”
Justin Harness
President, US Xpress Special Division
Since an effective dedicated lane is 250 miles or less, thousands of Werner drivers are home daily or weekly, Callahan said.
Harness agreed that drivers are a big part of the engaged trend. Dedicated drivers can familiarize themselves with routes or customers they like. And that helps with recruiting.
“Happy drivers make happy deliveries,” Harness said.