With freight rates rising, shippers are considering dedicated contract carriage as an option that may control costs and improve service.
In a recent opinion column appearing in a national transportation trade magazine, I suggested that now may be the right time for shippers to investigate – maybe for the very first time – the advantages offered by dedicated contract carriage.
I made the suggestion to shippers because truck capacity is running close to 100%, due in large part to the added freight volume accompanying the still nascent economic recovery. With trucks in such demand, carriers are now in the driver’s seat. They are not only raising rates but also being more selective in whose shipments they transport. Shippers, once holding the upper hand in shipper-carrier relationship, are now scrambling to find sources to move freight on the timetable they require. Even 3PLs are feeling the squeeze.
Added to the complex situation is the impact that the shortage of qualified drivers is causing. Many carriers are experiencing serious difficulty in recruiting, hiring and retaining the drivers needed to move the additional freight. And don’t forget that carriers which downsized during the recession are working with more streamlined fleets and are unwilling to take the big step of expanding their fleets at this time, or at least until economic conditions stabilize.
All of these factors lead to one logical solution for many shippers: a change to dedicated carriage service. And here’s why:
Maybe the most important advantage to a shipper’s operation is the predictability of transportation expenses, which brings with it budgeting benefits that helps stabilize a business during uncertain economic times. By establishing an agreement with a dedicated carriage provider, a shipper can lock in a rate for a contracted period of time, traditionally five years with agreed upon, CPI-based adjustments. However, more providers are negotiating with shippers for smaller contractual periods, some as short as one year. And remember that common carriers might guarantee a rate, but not availability on the specific day the shipper may need shipments moved.
I like to say shippers should take a page from homeowners who are locking in the current low mortgage rates. Lock in a freight rate now because even if it seems higher than it’s been, it’s lower than it will be in the future.
Here are several other benefits of dedicated logistics service:
- With a dedicated carriage service, shippers no longer need to be concerned with the non-core but still essential tasks of fleet administration, regulatory compliance, fleet maintenance or driver recruitment or retention. The service provider takes on all of those responsibilities.
- A quality dedicated carriage program uses all of today’s transportation technology to create for the shipper a complete view of the supply chain. All trucks and drivers are equipped with devices that alert personnel at each stop of real-time delivery schedules and delays.
- Many dedicated carriage providers offer logistics engineering services that can help create the most cost-effective, technologically sophisticated solutions for shippers, including route optimization and transportation planning. These tools improve customer service, improve utilization of assets and can save shippers thousands of dollars.
For many shippers, when the supply/demand balance shifts, dedicated carriage may be the solution that will help them eliminate the overhead associated with owning and operating a fleet and the challenges of managing it, all the while driving down costs and optimizing service. It might be the best time to check it out.
We’re interested in your thoughts.