The New Year means different things to businesses – increased production, downtime because of staff vacation and/or possibly, an increase in demand for your product, depending on your business.
Without a doubt, suppliers in the logistics industry are ramping up for the increased need for their products to be delivered without incident, and on time, to their intended destination. But during your busy season, or anytime for that matter, what’s the best logistics option for businesses? Does the ability to own and operate a private fleet of trucks make sense, or is the implementation of a dedicated carrier solution the best choice?
In the logistics/trucking industry there are multiple types of dedicated contract arrangements – dedicated contract carriage and dedicated capacity are two of the most common options. With both of these choices, collaboration between the business and the logistics company they work with is critical. Here at Dupre Logistics, our client’s success is determined by our ability to effectively collaborate and work with the business partners that use our different dedicated services.
One process that we go through with our customers, is deciding on the best carriage option that enhances the performance of their business, increases efficiency and reduces overall costs. Many times a dedicated contract carriage, or a dedicated capacity relationship produces the best results.
Dedicated contract carriage
The dedicated contract carriage option is a formal contractual relationship. In this instance, the logistics company deploys both employees (drivers) and assets (equipment) for the exclusive use of the shipper for a specific contractual period of time. This relationship is typical when there are specialized needs or service requirements of the shipper that cannot be met in the open “you call-we haul” market. In addition, the shipper and carrier must agree on the minimum amount of freight volume that will be serviced through the arrangement.
In turn the carrier will guarantee a certain amount of assets and drivers to meet the needs of the shipper for a set price. The carrier and the shipper work collaboratively to reduce cost and improve the efficiency of the dedicated assets that are deployed on behalf of the shipper. By “sweating” the assets the shipper and the carrier benefit from better utilization, efficiency and lower costs. These requirements of both shipper and logistics companies cannot be satisfied as well by a dedicated capacity relationship; therefore the dedicated contract carriage arrangement is the best option.
An example of a dedicated contract carrier relationship is in the chemical, or hazardous material hauling business.This supplier has very specific equipment requirements and specialized driver training – understandably – to move their product. Through a dedicated contract carriage relationship, highly trained, professional drivers are certified specifically for hauling these products. Chemical hauling is very particular and only a certain number of people have the access and ability to haul products safely and effectively. A dedicated contract carrier is clearly the best option for this scenario.
In a dedicated capacity relationship, shippers negotiate with a carrier for a specific amount of delivery capacity; there are a finite number of assets or resources that are deployed. This relationship is contractual, but there are usually no minimums, no specific requirements and no penalties. In a dedicated capacity situation, the logistics company agrees to provide a certain amount of trucks at a certain price.
This relationship is especially important in the chemical hauling industry. Shippers of chemical products may not have the ability, the equipment or the desire to manage their own fleet of chemical hauling trucks, and therefore develop a dedicated capacity relationship with a logistics company who offers that service. That way the business can focus on producing their product and the logistics company can concentrate on their expertise – making sure the product is transported in a safe and efficient manner by drivers who are specially trained in the chemical hauling business.
One example of a dedicated capacity relationship relates to the agricultural industry. Agriculture by its very nature is seasonal; it simply doesn’t make sense for the small to mid-sized agricultural business to employ and manage its own fleet of trucks and drivers. In a dedicated capacity relationship, the logistics company provides a certain number of trucks and drivers, and the agriculture business commits a certain amount of production during their peak seasons. It’s a win-win relationship for both shipper and carrier.
The challenge of driver capacity
If you’re involved in any way in the transportation business, you’ve heard that the pool of truck drivers is shrinking, and long-term projections are lukewarm at best. According to a 2013 report from the American Transportation Research Institute (ATRI), the research arm of the American Trucking Association, 29% of truck drivers were in the 45-54 year age group, compared to 23% for all industries. That aging population isn’t going to get younger. A 2015 ATRI report found the average age of the existing workforce is 49. In addition, trucking employs a greater percentage of people aged 65 or older – 6.1% – than 20-24 year olds, 4.9%. The ATRI report continues and questions whether there will be enough 25-34 year olds to replace the 45-54 year old group when they retire in 10-20 years.
Add to that the stringent service requirements and specialized equipment expense in the chemical hauling industry, and businesses are looking to outsource a percentage of the capacity outside their own fleet for dedicated services. Finding a logistics company that offers a dedicated fleet of trucks with specifically trained, professional drivers is critical in order to secure delivery capacity in a tight market.
The partnership advantage
What’s the best option for your business? Does it make sense for you to enter into a dedicated contract carriage agreement and secure your needed capacity? Or does a dedicated capacity relationship make more sense to handle a potential seasonal increase in capacity? Is hauling your product simply becoming too expensive with your current private fleet? Maybe your product can’t be mixed with other materials – do you have a logistics company that can offer a dedicated fleet of trucks and drivers that will only handle your specific product needs?
The key to deciding what best fits your business needs is to work closely with your logistics company to determine the best solution…a solution that enhances the performance of your business, increases efficiencies and reduces overall costs. Through true collaboration, carrier and shipper become business partners, allowing for the best solution or combination of solutions that will produce the best results.