Stay Private or Go Dedicated? (Part 1 of 3)

During the pandemic when truckload rates reached $2.70 per mile, everyone wanted a private fleet. But the landscape of over-the-road (OTR) freight shipping has undergone dramatic shifts since then. Today’s challenges facing the trucking industry are multifaceted and evolving rapidly, and as a result, the case for running your own fleet isn’t as clear cut. 

The freight market, which experienced a dramatic surge in demand and prices during the COVID-19 pandemic, has been in a deep recession for years now. In a shippers’ market where low truckload rates and abundant capacity have persisted for years, it’s natural to wonder if the grass is greener on the outsourcing side of the road. 

The latest market conditions that undermine the benefits of running a private fleet include:

1. Record-high costs of operating trucks
2. Growing liabilities and risks
3. An enduring driver shortage

Today there is incessant pressure for private fleets to keep up on everything from technology and sustainability to scalability and continuous cost efficiency. 

In today’s blog post, we’re taking a closer look at the freight market landscape, as well as exploring the “Three C’s” for why shippers opt to run their own private fleet. A full synopsis of today’s topics can be found in our recently published White Paper: Stay Private or Go Dedicated, now available for download.

The Freight Market Landscape for Private Fleets

Today the way businesses handle their freight is evenly divided—nearly half of truckload freight in the U.S. is hauled by private fleets, the rest by trucking companies.[i]

It’s important to note that even companies with private fleets regularly outsource in order to supplement their needs. According to the National Private Truck Council (NPTC), of the companies with private fleets, 17% of their freight moves by for-hire carriers and 12% moves by dedicated fleet.[ii]  Operators of private fleets are right to consider all options, especially in light of the major challenges in the trucking industry today.  

Shippers Choose Private Fleets for the Three Cs

Freight-intensive businesses opt to operate their own in-house private fleets for three main reasons: customer service, costs, and control. According to the NPTC, the top market drivers for having a private fleet break down like this: 

1. Customer service (46%)
2. Cost control (22.9%)
3. Control over the supply chain—i.e. trucks and drivers (13%).[iii]

Delivery is such a big part of the customer experience that it’s easy to understand why customer service is the main reason companies choose to keep transportation in-house. In private fleets, the drivers are employees, and many companies feel the employment relationship with drivers increases their loyalty, familiarity with the business, and commitment to outstanding customer service. 

In addition, many companies feel they are insulated from paying market rates when they handle their fleet inhouse, making it a more cost-effective option on the surface. 

Finally, companies with private fleets have exclusive control and use of their own asset-based equipment — whether leased or owned. That exclusive control often comes with a fringe benefit of running trailers that serve as free advertising for their company’s brand. 

Thinking Beyond Customer Service, Costs and Control

The benefits of customer service, cost control and capacity come with caveats.  In fact, private fleets face their own unique challenges. Here’s what they are:

• Challenge #1 - Transportation is not a core competency for most shippers.  Running a successful trucking operation requires expertise and investment that’s outside the core focus of most businesses. With finite staff time and organizational resources, companies manage the complexities of trucking at the expense of functions like product innovation, business development, and market expansion. 
• Challenge #2 - Maintaining a private fleet is capital-and-asset-intensive.  Despite not having to pay contract or spot rates, the operational costs are significant. “Maintaining a private fleet is capital-intensive,” says Rob McNeil, Vice President at TA Dedicated. “All those trucks and other equipment can become a major drain on your balance sheet, especially if asset utilization is not optimized.”
• Challenge #3 - Finding and keeping experienced, well-trained drivers.  In an industry with high turnover, keeping a fleet fully staffed, making sure drivers are properly trained, and providing competitive compensation packages brings its own set of pressures to companies. 
• Challenge #4 - Keeping up with changing rules and regulations is increasingly difficult. The risks inherent in trucking are considerable. Businesses are on the hook for lost, damaged or stolen goods, and the resulting increase in insurance rates when they occur.  What’s more, it’s hard to put a price tag on the damage to a brand’s reputation when their trucks are involved in accidents– sometimes catastrophic ones. With a private fleet, says McNeil, “You’ve got a rolling brand billboard—but what happens if it turns over on the side of the road, or is involved in an accident that causes injuries or fatalities?”

Ready to learn more?  We address these challenges and propose immediate, real-world solutions to them in our recently published White Paper: Stay Private or Go Dedicated? available for download now!

Sources:

[i] https://www.thetrucker.com/trucking-news/business/private-fleets-have-huge-impact-on-trucking-industry

[ii] https://www.logisticsmgmt.com/article/transportation_best_practices_trends_private_fleet_growth_soars

[iii] https://www.logisticsmgmt.com/article/transportation_best_practices_trends_private_fleet_growth_soars