Dedicated Fleet: A Growing Piece of the Transportation Puzzle

In a guest commentary we published back in July 2013 titled “Dedicated Fleet and Common Carrier Network: A Match Made in Heaven?,” Scott Nemeth writes:

Say you’ve always used a for-hire common carrier to deliver goods and materials. Or, maybe you prefer to use your own private fleet. Or you only use a dedicated fleet from a trusted partner. In today’s complex and volatile business environment, that strategy may no longer work.

Today, keeping the wheels of business turning may call for an “all-of-the-above” strategy that taps into every available resource.

A month earlier, in a post titled “What is the Future of Truckload Transportation?,” I highlighted how leading carriers like JB Hunt and Swift Transportation were prioritizing intermodal, dedicated, and brokerage services over generic truckload services. I summed up the state of the market then as follows:

If you think of transportation as a big puzzle and the different modes as pieces of that puzzle, then what’s happening is that the shape of the trucking piece is changing, and where shippers and carriers are placing that piece is also changing.

Fast forward to today and the puzzle pieces of transportation are still changing. Smart shippers and carriers are still pursuing an “all-of-the-above” strategy, with dedicated transportation becoming a bigger and more important piece of the puzzle.

As Jennifer Smith reported in the Wall Street Journal last week:

So-called dedicated fleets, where shippers hire trucks to drive only for them, have swelled over the past year, even as large trucking companies cut the overall number of vehicles they operate, particularly in the “spot market,” where loads are arranged at the last minute.

Over the next two years [Celadon Group Inc.] plans to increase the dedicated portion of its business from 37% to 50%.

J.B. Hunt Transport Services Inc., Swift Transportation Co. and Werner Enterprises Inc. were among other large fleets to add trucks to their dedicated divisions last year. Werner and Swift both cut trucks running in other parts of their business.

“Dedicated is the stable middle,” balancing out more volatile units such as one-way trucking and logistics, said Derek Leathers, chief executive of Werner, which now has about half of its vehicles in the segment.

Meanwhile, on the technology front, leading transportation management system (TMS) vendors have responded in recent years by adding dedicated fleet functionality to their solutions (see LeanLogistics, MercuryGate, and UltraShipTMS as examples).

What does this all mean?

To echo Nemeth’s comment, shippers need to have a diversified mode strategy, taking into account not only cost and service requirements, but also risks (e.g., the potential for tighter truckload capacity and higher fuel costs in the future) and market trends (e.g., growing demand for more precise pickup and delivery time windows and for smaller, more frequent deliveries).

Is it time to redesign your transportation network? Put differently, do you have the most efficient and effective transportation network design, not only relative to your current operating realities, but also relative to where your business and the transportation market is heading in the coming years?

Modeling and simulating various transportation network designs is a good starting point. If you plan to shift more of your transportation volume from trucking to rail or intermodal or dedicated fleet in the years ahead, for example, then you need to model and simulate that scenario to understand the impact on costs, service levels, and other factors. The same is true if you plan to open more stores or distribution centers in new locations, expect to grow your ecommerce operations, want to implement DC-bypass, are thinking of providing same-day delivery, and so on. As the great Yogi Berra famously said, “You’ve got to be very careful if you don’t know where you’re going, because you might not get there” — or in this case, you might end up with a transportation network or mode/carrier mix that doesn’t meet your longer-term operational and strategic needs.

Taking a “portfolio management” approach to transportation optimization is also helpful, which Brooks Bentz, President of Supply Chain Consulting at Transplace, described as follows in a September 2015 Talking Logistics episode:

It’s taking a holistic view of transportation — not as trucks and planes and boats and trains, but as a network of capacity that is available to move freight, and as a network of freight that is available to be moved.

While optimization is a much overused word, in its true sense, it really can’t occur in modal silos nearly as effectively as it can when it’s applied across the entire network. So the portfolio management approach basically says, “If I have a lot of freight and I can identify the freight flows that I have — inbound, outbound, and inter-facility — and I have data [about the nature of my freight], what capacity is available to move that freight?” Real optimization is the act of, and the process of, using the power of these overlapping transportation networks to the greatest extent possible.

Is dedicated fleet a growing piece of your transportation puzzle? How diversified is your transportation strategy? Are the choices trucking companies are making in where to invest (and where not to invest) influencing your strategy and decisions? Post a comment and share your perspective!