Driven by capacity concerns and sky-high operating costs, more private fleet owners are converting all or part of their fleets to dedicated carriage. But first they must understand and compare the true costs of each.
Comparisons are difficult because an increased number of truckload carriers have entered the dedicated carriage market, blurring the definition with their own hybrid services, said Andy Moses, senior vice president of global products at Penske Logistics.
If the driver’s activities are executed solely for the shippers and not for the carrier’s network, the service is dedicated. If not, it probably isn’t.
Before comparing costs, expectations around the service mission should be defined. In-house fleet costs should be determined by gathering information from transportation, human resources, administrative and risk management departments. IT teams should explain how technologies used in both types of fleets might improve customer service and impact overall supply chain costs.
Beyond wage, fuel, equipment and maintenance costs associated with private fleets, there are less obvious hidden and ancillary costs, as well as opportunity costs for equipment and other capital assets.
“It requires some careful thought and some finesse,” Moses said. “There are lots of costs associated with operating a fleet that might not be easily extracted from a profit-and-loss statement.”
Driver benefits, for example, aren’t always allocated as line items in P&L statements of corporate operating units. The same is true with legal and insurance costs such as accident claims.
Assuming a cost of $4 per gallon and a consumption rate of
six miles per gallon, the fuel cost alone in running a tractor trailer equates to 67 cents a mile. Factoring in empty and out-of-route miles adds significantly to private fleet costs. Downtime also needs to be factored in. When drivers are on vacation or absent or when in-house fleet vehicles undergo maintenance, loads may be shipped by third-party carriers and the carrier payments allocated to another line in the P&L.
Is the dedicated fleet arrangement a bundled or all-in solution? Operating as for-hire carriers under their own operating authority, dedicated carriers most commonly charge in by-the-mile, fixed and variable or cost-plus formats.
There are also accessorial charges embedded in agreements for dedicated contract carriage including fuel surcharges, additional equipment, and driver costs and stop and detention charges.
Private fleet operators often identify the parts of their network that are inefficient or hard to manage, and convert them to dedicated contract carriage.
“In some cases,” Moses said, “a combination of the approaches makes the most sense based on the dynamics of a given shipper’s distribution needs.”
Contact David Biederman at email@example.com.