Spot market prices remain high, driving surge in dedicated fleet contract business
High spot market prices and tight capacity are pushing shippers toward dedicated transportation services. Werner has 66% of its fleet dedicated to this model, and FTR notes the trend is nationwide. Beyond cost factors, the need for capacity assurance and stability is a primary driver. Dedicated contracts typically span 3 to 5 years, and the industry is shifting from private fleets to dedicated models.
With spot market prices remaining high and some freight capacity tight, shippers are turning to dedicated fleets for dedicated transportation services, and fleets are adjusting their routes accordingly to meet demand.
According to Craig Callahan, Chief Commercial Officer and Executive Vice President at Werner, 66% of the company's fleet is currently used for dedicated transportation, and this proportion is "still growing."
Avery Vise, Vice President of Freight at FTR, noted that there is no specific regional hotspot for dedicated transportation nationwide, but wherever spot market prices rise, demand for dedicated transportation often increases accordingly. "This phenomenon is quite widespread because the spot market has a broad impact, and shippers are trying to avoid its volatility," Vise added.
Rising spot prices drive shippers to dedicated transportation
However, high spot prices are not the only reason shippers sign dedicated contracts. During periods of tight capacity, ensuring capacity is equally crucial. Justin Harness, President of U.S. Xpress's dedicated division, stated that dedicated contracts typically last three or five years.
Vise said that over the past decade, the market has gradually shifted toward dedicated routes, partly because fleets endured pressure and learned lessons during and after the Great Recession. Fleets aim to seek greater stability in an unstable driver market. The demand for inventory stability from e-commerce and retail has also intensified this trend.
Shippers have felt multiple pressures from ports to the spot market to inventory reductions. Although spot prices occasionally dip, shippers still prefer certainty.
Dedicated transportation scales up
Dedicated fleets are an important topic when shippers discuss building their own private fleets. Dollar General has had discussions with its suppliers, including its largest fleet customer Werner, on this matter.
In April this year, Dollar General said it planned tohire up to 20,000 people, includingdrivers for its private truck fleet. The retailer had only 80 tractors at the end of 2017, but by last spring it had more than 700 tractors and over 550 drivers.
Dollar General currently has about 17,000 stores and plans to double that number in the long term. Due to various reasons such as store size and inventory space, relying entirely on dedicated transportation is difficult for it.
Other retailers also use both hired dedicated carriers and private fleets, and Walmart is one of them. But building a private fleet is not easy, as equipment and maintenance are increasingly complex. Many retailers with private fleets have sufficient capital to handle such issues.
Callahan said: "Easier said than done."
Moreover, the driver shortage persists. The COVID-19 pandemic slowed the training of new drivers and the processing of licenses. Retailers and shippers hoping to build their own fleets face greater challenges competing with hired carriers.
From private fleets to dedicated transportation
When customers consult U.S. Xpress about building their own fleets, they receive a brief training on the trucking business. In short, Harness and U.S. Xpress convince retailers or shippers that trucking is not their core business.
Harness said that in some cases, the potential problems of building a private fleet have not been fully considered. In other cases, companies hand over their fleets and operations to U.S. Xpress, deciding to exit trucking while retaining the routes. "We certainly consider those opportunities," Harness said.
The next step is to convince shippers and retailers of reliability, which Harness believes dedicated contracts can provide more than third-party logistics. Penske Logistics even displays a chart on its website proposing the concept of a shipper's "control curve."
Penske says: "Dedicated contract transportation is designed for shippers who prefer to outsource the operation and maintenance of a dedicated fleet, without the daily vehicle management burden, yet with available capacity at their disposal."
According to Dave Heller, Vice President of Government Affairs at the Truckload Carriers Association, shippers are seeing the benefits of this control and are increasingly turning to the dedicated model.
Vise pointed out that this is not only the result of carriers actively promoting dedicated routes. Shippers genuinely need such services, and carriers are happy to provide them because dedicated routes have higher profit margins than non-dedicated truckload routes.
One drawback of dedicated transportation is that if most trucks are fixed on specific routes, the fleet's ability to respond to hot markets is limited. Vise mentioned that the trucking industry has experienced ups and downs "for most of the past four years," and the new uncertainties brought by the pandemic and consumption recovery seem to be pushing parties toward dedicated transportation.
Driver preferences
Werner's dedicated transportation ratio (66%) reflects the shift of shippers toward the dedicated model and is consistent with data from other truckload carriers. In May,Roehl Transport saidthat thanks to its dedicated strategy, 60% of its drivers can be home before the weekend.
This is a feature that companies like Roehl Transport promote when recruiting drivers, to attract those who want more reliable routes, more stable mileage pay, and more home time.
"Happy drivers lead to happy deliveries."
Justin Harness
President of U.S. Xpress's dedicated division
Callahan said that because efficient dedicated routes typically do not exceed 250 miles, thousands of Werner drivers can go home daily or weekly.
Harness agrees that drivers are an important driver of the dedicated transportation trend. Dedicated drivers can gradually adapt to the routes or customers they prefer, which helps with recruitment. "Happy drivers lead to happy deliveries," Harness said.