The Great Recession, a sluggish recovery and the possibility of another U.S. recession have been getting most of the headlines, but what is getting very little attention in the trucking media is the long-term trend of for-hire carriers shifting company-owned trucks to dedicated contract carriage and regional routes.
For example, Werner Enterprises' Specialized Services division, which is largely dedicated contract carriage, made up 49% of the total truck fleet in the second quarter of this year.
USA Truck is an example of a carrier that is shifting capacity to more regional routes. The company is shifting capacity to a freight network that it refers to as Spider Web; as a result, the company's average length of haul of 534 mi. in the second quarter of this year was the shortest in the company's history. The Spider Web network results in improved freight density for USA Truck, resulting in higher truck utilization.
J.B. Hunt Transport Services Inc. is shifting capacity to its Dedicated Contract Services business unit, while shrinking capacity at its truck business unit. In the second quarter of this year, revenues in the Dedicated Contract Services business unit were $264 million in comparison to revenues in the truck business unit of $130 million. J.B. Hunt Transport said its Dedicated Contract Services business unit is “delivering product to the point of consumption,” such as delivering and installing a product at a household, delivering food to restaurants or delivering animal feed to a farmer.
For-hire carriers are increasing their penetration into regional freight markets and expanding dedicated contract carriage because businesses are outsourcing regional and, in some instances local, freight services to for-hire carriers. This is because many businesses had to restructure operations as a result of the recession and slow recovery to improve profitability. The shift to regional freight markets and dedicated contract carriage is not only driving outsourcing by businesses, but these freight markets offer carriers higher freight rates to increase yields to return than long-haul common carriage.
Does this imply that for-hire carriers are abandoning long-haul irregular rate common carriage? Not exactly. Large for-hire carriers are shifting company-owned trucks to dedicated contract carriage and regional freight routes and have established brokerage businesses to continue to service shippers in long-haul irregular route freight markets. This implies that smaller for-hire carriers and owner-operators are increasing their penetration in the long-haul irregular route truckload freight market. The long-haul truckload freight market is not going away as shippers/businesses consolidate manufacturing plants and warehouses, thus requiring long-haul truckload services. Who hauls the freight, though, is changing as large truckload carriers shift company-owned capacity to dedicated contract services and regional freight markets.
IN CLOSE CONTACT
Technology, particularly with respect to communications and administrative services, is aiding this shift by allowing brokerage businesses to communicate efficiently and cost-effectively with many different owner-operators and small fleets while continuing to provide a high level of services to shippers/businesses. Smartphones and applications will continue to improve efficiencies in a cost-effective manner.
The restructuring of the truckload industry has large implications for carriers, such as the changing face of their competitors and potential opportunities to capture freight in markets that offer higher rates of return. The restructuring of the truckload industry also has large implications for suppliers such as truck makers as long-haul truckload carriers enter regional and local freight markets. This implies changes in products and services required by truckload carriers.
Carriers cannot take their eye off the ball in ensuring operations are running cost-effectively, but carriers must also keep an eye on the horizon to see new opportunities, such as entering regional freight markets and dedicated contract carriage. Otherwise they may be stuck in a market that offers low rates of return in the future.
Commercial Motor Vehicle Consulting publishes the monthly newsletter “Visibility of the Supply Chain” for general freight carriers. To order a copy, contact Chris Brady of CMVC at [email protected] or 516-869-5954.