Third-party loads will test your fleet’s resilience and adaptability, so a few prerequisites should be covered before looking into third-party freight operations. While there are many other factors to consider, including third-party freight operational procedures, these are the key requirements before getting started. If your fleet cannot handle these, then the fleet focus needs to be on these three things before even considering third-party loads.

The fleet is in legal compliance

The private fleet should have a satisfactory Motor Carrier Safety Rating through the Federal Motor Carrier Safety Administration (FMCSA) and not be at risk of losing that rating. Taking third-party loads could draw attention to your private fleet, and if they are not legally compliant with governing authorities, third-party loads could cause more harm than good.

The fleet should comply with all applicable laws and regulations before moving forward with third-party loads because any active issues will be further exacerbated by adding more to the current process. You do not want to risk losing your private fleet operating authority in pursuit of fleet cost reduction.

The equipment used by the fleet should be in good working condition. This is not just for obvious compliance issues, but also because third-party loads can add service requirements to a fleet and increase the risk of breakdowns. Customers notice missed loads, and this could limit your customer base and/or revenue if your fleet develops a reputation for missing loads.

Your insurance needs to be up to date. Some brokers and shippers require different coverage amounts, so you may need to upgrade your coverage later if it does not meet the agreement terms.

Taking on additional loads as third-party loads can lead to the following risks:

• Operating in areas where drivers are less familiar or where traffic is more dangerous can lead to more incidents.
• Taking loads from many different third-party freight customers may lead to the fleet inadvertently working outside its operating authority.
• Filling a driver’s time with third-party loads may pressure the driver to violate hours-of-service rules or exceed the speed limit to complete the route and avoid being on the road overnight.
• Having multiple third-party freight customers load the trailer can result in improperly secured loads and related incidents.
• Exposing the drivers to unfamiliar pickup and drop-off locations can lead to accidents in narrow or hard-to-see areas.
• Sending drivers to neighborhoods with unexpectedly high rates of violent crime may expose them to safety risks.
• Adding mileage or unfavorable road conditions may cause equipment issues and incidents, particularly on steep hills to which the driver, tractor, or trailer is not accustomed.  

There are many other risks associated with taking third-party loads that could increase the number of incidents and raise the risk of an FMCSA audit. It is a good idea to either keep the fleet council in your parent company or use an outside provider to ensure you are legally covered.

Fleet costs are understood and tracked

The cost per mile for fleet costs is very important for the third-party freight lane analysis. The big ones are driver variable cost, maintenance variable cost, and fuel cost per mile. Driver variable cost per mile is the total number of miles driven by the driver pool divided by the total number of miles driven, typically over a set time period. The maintenance variable cost is the total maintenance cost divided by the total number of miles driven. The fuel cost is the total cost of fuel divided by the miles driven.

There are a variety of hierarchies that can be used to do this, such as geographical fleet area, driver wage type, long haul versus short haul, and many others. The time period is typically set for a rolling year because certain fleet expenses may only happen at certain times of the year, so it’s best to capture the highs and lows throughout the year to get a good average. Other important costs are the fixed cost per day for the driver and the equipment. 

These costs should be recalculated periodically based on the fleet’s actual financial performance and costs incurred. If at all possible, changes in those costs should also be projected forward. For example, the private fleet may sign a fuel contract with a new vendor that should drive down the cost of fuel for the next three years. This will bring down the fleet’s fuel cost per mile and should be reflected in the third-party freight analysis.

If the costs are not known, then your fleet will be unable to determine the profitability of the third-party loads, and it will not be certain whether the additional revenue will lead to additional profit.

Parent company lane cost for transportation is understood and tracked

If the parent company procures the services of outside carriers, there should be rate sheets negotiated on a periodic basis based on the contracts between the outside carriers and the parent company of the private fleet. This information is very important to the private fleet because it allows the team to properly analyze the profit to the parent company based on actual transport alternatives.

We will delve into that analysis later, but this section will discuss how to get the rates. It is important for the parent company to also bid out the lanes expected to be covered by the private fleet. This allows the private fleet to understand how competitive their costs are compared to the market. Keep in mind that lane rates that are found from external sources are generally skewed toward a higher cost than what it would actually be if a contract is negotiated. This is because contracts can involve higher volume, which is more valuable to carriers than the one-off loads on the market.

It is also important to compare the rate sheets to the actual cost of transportation to that lane, especially based on the accessorial fees that were actually incurred. If the private fleet only looks at the historical cost of that lane, then the analysis will get murky, as the private fleet was the only fleet covering that lane. If the private fleet only looks at the rate sheet, it will only look at the least-cost carrier for that lane for comparison when the least-cost carrier may only be able to handle a fraction of the overall volume on that lane. Conversely, if the parent company does not pay for outside freight, this step can be skipped.

If your fleet meets all three of these precursors, then you are ready to move forward with third-party freight operations. There is a lot more to know and do, but the foundation is now in place, and you are ready to build.