Creating or maintaining relationships with dedicated contract carriage (DCC) providers in today's highly uncertain business environment is a priority for many large private fleet operators. So finds a series of fourth-quarter 2007 in-depth interviews with major shippers, conducted by a 3PL (third-party logistics provider) industry market services firm.
In the study by SB Hirsch Inc, two-thirds of the participating executive-level decision makers at companies that generally had private fleet budgets well in excess of $10 million annually discussed a willingness to consider converting a portion of their private fleet to DCC providers.
Leading the list of contributing considerations are: better management of liability exposure for the shipper, outsourcing of non-core business processes, and provision of flexible shipping solutions.
While driving down costs and/or increasing backhaul gain sharing continue to be key reasons to use DCCs, companies are looking to team with carriers that will make them more competitive in their respective markets, and provide capacity as overall driver and equipment availability declines later this year, a report on the study says.
“These emerging, collaborative relationships require DCCs to build their services around client needs, rather than forcing shippers to using a ‘one size fits all’ approach,” notes the report.
“We learned that DCC shippers have historically placed a high value on operating private fleets, but are identifying with advantages provided by DCCs that can supply the necessary level of flexibility,” says Bennett Hirsch, president of SB Hirsch. “The decision to utilize private fleets has traditionally been driven by end-customer marketing perceptions and perceived economic advantages. In good economic times and bad, private fleets are being justified and re-justified, just like any other major capital expenditure.”
Alternative methods
Even those shippers that have large private fleet operations are testing some routes with outsourced DCC solutions, he points out. Interviews with study participants find that an attachment to any single model appears to be disappearing.
The participants conveyed a clear picture of what they believe constitutes a successful DCC alternative to private fleets. Carrier flexibility, commitment to high levels of service, low damage rates, and cost effective services lead the list.
Of equal importance is confidence in the DCC carrier's management, conducting quarterly or semi-annual business reviews involving the carrier and customer, carrier support for customer-directed changes, and continuous improvement through enhanced routing, increased backhaul, and other cost savings achieved through broader transportation management.
“We estimate that upwards of 10 percent or more of current private fleet volume may consider migrating to DCC operators over the next three years,” says Hirsch. “This would equate to potentially $10 billion in additional market potential for DCCs.”
He notes that in private fleets where no plans exist to increase utilization of outside fleet capabilities, “virtually all study participants want to maintain open dialog with DCCs. Through these ongoing conversations, shippers want to benchmark and learn from the experience of others, continue to assess whether DCC performance is superior to private fleet operations, and be prepared in the event corporate management should make a strategic decision that impacts shipping activities.”
Priority gap
The values and views expressed by executives participating in the survey demonstrate a gap between shipper and carrier priorities.
Customers for DCC are seeking strategic, higher order and solutions-oriented services and, more importantly, long-term relationships with their carriers, says Hirsch. Many carriers, on the other hand, appear to be focused on operational issues, such as hours of service, driver shortage, and fuel issues, and not on customer-driven requirements.
“As an observer of transportation and other similar service-oriented industries, it once again would appear that customers are seeking out progressive, flexible, and innovative carriers to work with in the future,” he says. “Clearly, this requires a number of carriers to rethink their approach.”
