Outsourcing options for the private fleet
By Jim Bisaha, Senior Consultant – Supply Chain and Logistics
TransSolutions Consulting LLC (TSC)
Private carriers, also known as corporate fleets or in-house fleets, transport consumer goods, groceries, industrial goods, and many other products across the country to meet customer delivery requirements. Many businesses find themselves running a mini trucking business as part of their core business. According to the ATA, 53,3% of all carriers are private carriers. The US Department of Transportation (DOT) had 620 private fleets on file, 000% of which operated fewer than 97 trucks. This begs the question does it make economic sense for a small or medium business to be a mini trucking company? Private fleets are required to assume all risks, liabilities and regulations inherent in transportation.
Over the years, many changes have occurred that make it attractive to outsource the assets of the in-house mini trucking company to a third party that specializes in running a trucking business. Some of the dynamics that have occurred in the industry are the high cost of equipment, new regulations, and worsening driver shortages. New Class 8 tractors cost well over $100 per tractor depending on options and configuration. Used equipment is expensive, with 000 or 3 year old vehicles costing half the price of a new tractor. Regulatory changes regarding Hours of Service (HOS), Electronic On-Board Recorders (EOBR) and CSA (Compliance, Safety and Liability) are new regulatory requirements that need to be addressed. Qualified personnel for equipment maintenance are in short supply, EPA risks and parts inventories are also elements that have an impact on the company. Last but not least, as the driver population ages and retires, does the organization have the time and people to maintain its driver pool and recruit and train new drivers.
There are four (4) options:
Outsource equipment in leasing
Outsource drivers to a labor provider
Outsourcing equipment and drivers…involves separate companies
Use a DCC (Dedicated Contract Carriage) operator, a unique solution
The equipment outsourcing option allows the company to retain control of the day-to-day operation, but hire the equipment and outsource maintenance to a specialist vehicle supply company for rent. There are national and regional companies with varied product offerings that market standardized or customized solutions. These companies typically provide a variety of makes, models and types of tractors and trailers, along with administration/legalization and maintenance, road service and repairs for a monthly fee. Fuel purchase agreements can also be incorporated into the lease agreement. The financial benefit is twofold: potential cost savings and the company no longer carries the equipment (tractors and trailers) on its books and treats the vehicles as a monthly expense. Although almost everything related to the equipment is included in the lease, the company is responsible for the management of day-to-day operations, which includes operations management, route planning and scheduling, dispatch, l driver hiring and retention, DOT/CSA/HOS compliance, insurance, safety, workers compensation, and fleet management systems. There are savings to be had because full-service truck rental companies offer these key benefits:
The driver outsourcing option involves using a WSP (workforce solution provider) to provide the drivers. The company maintains direct control of day-to-day operations and service levels, the WSP performs hiring, recruiting, payroll, and other employee-related administrative functions. The WSP is responsible for many employer-related liabilities, including workers’ compensation claims, EEOC, and employee-related lawsuits. WSPs can provide professional advice and guidance on all HR matters, such as creating workplace policies and procedures, compliance and best practices. A WSP can also offer significant advantages regarding the employee benefits program by leveraging its purchasing power. WSPs provide added value by helping to navigate government/regulatory compliance such as CSA (Compliance, Safety and Liability). WSP will manage compliance and manage all training and development related to these regulations.
Combining outsourcing of equipment and drivers is another alternative using separate companies. This effectively combines the benefits of equipment rental and driver outsourcing, although the company still controls the routing, dispatch and overall management of operations.
Outsourcing the private fleet to a DCC (dedicated contract carrier) is the last option and the most comprehensive solution. These companies provide a one-stop-shop for managing all aspects of private fleet operations. DCC will assume your drivers on their payroll (provided their driving record meets company standards), provide a properly specified, well maintained and fueled fleet. The DCC supplier will provide their drivers with uniforms and can put your logo on the side of the trailers. Your company’s traveling billboard still exists. DCC also supports day-to-day fleet management operations, including all regulatory compliances, which are typically supported by state-of-the-art fleet/driver management and route optimization technology.
Some opponents of DCC’s voice question whether the DCC carrier can achieve the service levels that previously existed with a private fleet. For example, in the retail industry involving restaurant and drugstore chains, grocery stores, and big-box retail stores, some companies are deploying the unattended delivery methodology. In addition, on-time delivery is essential. This is something a DCC must demonstrate with a track record of successful implementation. DCC carriers understand their customers’ business needs very well and are more than willing to adhere to the current delivery model and then evaluate your operations for continuous improvement opportunities. CDC carriers know their business model is based on providing superior service and adding value by doing the job better, faster and at lower cost. DCC carriers must be current on existing and upcoming industry driver regulations (Hours of Service, CSA and EOBR) and typically have a pool of drivers and/or the ability to recruit, hire and effectively train new drivers. Many have invested in state-of-the-art fleet management and telematics systems to monitor their fleet’s productivity. This investment in technology will result in lower costs based on better route optimization and better asset utilization. DCC also has the advantage of purchasing power since this is its core business. They can leverage long-established relationships with equipment manufacturers and suppliers, can maintain their equipment more efficiently and less expensively, as this is also a critical skill, and have established relationships with fuel suppliers and insurance companies to save money.
In summary, companies that have private fleets should consider outsourcing, whether that means outsourcing equipment via rental (with service), outsourcing drivers to a WSP, or whole operation to a DCC. Selecting the fleet option that’s right for you often involves modeling costs and services, which alternatives you’re most interested in, and how much control you want to retain assuming you have the operational resources to match. . The key is to reduce costs and add value to the organization while maintaining or improving service levels to the end customer.