Trucking Companies Increase 'Dedicated' Fleets for Use by Clients
February 23 2017 - 2:24PM
Dow Jones News
By Jennifer Smith
Trucking fleets battered by falling prices for hauling freight
are steering more of their big rigs into steady work for retailers
and manufacturers.
So-called dedicated fleets, where shippers hire trucks to drive
only for them, have swelled over the past year, even as large
trucking companies cut the overall number of vehicles they operate,
particularly in the "spot market," where loads are arranged at the
last minute.
The shift is a sign that some carriers are bracing for months
more of weak demand from shippers. While rates show some signs of
recovering from a year-long slump, analysts don't expect
significant improvements until later in 2017.
Dedicated trucking offers predictability for both carriers and
shippers. Companies that hire dedicated fleets can lock in pricing
and guarantee trucks will be waiting at their warehouses. For
trucking firms, steady dedicated revenue helps offset slumping
profits in other parts of their business, though they risk missing
out when rates rise if trucks are tied up in long-term
contracts.
Celadon Group Inc. has hired salespeople focused on dedicated
trucking, as well as a senior vice president of pricing and
business development with years of experience in the segment. Over
the next two years the company plans to increase the dedicated
portion of its business from 37% to 50%.
Earlier this month the company reported a $1.5 million loss in
its fiscal second quarter, which includes a liability from an
adverse court ruling, one of many carriers to see profits drop as
too many trucks competed for loads, driving down the rates that
fleets charge shippers.
Dedicated was a bright spot last year, with "predictable"
margins, said Nathan Roberts, Celadon's divisional president of
business development.
"The nice thing about dedicated pricing is it is more
consistent," he said. "We didn't take big hits."
J.B. Hunt Transport Services Inc., Swift Transportation Co. and
Werner Enterprises Inc. were among other large fleets to add trucks
to their dedicated divisions last year. Werner and Swift both cut
trucks running in other parts of their business.
"Dedicated is the stable middle," balancing out more volatile
units such as one-way trucking and logistics, said Derek Leathers,
chief executive of Werner, which now has about half of its vehicles
in the segment.
Hub Group Inc., which mainly arranges cargo transportation over
long distances by rail and truck, has also signaled an interest in
dedicated trucking -- potentially through acquisitions -- citing
client demand and the segment's strong performance among
competitors.
Dedicated trucking tends to be more complex than regular
long-haul routes. Drivers often make multiple stops, unloading
groceries or stocking backroom shelves as they move cargo between
distribution centers and stores. Some wear store-branded uniforms,
though trucking companies handle labor, equipment and other
operating costs.
Some shippers, including Wal-Mart Stores Inc. and Kroger Co.,
use dedicated fleets to supplement their own trucks during seasonal
surges or when expanding into new territory.
Others choose to outsource their entire trucking operations,
finding managing large fleets of vehicles too difficult or
expensive. Ryder Systems Inc. recently helped a national hardware
distributor and retailer switch from owning its own trucks to a
dedicated fleet.
"Trucks are getting more expensive, regulations are more
burdensome and finding drivers is a pain in the neck," said Brad
Delco, an analyst with Stephens Inc.
Trucking capacity could also shrink this year, analysts predict,
because of a safety mandate set to take effect in December that
requires truckers to electronically record their hours behind the
wheel. Drivers and carriers who exceeded limits on driving hours by
altering paper logs will no longer be able to do so.
As that deadline closes in, shippers are moving freight over to
dedicated trucks to ensure their cargo get where it needs to go,
analysts say.
Write to Jennifer Smith at jennifer.smith@wsj.com
(END) Dow Jones Newswires
February 23, 2017 14:09 ET (19:09 GMT)
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