| By Mike Eaton | Principal, Transportation | Chainalytics |
I seem to cycle back to this topic every three to five years. That’s probably because the fact remains that for most organizations utilizing private or dedicated fleet operations for a part of their transportation services portfolio, this is really something that should be monitored on an ongoing basis. Also, the current truckload (TL) market challenges associated with ELDs, increased demand, and tightening capacity raise interest from our clients around potential fleet size increases. I’d like to differentiate between a couple of fleet operation modes today and discuss steps your organization should likely take to continuously assess the effectiveness of the deployment.
Low Stop Count TL Deliveries
These are fleets that play in the same space as normal over-the-road contract carriers, moving freight as full load point to point or low one or two intermediate stop loads. For most clients, the effectiveness of these fleets tends to be driven by two primary levers: length of haul and availability of backhaul. The primary comparison for these operations centers upon the availability and cost of the contract carriage and spot market alternatives.
Generally speaking, costs in the contract carriage and spot market tend to move much more readily and dynamically, both up and down, than the cost of fleet operations. Fleet operators tend to work on 3-5 year tractor depreciation schedules, 8-10 year trailer depreciation schedules, or in the case of dedicated operations, 3-5 year contracts with predefined cost escalation. Your cost of fleet operations (excluding fuel) is usually more predictable than what’s going on in the contract and spot market.
So two alternatives typically exist:
- Chase fleet size in response to the cost alternatives available in the marketplace. If you choose this route, do so fully aware that your fleet is NEVER the right size. As the marketplace heats up, analysis will invariably indicate you should increase fleet size, and as markets soften, the analysis will almost always recommend the need to shed assets and turn more volume over to contract and spot carriage.
- Deploy your existing assets on the best mix of lanes to take advantage of your operating cost structure as compared to the market alternatives. As individual markets heat up or cool down, it may make sense for your fleet operations to participate in lanes they previously hadn’t. This usually implies turning over lanes that had been on the fleet to alternative market carriers. This approach generally acknowledges a fixed asset count and attempts to maximize the benefit of the existing fleet resources.
Route Delivery Operations
I commonly differentiate these fleet operations as high stop count, specialty type delivery. Typical examples are foodservice operations, direct store delivery (DSD) operations, and operations where drivers are providing other value add services – inside delivery, furniture, appliance, etc…
For these operations, a non-dedicated alternative often doesn’t exist. There is no “market” comparative or option readily available. In these instances, the question is most often – “Are we running the most efficient delivery routes we can?” When we help clients with this challenge, we often find they’re doing an effective job using routing technology to build the best loads they can under current operating constraints.
However, what we also often see when running alternative modeling scenarios is that the organization has lost sight of the amount of expense being incurred honoring a handful of customer constraints or characteristics such as:
- Delivery window constraints
- Day of week constraints
- Minimum order/drop size
- Frequency of delivery requirements
All, or some combination of, these may contribute to highly inefficient routes in a marketplace that otherwise has high geographic and order frequency density.
In this instance the work is often valuable in allowing the organization to determine whether the inefficiencies being incurred are an acceptable cost of business, or whether they might wish to pursue alternative sales policies with clients. Being able to quantify the impact is the key to making an informed decision.
Both types of fleet operations benefit from ongoing objective evaluation. This is often done through use of industry transportation modeling and/or routing solutions in conjunction with rigor around understanding your current fleet costing. I’ll close with an observation pretty similar to what I have in prior years. It’s equally relevant today.
Fleets are an important part of many companies transportation services portfolio. Make sure you’re routinely revisiting where/how you’re using these valuable assets and ensure that your decision is fully informed through rigorous costing discipline and the use of advanced modeling and routing tools.
Read more about how Chainalytics supports better transportation strategies for our clients:
- (BLOG) Do Your Transportation Planning Processes Need a Fresh Perspective?
- (BLOG) Overcoming the Challenges of Ocean Container Transportation Operations
- (BLOG) Transitioning from LTL to TL – Finding the Right Transportation Mode Mix
- (BLOG) The Benefits of Establishing a Centralized Transportation Department