For companies of a certain size, there’s an age-old debate over how to best handle transportation services. Is it best to go-it-alone and handle your own transportation through a private fleet? Or, it is better to partner with a third-party logistics (3PL) provider that offers dedicated transportation services? We’ll take a fresh look at these two options in this article while adding a new wrinkle: the option of partnering with dedicated providers that can also offer on-demand transportation.
Background: Private Fleet vs Dedicated Transportation
When a company opts for a private fleet, it is essentially creating its own trucking company to handle transportation. From leasing the equipment to hiring all necessary personnel, the company builds a trucking company from the ground up. The perceived advantages are complete control, along with cost savings that companies believe they can attain by going the DIY route.
With dedicated trucking services, the company hires a 3PL to manage all transportation services. The 3PL will dedicate equipment and staff solely to the company and operate as though it was the company’s own transportation arm. The 3PL makes all investments in equipment, staffing, systems, and maintenance and charges the company a fee to cover these costs
So, then, which is better for your operation?
The answer will depend on myriad factors, including the following.
Cost. One of the biggest draws of developing a private fleet is the belief that a company can save money by handling its own transportation. 3PLs are not non-profits after all, and the substantial work of operating a dedicated fleet will come with a substantial price tag. But, when you add up the time and money that must be invested in private fleets, and compare it with the relative ‘plug and play’ model that a 3PL with the right infrastructure can offer, you may wonder where your savings is going to come from.
Let’s consider, at a high level, some of the necessary investments that must be made in a private fleet.
- Electronic logging device (ELD) systems
- Obtaining and Maintaining DOT and Intrastate Operating Authorities.
- Private Carrier Insurance
- Transportation Management System (TMS) Software
- Truck and equipment purchasing and/or leasing
- Truck and equipment maintenance
- Driver hiring and training
- Dispatcher hiring and training
- Managerial and administrative staff hiring and training
- Screening services for mandated drug testing and other processes
- Ongoing State and municipal compliance (e.g., the California Truck and Bus Regulation)
These costs are exclusive of the time and resources required to integrate these components into a company that has no previous large-scale transportation experience. When taking a sober look at all that a private fleet entails, the bloom can come off the cost-savings rose quickly.
With dedicated services, on the other hand, your 3PL comes to you with all these items already baked in. The provider will analyze your volumes and service requirements and provide you with one flat rate to manage your entire operation.
Additionally, getting out of a dedicated 3PL contract is much easier than trying to undo your significant private fleet expenditures if your volumes don’t match the infrastructure you built. For instance, getting out of a truck lease – or multiple truck leases – is often difficult, resulting in companies eating significant costs to free themselves of equipment they didn’t need.
Staffing. As mentioned above, running a private transportation fleet involves staffing that entire operation, from drivers and dispatchers to supervisors and compliance officers. Such an undertaking, even in the most carrier-friendly employment times, can prove daunting. What happens, for instance, if two of your drivers or dispatchers call in sick? Odds are, your operation will simply have to suffer until their return.
With dedicated transportation, on the other hand, your 3PL provider will likely have other operations to pull personnel from to cover for a sick employee.
Importantly, these are not the most carrier-friendly transportation times. There are a variety of factors to contend with in today’s economy that present very significant hurdles to attracting and recruiting drivers and other employees.
The current driver shortage means transportation providers are competing at a feverish level over a smaller pool of qualified drivers, making it difficult and more expensive to attract, hire and retain drivers. The wages and benefits needed to entice skilled drivers are also substantially greater than they were just 18 months ago.
There are also significant differences in labor laws between states. So, if you’re compliant with all labor laws in, say, Wisconsin, that doesn’t mean you’ll be compliant everywhere else. It is then imperative that you have an HR department well-versed in the labor laws of every state you operate in.
Here at Weber Logistics, our home state – California – has labor laws (and other logistics-related laws) that are very different from the other 49 states. The state’s regulatory climate is so unique, in fact, that we wrote an eBook on the subject. Just a few of the transportation-related issues that set California apart include:
- It is very difficult to hire independent drivers in the state as recent legislation has made it easy for contractors (e.g., drayage carriers) to claim to be employees of the companies they work for.
- The minimum wage is expected to climb to $15/hr by 2022. In Los Angeles, San Francisco, and Oakland, it is already there. That drives up all wages.
- “Piece rate” wage laws in the state dictate that employees must not only be paid for their productive time, they must also be paid at least minimum wage for breaks and other non-productive time.
- Companies that violate the state’s ‘meal break’ laws pay an employee an extra hour of regular pay for each day that a full break was not given.
Branding. Many companies who go the private-fleet route embrace the fact that their trucks and equipment can be branded with their logos and company information. While this is certainly true, it is not a unique advantage to private fleets.
Dedicated fleets truly act as an extension of its hiring company’s operation and often pull trailers with the customer’s branding.
Scalability. Traditionally, scalability – the ability to add or decrease resources as volume dictates – is not a strong suit of either private fleets or dedicated transportation. With a private fleet, you build it up to handle anticipated volumes. But, as mentioned above, it’s often difficult and costly to downsize if the volumes aren’t there.
It’s also difficult and costly to increase your fleet as you’d have to pay to add resources yourself (which is expensive and time consuming) or hire external help temporarily (e.g., contracted truckload carriers). The problem here is, aside from being separate from the infrastructure you’ve built, these contracted carriers can be hard to come by – with many companies vying for their services, especially around the holiday peak. And getting temporary driver staffing in these full employment times? Not easy, especially if you need one for only a day or two.
With dedicated fleet services, you contract a 3PL to handle a certain volume and level of service. It then dedicates those resources to your operation. When your volumes are lower than expected, you are still on the hook to pay for the contracted services. The key difference is that these contracts can be periodically adjusted or renegotiated to account for volume or initiative changes.
When it comes to adding resources to meet increased volumes, some dedicated providers will again be stuck within the limits of the contracted terms. They have a finite number of trucks and drivers that are spoken for by each dedicated operation. There are other providers, however, that can add capacity easily if they also offer on-demand transportation.
Augment dedicated transportation services with on-demand services
When a 3PL manages your dedicated fleet but also provides on-demand transportation services, it enables your operation to add capacity as needed. Whenever you need to go above your contracted resources, your 3PL can pull from its on-demand resources to support you. You pay separately for those on-demand services; it’s an as-needed expense.
Perhaps best of all, this addition is both quick and seamless. You don’t need to spend the time and money necessary to source and contract with another company, nor do you need to endure the systems integrations and training challenges that come with that. Your 3PL is already fully immersed in your business and just augments capacity, as needed.
Importantly, this can also come into play whenever there are hiccups in your normal dedicated service. If a truck is out of commission or a driver is out sick – and there aren’t associates from other dedicated operations available (e.g., during the holidays when all operations are running full bore) – such 3PLs can fill in the gaps from their on-demand resource pools. Conversely, if your private fleet’s truck or driver is out of commission, you’re simply down a truck or a driver without any quick or easy ability for replacement.
So, as you can see, the question of which type of service is best for your business doesn’t come down to just private vs dedicated. Hybrid 3PLs that combine dedicated and on-demand services can provide the flexibility that the private and dedicated models lack individually. At Weber Logistics, both dedicated and on-demand services have long been part of our transportation mix. To learn more about our services, contact us today.