Conversion to Dedicated Contract Carriage

A Comprehensive Guide For Financial Professionals And Private Fleet Managers

Conversion to Dedicated Obstacles: Increase Compliance, Rising Equipment Costs, Strict Driver Qualification

Today's private fleets face a host of challenges, including increasing regulations and compliance, rising equipment costs and stricter driver qualification standards. While private fleets continue to play a significant role in business operations, these changes – and the requirement to assume all risks and liabilities inherent in transportation – have many private fleet operators considering alternative solutions such as Dedicated Contract Carriage (DCC).

DCC Less Risk and Liability

By working with a DCC carrier, companies no longer have the burden of owning trucks, maintaining equipment or hiring and retaining drivers. Perhaps the biggest perk: mitigating the risk and liability of operating a private fleet. Not only are DCC carriers responsible for managing the day-to-day operations of running fleets inclusive of all regulatory compliance, but they also ensure fleets are properly spec’d and well maintained. As a core competency, DCC carriers can maintain their equipment less expensively through established relationships with suppliers, resulting in cost savings.

When transitioning, the best DCC carriers work closely with private fleet operators to understand their current business model and requirements. They also actively assess operations for continuous improvement opportunities (often in regard to the number of drivers and available equipment) in order to efficiently manage and deliver capacity, including volume spikes. The endgame: You get to focus on what you do best—and we will do the same.

Perception vs. Reality

The prospect of making an operational shift is difficult and sensitive for many shippers, but research suggests that the problem is further clouded by companies often using outdated or inaccurate information as they weigh the variables. Not surprisingly, when private fleet operators better understand the range of capabilities provided by DCC, they are more likely to make the transition.

Both Common Perceptions and Verified Facts About Dedicated Contract Carriage:

Model Characteristics
Private Fleet Model
Dedicated Contract Carriage (DCC) Model
PERCEPTION
REALITY
Management Managed internally Company contacts carrier with daily route requirements Managed on-site by DCC with ongoing communications with company
Drivers Company drivers DCC provides drivers on an as-needed basis DCC provides dedicated group of drivers
Driver Domicile Company-designated distribution center Driver picks up equipment at DCC depot and then goes to company’s distribution center Uses either customer or carrier distribution center
Routes

Typically, same driver operates same daily (weekly) trip profiles

Different drivers each day for routes

Designed for same driver to operate same daily (weekly) trip profiles

Flexibility Company can make operational changes quickly, except in the case of union drivers Drivers are tied to rigid routes and schedules With on-site DCC management and broad capabilities, DCC can provide necessary levels of flexibility
Customer Service Company drivers provide customer service function DCC drivers aren’t skilled in customer service functions Drivers are trained to replicate the private fleet experience
Branding Uniformed drivers and branded vehicles Carrier branding DCC drivers are uniformed and vehicles are branded for the company

 

Financial Investment Company financial investment Typically, DCC owns or leases all equipment Typically, DCC owns or leases all equipment
Liability Primary liability on company Primary liability is placed on the carrier; however, since the shipper is the better known firm, they will be fully exposed in any lawsuit Primary liability is placed on the DCC
Balance Sheet Company keeps purchased assets on their balance sheet Company may still be required to purchase or lease equipment that is operated by carrier Company is freed of capital commitments made to purchase tractors, trailers and other related traditional private fleet expenses
Revenue Gain Sharing Typically, secondary consideration Little or no effort on revenue gain sharing Actively engaged in seeking out backhaul revenue gain sharing
Brokerage Handled internally, with primary or multiple brokers

Not applicable

Can provide full range of complementary brokerage functions

Require Excess Capacity Contact carriers seeking space Not applicable Provides access to capacity throughout overall network

ASKING THE HARD QUESTIONS

For those assessing a change in their transportation and distribution model, a number of questions need to be asked to determine whether DCC is a viable business alternative. This guide offers a comprehensive look at areas to consider and can help you determine if conversion is appropriate for your organization.

Company Culture

  • Is transportation a core function of your organization? Should you be in the transportation business?
  • Is there a quantifiable benefit from a marketing and customer service perspective to running your own fleet? Have you actually compared this to other alternatives?
  • When looking at your transportation/distribution team, do you have “change activists” who regularly ask the simple question, “Why are we using this distribution model in our company?”

Assessment of DCC Benefits

  • Does DCC provide greater access to information management system technology?
  • What are the advantages of taking capital dollars required to run private fleets off the balance sheet?
  • What liability concerns can be mitigated when not running your own fleet?

Fleet Performance and Financial Reporting

  • What are the fleet performance metrics and why were they established this way?
  • What elements are included in fleet budgets (the fleet manager may have access to top-line data such as wages, fuel and repair costs but not to below-the-line expenses such as liability insurance, equipment depreciation and retirement costs)?
  • How are fleet budgets established and do these targets change over time? For example, if a company targets fleet costs on a percentage of sales, does maintaining that percentage over time demonstrate fleet management success?
  • Successfully conducting benchmarking with DCCs requires a team effort. Not only does the transportation department have to take an active role, but other departments must also actively participate. Are the following departments within your company willing to participate in benchmarking?
    • Finance: to confirm that all relevant “above” and “below” the line costs have been adequately integrated into the analysis. Additionally, Finance needs to align with the strategic planning group to determine optimum use of capital, including prioritizing the value of fleet expenditures.
    • Risk management: to conduct necessary “what if” analyses of liability exposure.
    • Operations: to determine how well fleet service offerings meet underlying performance metrics and overall customer satisfaction.

Fleet Requirements

  • How unique are your company’s distribution requirements?
  • Are there DCCs currently serving your industry vertically? What are their track records?
  • On the basis of their performance with your competitors and peers, is it reasonable to believe a DCC can handle your requirements?

External Benchmarking

  • Do you have a clear view of the resources at your disposal – internal vs. external? It is critically important that you get a perspective beyond that of your transportation team. Too often, it’s easy to get comfortable and complacent. Do you benchmark against your competitors regularly?
  • Even if you’re satisfied with your fleet today, do you bring carriers in to benchmark service capabilities and pricing vs. your own? Do you have a formal plan to benchmark your fleet with DCCs? Who is responsible for these business reviews? Transportation management or finance? What is the role of the CFO and other leaders in this process? How are the decision criteria established?
  • If you already rely on third-party carriers, how financially stable are your carriers? What contingencies do you have in place should your primary carrier run into problems?

While all businesses have their own unique set of operating characteristics, by actively staying abreast of industry trends, including regular benchmarking with outsourced DCC providers, you remain in the best position to make the correct fleet decisions for your organization.

SMOOTH TRANSITION

That’s a lot to think about, but know that Schneider makes the transition from operating a private fleet to a DCC model as smooth as possible–recognizing that your core competancy is running your business, and that moving is your products ours. Schneider Dedicated Services can help you achieve cost savings for your transportation and distribution operations, while you get back to doing what you do best – running your business. With almost 10,000 trucks, 32,000+ trailers and over 13,000 drivers, Schneider can keep your supply chain moving while upholding the highest safety standards and on-time service. To learn more, visit Schneider.com.

 

Published April 2015

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