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Hedging your Truckload Transportation Bets
As we enter an age where almost anyone can bet on almost anything (even the length of the rendition of the national anthem at the Super Bowl) let’s talk about how shippers can hedge their bets in the North American truckload transportation space. Often, we see shippers defaulting to using standard truckload transportation, either contract or spot market, and not considering other options at their disposal. Here are some options to consider:
Dedicated/Private Fleet
What is it?
A private fleet is a collection of tractors and trailers (and possibly straight trucks) and a team of drivers and management personnel moving freight on behalf of the shipper. A dedicated fleet is the same, except all of the assets, personnel and technology are outsourced to a third-party transportation logistics provider
What are some use cases?
Networks that have sufficient density of freight (AKA, enough freight to keep at least one driver busy full time) without requiring a layover
Shippers who are seeking a level of customer service better suited to execution by a company employee
Dedicated Capacity
What is it?
Securing a specified number of assets to be available on a specified cadence
What are some use cases?
Locations with some known minimum quantity of outbound freight on known days requiring truckload carrier service
Locations having difficulty accessing truckload capacity, regardless of whether the market favors the carrier or shipper communities
Guaranteed Service/Pricing
What is it?
An agreed-upon rate and service level where the carrier guarantees to accept the tender(s), usually at some premium over the regular contract rate
What are some use cases?
Shippers who experience and can forecast significant spikes in freight demand (i.e. end-of-quarter, end-of-month)
Similar to dedicated capacity, locations that have difficulty accessing truckload capacity through the regular contract or spot markets
Intermodal (Truckload and Rail) Transport
What is it?
For the purposes of this blog, it is tendering freight leveraging a combination of truckload and rail service
What are some use cases?
Transporting long-haul freight (usually defined as distances over 500 miles) when not prohibited by service constraints and/or significant inventory carrying costs
Moving product that weighs out before cubing out, again over long-haul distances, on the truckload side. One rail car can hold up to 220,000 pounds of freight, while truckload freight can only haul weights of around 45,000 pounds
All of these modes and use cases deserve consideration as shippers look for ways to reduce cost, improve service and reduce reliance on a single source of transportation. In a follow-up blog, we will look at hedging opportunities on the less-than-truckload side of transportation operations.
