Outsourcing Options for the Private Fleet

By Jim Bisaha, Senior Consultant – Supply Chain & Logistics

TranSolutions Consulting LLC (TSC)

Private carriers also called company or in-house fleets, move consumer goods, groceries, industrial goods and many other products across the country to meet customer delivery requirements. Many companies find themselves in the business of running a mini trucking company as part of their core business. According to the ATA, 53.3% of all carriers are private carriers. The U.S. DOT (Department of Transportation) had 620,000 Private Fleets on file with 97% operating fewer than 20 trucks. This begs the question does it make economic sense for a small or medium size business to be a mini trucking company? Private fleets are required to assume all the risks, liabilities and regulations that are inherent in transportation.

Over the years, many changes have occurred that make it attractive to outsource the assets of the in-house mini trucking company to a 3rd party that specializes in running a trucking company. Some of the dynamics that have occurred across the industry are the high cost of equipment, new regulations and the worsening driver shortage. New class 8 tractors cost well over $100k per tractor depending on options and configuration. Used equipment is commanding a premium price with 3 or 4 year old vehicles costing half as much as a new tractor. Changes in regulations with hours of service (HOS), electronic on board recording devices (EOBR) and CSA (compliance, safety and accountability) are new regulatory requirements that must be addressed. Skilled equipment maintenance personnel are in short supply, EPA risks and parts inventory are also items that have an impact to the business. Last but not least, as the driver population ages and retires, does the organization have the time and people to maintain its driver pool and recruit as well as train new drivers.

There are four (4) options:
Outsource the equipment by leasing
Outsource the drivers from a labor provider
Outsource equipment and drivers … involves separate companies
Utilize a DCC (Dedicated Contract Carriage) operator, a single source solution

Equipment outsourcing option, allows the company to retain control of the day to day to operation but lease the equipment and outsource maintenance from a company that specializes in providing leased vehicles. There are national and regional companies with varying product offerings that market standardized to customized solutions. These companies usually provide a variety of make, model and type of tractors and trailers as well as provide administration/legalization and maintenance, road service and repairs for a monthly charge. Fuel purchase agreements can also be worked into the leasing agreement. The financial advantage is two-fold: potential cost savings and the company no longer carries the equipment (tractors and trailers) on its books and treats the vehicles as a monthly expense. While most everything related to the equipment is included in the lease , the company is responsible for the running the daily operation which includes managing the operation, scheduling and planning the routes, dispatch, hiring and driver retention, DOT/CSA/HOS compliance, insurance, safety, workers compensation and fleet management systems. There are savings to be had as the full service truck leasing companies offer these key benefits:

  • Equipment purchasing leverage, same applies to replacement parts, tires and accessories
  • Improved warranties, leverage for policy adjustments
  • Trained mechanics, often dedicated to your fleet (depends on fleet size)
  • Balance sheet transfer from capital expense to operating expense
  • 24/7 road service
  • Fuel programs
  • Driver outsourcing option involves utilizing a WSP (workforce solutions provider) to provide the drivers. The company maintains direct control of the day-to-day operations and service levels, the WSP performs the hiring, recruiting, payroll, and other employee related administrative functions. The WSP is liable for many employer related liabilities which includes Worker’s Compensation claims, EEOC, and employee related lawsuits. WSP’s can provide professional advice and guidance on all issues related to HR such as creating workplace policies and procedures, compliance and best practices. A WSP can also provide significant advantages regarding employee benefit program by leveraging it’s buying power. WSP’s provide additional value by helping navigate government/regulatory compliance such as CSA (compliance, safety and accountability). The WSP will provide compliance management and handle all training and development related to these regulations.

    Combining the outsourcing of the equipment and drivers is another alternative by utilizing separate companies. This effectively combines the benefits of equipment leasing and driver outsourcing although the company still controls the routing, dispatching and overall management of the operations.

    Private fleet outsourcing to a DCC (dedicated contract carrier) is the last option and the most complete solution. These companies provide one stop shopping for managing all aspects of running the private fleet. The DCC Company will assume your drivers onto their payroll (providing their driving record meets company standards), provide a fleet that is properly spec’d, well maintained and fueled. The DCC provider will provide its drivers with uniforms and can place your logo on the side of the trailers. The roaming billboard for your company still exists. The DCC company also takes over the day to day operations of the running the fleet inclusive of all regulatory compliance all of which is usually supported by state-of-the-art fleet/driver management and routing optimization technology.

    Some naysayers of DCC voice concern whether the DCC carrier can meet the service levels that previously existed with a private fleet. For example, in the retail sector involving restaurant and drugstore chains, grocery and big box retail stores, some companies deploy the methodology of unattended delivery. Also, on-time delivery is critical. This is something a DCC has to demonstrate with a history of successful implementation. DCC carriers are very good at understanding their customer’s business requirements and are more than willing to adhere to the current delivery model and then assess your operations for continuous improvement opportunities. DCC carriers know that their business model is based upon providing superior service and adding value by doing the work better, faster and less expensive. DCC carriers must be up to date on the existing and pending industry driver regulations (hours of service, CSA and EOBR’s) and usually have a driver pool and/or the ability to effectively recruit, hire and train new drivers. Many have invested in state of the art fleet management systems and telematics to monitor their fleet productivity. This investment in technology will result in reduced costs based upon better route optimization and better asset utilization. DCC’s also having the advantage of purchasing power since this is their core business. They can leverage long established relationships with equipment manufacturers and providers, can maintain their equipment better and less expensively as this is also a core competency, and have established relationships with fuel suppliers and insurance companies to provide cost savings.

    Summarizing, companies that have private fleets should consider outsourcing whether it is outsourcing the equipment via leasing (with service), outsourcing the drivers to a WSP or the entire operation to a DCC. Selecting the fleet option that will work best for you often involves cost and service modeling the alternatives that best appeal to you and the degree of control you want to retain assuming you have the operations resources that match it. The bottom line is to reduce costs and add value to the organization while maintaining or improving service levels to the end customer.