Industry Update

Trucking fleets battered by falling prices for hauling freight are steering more of their big rigs into steady work for retailers and manufacturers.

So-called dedicated fleets, where shippers hire trucks to drive only for them, have swelled over the past year, even as large trucking companies cut the overall number of vehicles they operate, particularly in the “spot market,” where loads are arranged at the last minute.

The shift is a sign that some carriers are bracing for months more of weak demand from shippers.

While rates show some signs of recovering from a year-long slump, analysts don’t expect significant improvements until later in 2017.

Dedicated trucking offers predictability for both carriers and shippers. Companies that hire dedicated fleets can lock in pricing and guarantee trucks will be waiting at their warehouses. For trucking firms, steady dedicated revenue helps offset slumping profits in other parts of their business, though they risk missing out when rates rise if trucks are tied up in long-term contracts.

Celadon Group Inc. has hired salespeople focused on dedicated trucking, as well as a senior vice president of pricing and business development with years of experience in the segment. Over the next two years the company plans to increase the dedicated portion of its business from 37% to 50%.

Earlier this month the company reported a $1.5 million loss in its fiscal second quarter, which includes a liability from an adverse court ruling, one of many carriers to see profits drop as too many trucks competed for loads, driving down the rates that fleets charge shippers.

Dedicated was a bright spot last year, with “predictable” margins, said Nathan Roberts, Celadon’s divisional president of business development.

“The nice thing about dedicated pricing is it is more consistent,” he said. “We didn’t take big hits.”
J.B. Hunt Transport Services Inc., Swift Transportation Co. and Werner Enterprises Inc. were among other large fleets to add trucks to their dedicated divisions last year. Werner and Swift both cut trucks running in other parts of their business.

“Dedicated is the stable middle,” balancing out more volatile units such as one-way trucking and logistics, said Derek Leathers, chief executive of Werner, which now has about half of its vehicles in the segment.

Hub Group Inc., which mainly arranges cargo transportation over long distances by rail and truck, has also signaled an interest in dedicated trucking—potentially through acquisitions—citing client demand and the segment’s strong performance among competitors.

Dedicated trucking tends to be more complex than regular long-haul routes. Drivers often make multiple stops, unloading groceries or stocking backroom shelves as they move cargo between distribution centers and stores. Some wear store-branded uniforms, though trucking companies handle labor, equipment and other operating costs.

Some shippers, including Wal-Mart Stores Inc. and Kroger Co., use dedicated fleets to supplement their own trucks during seasonal surges or when expanding into new territory.

Others choose to outsource their entire trucking operations, finding managing large fleets of vehicles too difficult or expensive. Ryder System Inc. recently helped a national hardware distributor and retailer switch from owning its own trucks to a dedicated fleet.

“Trucks are getting more expensive, regulations are more burdensome and finding drivers is a pain in the neck,” said Brad Delco, an analyst with Stephens Inc.

Trucking capacity could also shrink this year, analysts predict, because of a safety mandate set to take effect in December that requires truckers to electronically record their hours behind the wheel.

Drivers and carriers who exceeded limits on driving hours by altering paper logs will no longer be able to do so.

As that deadline closes in, shippers are moving freight over to dedicated trucks to ensure their cargo get where it needs to go, analysts say.

Write to Jennifer Smith at jennifer.smith@wsj.com



https://www.wsj.com/articles/trucking-companies-increase-dedicated-fleets-for-use-by-clients-1487876086?mod=yahoo_hs