Credit Crunch Widens Appeal of Outsourcing Fleets

March 1, 2009
When the going gets tough, savvy organizations often turn to outsourcing-focusing on what they do best while letting others handle the rest. In light

When the going gets tough, savvy organizations often turn to outsourcing-focusing on what they do best while letting others handle the rest.

In light of the current credit crisis and global recession, it's no surprise that companies are once again focused on outsourcing as a way to make the most efficient use of every dollar. One area getting a closer look is outsourcing aging private delivery fleets. Running those fleets can cost companies tens to hundreds of thousands of dollars, making outsourcing to a dedicated contract carriage (DCC) provider an increasingly attractive option.

Among the benefits, outsourcing to a DCC provider can free up credit and capital, provide greater flexibility and operational efficiency while reducing liability and insurance costs. This frees a company to focus on its core competencies instead of worrying about transportation logistics.

Freeing up credit and capital

Surviving the current credit crunch is, perhaps, the most obvious benefit to partnering with a DCC provider. For example, companies may have trucks that are as little as seven years old which may be showing their age or facing expensive upgrades to meet new EPA emissions requirements — at a cost of around $85,000. Alternatively, instead of buying a new tractor at an estimated cost $90,000 to $100,000 or a new trailer at an estimated cost $25,000 to $28,000, the company could invest that $85,000 in a piece of production equipment for its manufacturing plant.

Flexibility and operational efficiency

When it comes to flexibility, private delivery fleets often fail to deliver. Companies that maintain a private fleet must plan and invest in capacity to support their peak shipping season — an investment they will pay for during off-peak periods. For example, a company may need 40 trucks to meet peak demand, but 35 trucks will carry the volume for most of the year. Sizing for that peak leaves the company paying for five idle trucks during non-peak times.

Partnering with an outside provider, instead of paying for 40 trucks year-round, that same company can pay for the capacity it really needs.

To give companies maximum flexibility and efficiency, a good DCC provider will perform an initial six-month evaluation of the fleet to make sure it is using the right equipment and the right drivers, and will continue to reevaluate routes every six months to make sure they are set up properly.

A private delivery fleet may find it is difficult to sell its extra tractors and trailers if volume falls and expensive to buy new ones if demand spikes. A DCC provider, on the other hand, can right-size the fleet on a regular basis customer by customer.

Even companies with a long history of managing their own private fleets can benefit from the expertise of a third-party provider. In the same way a manufacturing company would optimize its production processes, a DCC provider will leverage best practices from its entire network and apply it to individual customer situations. And a dedicated contract carrier arrangement can be fully branded, just like a private fleet, right down to the driver uniforms.

Liability, insurance and compliance

Companies still on the fence about whether to outsource their delivery fleets should consider three often overlooked, but costly areas: liability, insurance and compliance. The cost of obtaining insurance to start or maintain a private fleet can be prohibitive. Insurance costs for a delivery driver are substantially higher than for someone working in a manufacturing plant. And while many large companies are self-insured, a single bad highway accident can quickly eat into profits. Adding in the costs of keeping fleets compliant with industry regulations further impacts the bottom line.

In short, there are several cost variables and unknowns associated with operating a private fleet that can make business planning difficult. By outsourcing, a company removes those staff resources from its payroll, saving on liability and workers' compensation insurance premiums. While a company still pays those costs indirectly through a third-party provider, the expenses are leveled out and much easier to predict and risk is transferred to the DCC provider. Further, a DCC provider will keep a fleet in full compliance with DOT and EPA regulations.

The right tools for the job

Last, but certainly not least, the changing technology landscape impacts the ability to keep fleets current. Staying abreast of the latest in transportation and logistics technology is often a challenge for private fleets. A good DCC provider will have the latest tools to track inventory and build reports with up-to-the-minute sales information, plus data-capture capabilities and signature capture that add value throughout the supply chain. And since they are in the business of managing fleets, a third-party provider will be aware of new technologies and how to apply them to a company's operations.

Peace of mind

Many companies choose to outsource fleet management simply because they don't want the headaches and risks associated with running their own fleet. Partnering with a DCC provider allows managers to focus on their business rather than deal with driver shortages, new engine technologies, emissions standards, or some new EPA ruling. In tight economic times, having the peace of mind that a company's business is operating as efficiently and profitably as possible goes a long way. It's all about delivering smart solutions for challenging economic times.

Mitch Muehring is marketing manager for UPS Freight, the heavy-cargo division of UPS.

Signs that Your Company Needs a DCC Provider

  1. Older fleet in need of replacement
  2. Underutilized equipment or high “empty miles” (vehicles sitting empty in the parking lot)
  3. High driver turnover/absenteeism
  4. Need for metrics/reporting
  5. Dynamic routing requires new technology and routing expertise
  6. Time sensitive delivery requirements not being met
  7. Special handling/service requirements not being met