NEW YORK – Retailers and grocery stores are among companies increasingly using dedicated-fleet services as a shortage of drivers constrains U.S. trucking capacity while the economy heals.
J.B. Hunt Transport Services and Werner Enterprises are among carriers benefiting from an “accelerating trend” that’s helping to buoy the trucking industry, according to John Larkin, managing director in Baltimore at Stifel Nicolaus & Co. Dedicated-fleet services – provided by a carrier that allocates a fleet of trucks to specific customers – are “in vogue” because shippers want to eliminate the uncertainty related with procuring vehicles, he said.
These services now are “the preferred approach to lock in capacity” for core shipments, Larkin said. Further, because customers are charged the same amount whether a truck is empty or full, they can better manage their costs in a shortage by negotiating rates for “defined, predictable routes” in advance.
Businesses also can preserve capital while avoiding expenses from accidents and other risks associated with operating their own trucks, said Vincent McLoughlin, chairman of Cardinal Logistics Management.
The Concord, N.C.-based carrier sees more interest in dedicated-contract carriage services, particularly from retail and building-supply companies, boosting revenue for this $330 million business, he said. Cardinal Logistics provides supply-chain consulting, warehousing and distribution to AutoZone, Office Depot and other customers.
J.B. Hunt has made “significant efforts in driver hiring due to shortened lead times for contract start dates,” the carrier said in an Oct. 11 statement. This shows demand is accelerating as customers want quicker access to dedicated-fleet services, said Larkin, who maintains a “hold” recommendation on the company.
Retail sales rose 1.1 percent in September following a 1.2 percent increase in August, the best back-to-back showing since late 2010, according to Commerce Department data.
Building supplies also are rebounding as the housing market improves. New-home construction starts jumped 15 percent in September from the prior month to an 872,000 annual rate, while residential permits – a proxy for future construction – rose to 890,000, based on Commerce figures. Both were the best since July 2008.
The average number of trucks in J.B. Hunt’s dedicated-contract services fleet grew 4.8 percent to 5,153 in the three months ended Sept. 30, company data show.
It’s onerous for shippers to operate their own trucks, said Charles Clowdis, managing director of transportation advisory services at IHS Global Insight in Lexington, Mass. They must cope with Department of Transportation regulations, including pending and recent rules from its Federal Motor Carrier Safety Administration.
There’s a shortage of qualified drivers, as some rules have made it more difficult to add workers, while other industries have poached potential employees, Clowdis said.
The benefits appear to outweigh the costs as more customers of Cardinal Logistics are looking at this option, McLoughlin said. “Why invest in trucks if you don’t need to?”