In an increasingly risky commercial environment, mitigating risk is a compelling reason for considering a dedicated solution
There are various reasons why shippers choose dedicated contract carriage (DCC) services to move their freight, but one of the less obvious—and increasingly important—ones is that DCC truck transportation takes a significant amount of risk out of the supply chain.
In a DCC agreement, the shipper has a dedicated fleet of trucks at its disposal without having to take on risks associated with fleet ownership and operation. It's an attractive option, provided shippers select the right DCC provider to partner with.
Supply Chain Safeguards
The Guide to Dedicated Contract Carriage, a detailed guide to selecting DCC providers published by Penske Logistics, defines DCC as "a for-hire carrier dedicated and contracted exclusively to one shipper." Businesses that employ this transportation service "direct the execution of resources through a dedicated agreement while relinquishing the responsibilities associated with managing a private fleet," states the guide.
In the DCC model the service provider—not the shipper client—takes on the responsibility for supplying dedicated truck capacity when needed. This is one of the main reasons why many shippers prefer this option (for a fuller account of the rationale for choosing DCC services, see Dedicated Contract Carriage: An Option Worth Considering).
Another reason is that DCC mitigates supply chain risk. Here are three examples of how DCC delivers less risky supply chains.
Lowers insurance liability. Outsourcing the operation of a fleet of trucks to a specialist third-party provider enables shippers to offload costly insurance liabilities.
This is becoming increasingly important as the cost of truck insurance premiums continues to climb. The risk of incurring significant claims-related costs is another worry for shippers. "Today, accident claims can run into millions of dollars, a risk that many companies prefer to avoid especially when running a fleet of trucks is not their core competency," says Tom Scollard, vice president of dedicated contract carriage at Penske Logistics.
Provides a reliable source of capacity. Contracting with a third-party provider to supply carrying capacity when needed offsets the risk of losing sales opportunities because no trucks are available to deliver product. The DCC option also makes it less likely that transportation costs will be inflated because a shipper has to resort to the spot market to find truck capacity.
Again, this risk-reduction strategy is gaining in importance. Demand surges are becoming more frequent owing to changes in seasonal buying patterns and unexpected disruptions such as extreme weather events. At the same time, companies have to meet the expectations of e-commerce customers who are intolerant of delays and service errors, and cope with the ebb and flow of supply in the for-hire truck market.
"We work hand in hand with customers on contingency planning for the many different events that impact their businesses," says Scollard.
A large third-party provider (3PL) such as Penske that operates an extensive fleet and wide-ranging distribution network is often better equipped to deal with variations in demand and other service pressures. For example, within Penske's network of customers, fleet needs are often counter-cyclical, allowing truck supply to match the demands of the different clients served by the 3PL. A food and beverage shipper might be in peak demand mode when a shipper in the DIY market is in a low-demand phase of its business cycle, for instance.
Alleviates driver recruitment and retention problems. One of the key underlying causes of truck capacity shortages is a scarcity of drivers. 3PLs such as Penske put considerable effort into recruiting and retaining drivers, and are able to keep driver turnover to a minimum.
"There are a number of reasons for our success in this area," says Scollard. "Our drivers are respected and rewarded for their contribution as team members, and we give them continuous education and training."
Moreover, training extends to the specific needs of the shipper client in a DCC agreement.
Another reason why Penske achieves high retention rates is that its drivers are less exposed to an issue that is one of the chief causes of driver disaffection: long waiting times at freight facilities. For-hire owner/operators earn only when they are hauling freight; not when they are waiting for delayed loads. Shippers that become known for such delays often find it more difficult to secure carriers willing to take their cargo.
As Scollard points out, most Penske drivers are employed by the 3PL and are always compensated for their time on the job, eliminating this problem. Additionally, Penske can use its logistics expertise to address issues that cause delays in loading/unloading facilities.
While DCC transportation can lower risk levels, shippers might actually increase their risk if they choose the wrong provider. Look for depth of experience and scale, advises Scollard. 3PLs with extensive DCC networks have the resources to meet the needs of multiple shippers. Moreover, a 3PL that has a long track record of supporting companies in different industries has rich, multi-sector experience to draw on when designing DCC solutions.
Mitigating supply chain risk is not the only criterion for choosing DCC truck services. However, in an increasingly risky commercial environment, it is a compelling reason for considering this option.