Exel also works with Frito--Lay to help it cut costs. "As a non--asset--based carrier, we are uniquely positioned to serve Frito--Lay amid changing conditions because of market demand, capacity issues and fuel prices," says Kevin Hudnall, Exel’s carrier representative on--site at Frito--Lay. "In many cases, we’ll make daily recommendations to Frito--Lay based on timetable, destination and cost to redirect or combine shipments onto one route."
This dedicated contract carriage segment has turned into a huge windfall for the 3PLs as well. Armstrong & Associates, a 3PL consulting firm based in Stoughton, WI, reports that this industry segment reached a new high of $8.7 billion in 2004. Tight trucking capacity in the United States led most 3PLs to experience double--digit growth in their dedicated business, according to Armstrong’s annual 3PL industry report.
The 3PLs like contracted carriage business so much because it is a steady stream of income, but also because it gives them more lead time to make deliveries and pick up backhaul opportunities, says Bill Behrman, Lanter's vice president and general manager.
For shippers like Frito--Lay and Chef Solutions, it's now more important than ever before to lock in rates through dedicated and pool carriers, mainly because most 3PLs and their carrier partners are raising rates to offset added costs associated with escalating costs for fuel, insurances, maintenance, equipment, technology, driver pay and benefits and more. The average rate increase is between 8 percent and 12 percent, according to industry estimates.
Regional LTL carrier Old Dominion Freight Lines, Thomasville, NC, for example, last month announced that it was increasing its basic rates by about 5.9 percent. "The increase is necessary to offset higher costs as a result of new equipment, new service centers, state--of--the--art technology, insurance costs, as well as wages and benefits," explains Chip Overbey, Old Dominion's vice president of national accounts and marketing. "We believe the increase is essential to continue to provide our customers with the value in technology and quality performance they have come to depend on."
Most in the industry share the belief that dedicated and pool business is the key for shippers who want to take advantage of secured capacity at lower rates. "To lock in rates, it may be a matter of lining up a dedicated carrier, with a certain amount of capacity that has been lined up for a specific customer and payment based on miles," says Schneider’s Miller. "Rates are usually negotiated annually, but with a dedicated business, the carrier and the customer get to know each other very well and it's easier to get some gains and savings."
In the present environment, most carriers are setting their rates annually. Though many shippers would like to lock in rates and contracts for a longer term, carriers are reluctant to do so, citing uncertain market conditions. "Rates are negotiated customer by customer, and a lot of it has to do with volumes," says Lanter's Behrman. "We continue to fight the battle with our customers to go direct with their full truckloads and to call on us for LTLs."
"Our customers need to look at the ways they are shipping, the frequency of their shipments, the way they package their materials to control damage, and, if they can, let us hold their shipments so we can consolidate them," adds Rick Thomas, director of managed transportation services at TNT Logistics North America, based in Jacksonville, FL. "They can also rearrange their logistics through routing, looking at multiple customer freight and marrying up freights to create more desirable transportation routes; look at shared channel opportunities with multiple customers in the same industry--even if it may be with direct competitors—to combine logistics operations; and build relationships with dedicated carriers so that price increases do not become price gouges."
At just about every 3PL, the type of service provided definitely plays into any rate increases. "When we look at our customers, we are looking at their freight and shipping environment. Can they fit into our existing shipping lanes? Do we have to go to our broader base of carriers or can we keep the business to our standard base of carriers?" says Exel's Young. "Shippers need to look at more cross--enterprise collaboration, where customers get together and ship products together to avoid LTL's added expense."