Making the case for a contract carriage arrangement
Be sure to check out this story in August's issue of Supply Chain Digital. Trust us, it's way cooler!
As private fleet owners with aging fleets weigh their options, many are trying to determine the most cost-effective solution to meet their needs. Regardless of fleet size and mix, outsourced transportation providers can make a compelling case for using their services. A series of factors in the transportation and logistics industries continue to add complexity to owning and managing a fleet.
Because of the economic downturn, fleet owners have held onto their vehicles longer over the past several years, with many of them unable or unwilling to invest in new equipment while freight volumes fell. One factor that has also caused hesitation are the higher price tags on new heavy-duty vehicles, which have been manufactured with more stringent emissions engine technologies mandated by the EPA that have driven up prices. These new emissions technologies require special maintenance expertise and driver training, which companies were also reluctant to take on while the future was unclear.
Complicating matters, the Federal Motor Carrier Safety Administration (FMCSA) has rolled out its new CSA (Compliance, Safety and Accountability) enforcement program, which is meant to reduce collisions and improve large truck safety. Motor carriers are now measured in seven key areas and receive a score ranking them alongside their peers and indicating whether they are fit to operate. Carriers are being more closely scrutinized for safety compliance and are being held accountable with fines and poor scores.
In addition, carriers are facing a driver shortage. While the driver shortage was already a problem before, CSA enforcement will likely shrink the driver pool further, causing companies to deal with the very real problem of finding adequate drivers as well as paying higher salaries to maintain them.
Fleet owners who have held onto their trucks as they have waited for this operating environment to stabilize may not be able to hold on much longer. Trucks moving too far past their normal trade cycles are likely to experience more maintenance problems. Not only does this mean higher maintenance costs, but it also represents the potential for business interruptions and customer service issues.
Inevitably, private fleets will begin integrating vehicles with the new EPA 2010 engines into their fleets. But in an economic environment where credit is difficult to come by, the question becomes whether companies can finance these more expensive vehicles and if it even makes good business sense to do so. In a competitive marketplace, cash might be better spent in other areas of the business than in buying expensive transportation equipment that can also be leased.
So, what solutions do companies have at their disposal? One alternative that could address all these issues is a dedicated contract carriage arrangement – or using a service provider to handle the entire transportation function, from acquiring and maintaining the trucks, to providing the drivers, and to planning and scheduling routes.
By using a transportation specialist, a private fleet owner commits to a predictable monthly expense that takes the guesswork out of running its own fleet and maintenance operation. This frees up capital the company can use to grow other parts of the business that are more vital for its competitiveness.
A good transportation service provider will also have the engineering talent, analytical tools, and focus on continuous improvement that can provide ongoing network optimization and routing and scheduling efficiencies. By studying the company’s transportation network and rationalizing the fleet for its best size and configuration, transportation service providers can achieve significant savings for their customers. For example, for one regional beverage company that was making direct-to-store deliveries to more than 300 stores, an outsourced transportation provider made a recommendation to change the fleet mix from 12 straight trucks and vans to six tractors. Not only did this new fleet mix cut down on driver costs, it also helped the company to make deliveries more efficiently and reduce fleet miles and fuel costs. The beverage company was able to save 20 percent on transportation costs.
With a dedicated contract carriage solution, the transportation service provider is responsible for driver hiring and safety training, placing the issue of navigating the driver shortage and stricter CSA compliance in the service provider’s hands. Vehicles with new engine technologies can also be introduced into the fleet on a lease basis, giving the private fleet owner the ability to try the new vehicles and gauge their efficiency without having to make large capital investments. A dedicated fleet solution also includes the maintenance for the vehicles, typically with features such as preventive and predictive maintenance and roadside assistance – a service that also lightens the burden for the private fleet owner.
The regulatory environment for the motor carrier industry continues to face some major changes. While carriers are still catching their breath, other issues continue to emerge, such as potential new limits on drivers’ hours of service and electronic logging of hours of service. Facing this increasingly complex environment, companies would do well to consider tapping a transportation provider to bring them much-needed expertise, predictability, and reliability. This can help them to spend less time trying to solve the transportation puzzle, and more time growing their business.
FedEx is Reshaping Last Mile with Autonomous Vehicles
FedEx is embarking on an expanded test of autonomous, driver-less delivery vehicles to develop its last-mile logistics.
The US logistics firm piloted autonomous vehicles from Nuro in April this year, and the pair will now explore that further in a multi-year partnership. Cosimo Leipold, Nuro’s head of partnerships, said the collaboration "will enable innovative, industry-first product offerings that will better everyday life and help make communities safer and greener".
FedEx will explore a variety of on-road use cases for the autonomous fleet, including multi-stop and appointment-based deliveries, going beyond more traditional applications of the technology in single-route movement of goods from A-B. Exponential growth in ecommerce is spurring its broader experimentation in new autonomy solutions, Fed-Ex says, both in-warehouse and on-road.
“FedEx was built on innovation, and it continues to be an integral part of our culture and business strategy,” said Rebecca Yeung, Vice President, Advanced Technology and Innovation, FedEx Corporation. “We are excited to collaborate with an industry leader like Nuro as we continue to explore the use of autonomous technologies within our operations.”
The changing role of couriers
Unlike structured delivery networks, operating under long-term partnerships and contracts, agility is where couriers deliver true value - and their ability to deftly solve last-mile fulfilment has most acutely been felt during the pandemic. For the billions of people around the world forced to stay at home to protect themselves and their communities from the spreading COVID-19 virus, couriers have been a constant. They may have been the only knock at the door some people experienced for weeks or months at a time.
But the last-mile has been uprooted by a boom in ecommerce, a shift that has been most apparent in the UK, US, China and Japan, according to the Global Parcel Delivery Market Insight Report 2021 by Apex Insight. These are markets with dominant economies and populations used to running their lives with a tap of a screen or double-click of a mouse.
“Getting last mile delivery right has long been a challenge for retailers,” says Kees Jacobs, Vice President, Consumer Goods and Retail at Capgemini. “In 2019, 97% of retail organisations felt their last-mile delivery models were not sustainable for full-scale implementation across all locations. Despite increasing demand from customers, companies were struggling to make the last mile profitable and efficient.”
Jacobs says that the pandemic alleviated some of these stresses in the short term. With no other option, consumers were understanding and tolerant, if not entirely happy, with longer delivery times and less transparent tracking. “But, as extremely high delivery demand continues to be normal, customers will expect brands to contract their delivery times,” he adds.
Last mile's role in ESG
Demand and volume weren’t the only things that have changed during the pandemic - businesses looked closer to home and as a result became more sustainable. Bricks and mortar stores were transformed from mini-showrooms to quasi-fulfilment centres. Online retailers and other businesses sought local solutions to ship more faster. In densely populated London, UK alone, Accenture found that delivery van emissions dropped by 17%, while Chicago, USA and Sydney, Australia saw similar emissions savings.