Should a shipper care if their transportation company owns their own trucks? Or should the sole focus be on whether they move your freight efficiently and effectively? Transportation and logistics is a $1.45 trillion industry and there is not a one-size-fits-all approach when it comes to moving freight. In fact, many large and very successful transportation companies do not own trucks. C.H. Robinson is one of those companies.
The consideration to own or not own can be subtle, and we can find pros and cons on all sides of the equation. In the final analysis, however, many top transport companies simply don’t own (all of) the trucks they use. We’ll explore why in this article.
Carriers with their own fleets deal with stranded assets.
Sometimes, a fleet is an investment that generates returns; but often, it turns into a series of capital and operational expenses that just drain resources. According to Truckers Report, it costs nearly $200,000 to operate a commercial truck annually. That figure includes a lot of expenses – fuel, insurance, driver costs, capital costs, tires, permits, tolls, licenses, cap, maintenance, and repairs.
That figure does not include some additional expenses, particularly hidden and soft costs – like when a malfunction or accident sidelines a truck, delays a delivery, and damages customer confidence. With an estimated one emergency breakdown per year, the average tractor/trailer combination forces its owners to manage such issues on a recurring basis.
Carriers with their own fleets must develop specific expertise.
The question here is core compentency. Owning a truck fleet requires a different set of skills and relationships than brokerage. If the company hasn’t also made the right investments in equipment, technology or personnel to manage day-to-day trucking operations, it may not make sense to work with that carrier.
With the first truck a carrier owns, they have no choice but to become an expert in managing these fixed assets, including (but not limited to): the technology (transportation management systems), the expertise (optimizing loads, routes and supply chains), the relationships (nationwide networks), the buying power (negotiating rates), and more.
Top companies that don’t own trucks want to focus on the shipper (their customer) rather than hiring drivers and maintaining trucks. Indeed, does the broker really need or want to be expert in those specific areas? Tom Peters, author of the seminal business work In Search of Excellence, says, “Do what you do best and outsource the rest.”
A carrier with its own fleet must serve two masters.
If a carrier is focused on both shippers, and its own trucks, the focus will be divided between maintaining/operating a fleet and serving shipping requirements. Can a carrier focus fully on customer needs in that situation? The 2015 Trucking Perspectives report from Inbound Logistics reports that customer service problems are the second most important issue for shippers at 42%; any aspect of their logistics that impacts customer service must be evaluated.
Here’s a strategic question: if one owns a truck fleet to which one must divert money and resources, how well can one handle change? Change might seem inconceivable today; but what if new conditions down the road – surging or declining demand, new products or services, mergers or acquisitions, an updated business model, changed economic conditions, an altered or expanded customer base – leave your carrier saddled with assets whose usefulness has suddenly fallen? Flexibility is key to success in any logistics operation, and it’s equally critical to ask: does ownership of expensive fixed assets risk putting the brakes on your carrier’s ability to adjust to new scenarios quickly?
That said, if you’re using multiple carrier partners, you may have a lot of flexibility, but you also sacrifice some degree of control.
Managing driver turnover becomes another issue when carriers own their fleets. Turnover is more of a customer service issue than it might appear at first glance: shippers’ customers may well have more contact with drivers than with anyone else in the shipper’s organization. Staffing can be a real challenge in the face of the truck driver shortage, which is worsened by high turnover rates among some logistics providers
Fleet ownership means more control.
And sometimes greater control is worth giving up a little flexibility. It depends on a shipper’s situation: large carriers that own a lot of trucks simply offer a different value proposition to their own customers. With their own trucks, they have more control over capacity and service to the customer, and they may have more visibility into the movement and operations of their vehicles. Even if logistics is not their core competency, it can be advantageous to know the transportation segment of their business operates just the way they want it to.
What’s the right answer? It depends.
Choosing a transportation company that owns their own fleet vs. one that leverages carriers to move freight on behalf of their customers is a strategic decision whose answer hinges the shipper’s unique circumstances. Often, it’s both: a hybrid solution where ownership of trucks creates customer confidence alongside help from reliable partners when additional capacity is needed.
The challenge is finding the right balance, the sweet spot where carrier assets compliment external resources to ensure they can meet any logistics demand in a way that always pleases your most important stakeholders: your customers.
TSD Logistics’ aim is for our website to be a hub of conversation. We invite you to leave a comment below with your perspective.