Tight capacity, high rates paying dividends for dedicated transportation, rental providers

 Strong growth in rental vehicles at PacLease in 2017 has continued in early 2018. Penske Logistics also says there has been an increase in interest in dedicated operations, perhaps indicating that the tight capacity has many fleets and shippers looking for new options.
Strong growth in rental vehicles at PacLease in 2017 has continued in early 2018. Penske Logistics also says there has been an increase in interest in dedicated operations, perhaps indicating that the tight capacity has many fleets and shippers looking for new options.

More shippers are turning to dedicated operations to ensure capacity, while fleets may be filling temporary demand with more rentals

As capacity tightens, there are two ways fleets and shippers can go: they can add more capacity through acquisition or equipment purchases, or they can tap into existing capacity. That could be partnering with another carrier, or, as some evidence suggests, turning to the rental and dedicated transportation markets.

“The market is hot,” Andy Moses, senior vice president of global products for Penske Logistics, tells FreightWaves. “You have an improving economy, so you have increasing freight volumes [so] you have limited capacity.”

That limited capacity is also being driven by a lack of drivers, and as a result, Penske Logistics is seeing more shippers inquire about dedicated transportation. Moses explains that dedicated operations can provide more capacity and rate certainty, another issue many shippers are facing.

“Shippers are probably experiencing less reliability in getting freight off their docks,” he says. “It puts us in a position where a lot of shippers are reaching out to us.”

The ELD mandate has worsened the problem, helping boost rates even further and leaving many shippers holding “paper rates” with freight to move and no one to move it. This causes a ripple effect throughout the organization.

“When freight conditions turn as they have, all of a sudden [shippers] have loads to move and everything [else] they were working on stops,” Moses notes.

Dedicated operations are also growing in popularity, Moses points out, because of driver quality of life concerns and the ability to tailor a network to individual needs.

“The work we tend to do for people tends to be predictable,” he says. “We can craft the driver’s role around the specific needs of that shipper.”

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He also says that Penske is spending more time designing freight networks around quality of life concerns, and that has meant an increase in relay shipments where loads are handed off, giving drivers more time at home.

“Shippers are able to get more than just their freight delivered, they are able to get customized solutions,” Moses says. There is also an opportunity to handle additional capacity by leveraging Penske’s scale, which can take advantage of its network and the synergies it creates.

Specific segments are also seeing growth in dedicated, particularly “high touch” segments such as fresh fruits and “grab-and-go” food products.

Just as more shippers are turning to dedicated, there is growing evidence that trucking fleets are helping fill capacity needs through an increased use of rentals.

PacLease reported a 30% increase in vehicles in its medium- and heavy-duty rental/lease fleet in 2017 over 2016, and it’s not only because of a growing number of locations, says Jeff Susca, area rental manager for Paccar. 

PacLease added eight new locations in 2017 and now has over 450 locations in the U.S. and Canada. While that growth certainly helped, Susca says that rental utilization (the percentage of rental vehicles in the fleet currently in use) has remained above 80% rather than the normal 60% range.

“We saw very strong growth,” he tells FreightWaves. “We are currently seeing that the rental market is stronger than it would typically be in the first quarter.”

Susca says that the economy is boosting rental utilization, but recent efforts to boost PacLease’s visibility are also helping. Part of that is the company’s National Rental Program. Launched in 2016, the program provides customers with consistent pricing and a single point of contact among other benefits on a national basis.

The first quarter is typically a slow time for rental, but Susca says it has remained busy, and that bodes well for a strong 2018. One area of concern for PacLease and other renters, though, is the ELD mandate. Currently, rental trucks are exempt from the ELD for 30 days, but that exemption expires on April 19.

“I believe that we may see an impact after the 30-day [exemption expires],” he says. “A lot of the larger fleets were already using ELDs…but it could make it challenging for fleets to use the rental providers’ ELD solution if they are not compatible.”

The flip side, though, is that smaller fleets who may not want to install an ELD could benefit by using short-term rentals. A truck rented fewer than 8 days does not need to have an ELD installed, and for those trucks that do require them, PacLease offers an ELD solution through its local dealers.

New truck orders approached record highs in January and there seems to be no immediate end in sight to the current tight capacity and higher rate environment. As a result, dedicated operations and rental vehicles are proving an attractive alternative for many.

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Brian Straight

Brian Straight covers general transportation news and leads the editorial team as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler.