Fleets Within Fleets
Hauling for big carriers and intermediaries may be the best way for owner-operators and small fleets to thrive — or simply survive.
Patricia Smith
Senior Editor
Jones Motor Freight has about 800 single- and multiple-truck owner-operators under lease contract. The Atlanta-based firm also outsources loads to another 4,000 to 5,000 fleets. The carrier doesn't have any trucks of its own, and it doesn't plan to get any.
"We're just not into the truck ownership business," says Ron Williams, division vice president of the 109-year-old company.
Stonier Transportation Services, a Jacksonville, Fla.-based freight forwarder and logistics management company, has agreements with some 10,000 carriers - mostly small fleets with maybe 10 trucks. The company says those carriers will collectively move approximately 100,000 truckloads for Stonier this year.
A small sister company, Stonier Trucking, serves a few customers with its dedicated local and regional fleet, but there is no talk of expansion. "Running a fleet of any size is a much different animal than freight forwarding," notes Mike Williams, vice president and general counsel. "It's not something we have in our business plan."
Smaller carriers working with larger ones, or with various intermediaries, is hardly new to trucking.
But in today's competitive and demanding trucking market, it may be the best way for a small carrier to thrive - or simply survive.
The Little Guy Isn't Gone
Despite all the talk of core carriers and consolidation, small fleets and owner-operators are still a big part of trucking. U.S. Department of Transportation data indicates that there were more than 250,000 for-hire trucking companies in early 2002 - roughly two years into the trucking recession. About 170,000 had five or less trucks.
Trucking industry analysts at MacKay & Co. estimate that in 1990, about 35% of all Class 8 trucks on the road were in fleets of 500 or more; 30% were in fleets of 10 or less. They predict that by 2010 those biggest fleets will account for some 43% of heavy trucks on the road but 20% — roughly half a million trucks — will still be in fleets of 10 trucks or less.
No question, the going is roughest for these smaller players. Sharp run-ups in diesel prices hit them especially hard because they're often not able to implement surcharges as fast or as effectively as their larger competitors. They get fewer discounts at the pump. They pay more for equipment and replacement parts. Insurance for the little guy - especially one without a long and unblemished safety record - is harder to get, and more expensive. Cutting premiums by taking on more risk, a popular option with bigger and better financed companies, is dangerous for small fleets.
As Werner Enterprises noted in a recent report to shareholders, many small truckload carriers have decreased their liability insurance coverage to the DOT required minimum $750,000 per claim. "A large claim or a few large claims exceeding this minimum coverage could wipe out owners' equity of these small fleets," the company pointed out.
When it comes to keeping trucks loaded, size also matters. Data compiled by the American Trucking Assns. shows that, even in good times, the empty mile factor is decidedly higher for small fleets than large ones. The explanation is simple: Smaller fleets don't have the marketing budgets or sales staffs to solicit new customers and line up return loads.
Pressure to keep their trucks loaded often forces smaller carriers to work for reduced rates or forego adequate background and credit checks - and it doesn't take many unpaid invoices to put a small fleet on the ropes.
Fleets Within Fleets
We typically think of owner-operators as one person/one tractor but a recent HDT survey of more than 4,000 interstate owner-operators showed that more than a fourth owned two or more trucks. In fact, nearly 8% owned five or more trucks. More than half also owned trailers.
Leasing to a motor carrier is the typical entry path for new owner-operators and many choose to expand their operation while staying, at least for a while, under the bigger fleet's umbrella. A growing number of carriers are trying to keep them in the fold - and bring in more multiple-truck contractors.
As Werner noted, insurance concerns could prompt some small fleet owners to lease their trucks and drivers to larger carriers - and the company "is poised to assist."
Cornhusker Motor Lines is also courting contractor fleets and Paul Turley, director of asset management, says insurance is just one of several reasons small companies are looking for alternatives to running on their own.
"Sometimes they're tired of dealing with receivables," he says, "or finding freight, or the hassles of paperwork, or even driver recruiting."
Along with big-company administrative and marketing services, fleet contractors can tap into a growing menu of "value added" benefits like group insurance, lease/purchase programs for new and used equipment, and volume discounts on fuel, tires, maintenance and parts.
"There's only so much of the revenue you can give away in your pay package to the truck," says Jones' Williams. "But we have tried to come up with ways the owner-operator can save money in operating costs."
Most carriers won't lease a truck without a driver, but when contractor fleet owners need replacements, carriers are usually happy to share mailing lists, leads from web sites and ads, or other recruiting tools. Most also offer their own driver training programs to employees of contractor fleets.
Leased fleet owners continue to manage their own drivers but they often rely on their carrier for day-to-day dispatch. "We're set up to deal directly with drivers," explains Turley. "We find it's the way our small fleets like to work. If there's a problem, the fleet owner steps in. "They're a partner in getting things to happen," he adds.
Fleet Partners
Leasing small fleets is a quick way to grow capacity when freight demand is expanding, but many carriers draw the line at about 10 trucks. Growing with contractors still requires investments in trailers and administrative support, and some carriers prefer to do it gradually rather than in big chunks. And some worry about becoming too reliant on any one contractor.
"We're a 200 truck operation, so a 10-truck fleet represents 5% or our capacity," notes Turley. "What happens if things don't work out and they leave?"
For those "larger" small fleets, Jones has designed a fleet owner partnership program with a menu of options. They can operate under their own authority, with their own cargo and liability insurance, or they can run under Jones' authority and insurance. They can pass all or some of the paperwork to Jones. They can even keep some of their own customers and use Jones for backhauls.
Williams says many of the fleet owners in the partnership program are looking for ways to expand without investing scarce cash for marketing — or without enduring the cash flow problems typically associated with growth. "This program allows them to do that," he notes. "They can use our name for a drawing card. We do the administration and flow the cash. But there's nothing that says they have to change anything they're doing today. We designed the program so they can continue to run their own operation within their own framework."
Although Jones is a flatbed carrier, its program is open to other types of equipment. "It doesn't have to fit our system because the fleet owner partner is what we refer to as self-contained," explains Williams. "He'll dispatch his trucks with his own freight, so if he's a refrigerated carrier, that's OK."
Filling Backhauls
If a small carrier is simply looking to fill backhauls or get through seasonal slumps, the best option might be brokers, freight forwarders and third party logistics companies.
Particularly among small fleets and owner-operators, intermediaries are generally regarded with skepticism — mainly because so many have been burned.
There are no absolute guarantees, but Stonier's Mike Williams says the simplest way to avoid getting stung is to do a credit check before you load anyone's freight, and only work with intermediaries who have been around for a while.
"It's just like any other business," he points out. "Intermediaries that aren't conducting business the way business should be conducted will be weeded out." His advice: Look for stability. Look at their track record for paying carriers.
"If it's a new broker that has just popped up, and you find they're taking 60 days or more to pay the truck, you shouldn't touch them with a 10-foot pole."
A small carrier with a good track record for service and safety should be able to work out ongoing relationships with intermediaries - i.e. partnerships versus occasional loads.
"What we do is keep them loaded," says Williams. "We don't just give them one load, where they pick up at point A and deliver to point B, then we don't talk to them again for a couple of months. We can coordinate a load from point A to point B, point B to point C, and eventually get them back to their home terminal, if that's what they want. All of that coordination requires human and technological resources that a five-truck operator simply can't afford. So over the years we've developed a substantial infrastructure of information exchange. That's essentially what an intermediary does — it's an information exchange."
The company offers a variety of programs designed to attract small carriers. Those willing to commit to a certain amount of loads during the September-December busy season are guaranteed an equal number of loads in the slower January-April months. For a small discount off invoice, carriers can get paid in five days instead of the normal 45. But Williams says their most successful carrier partnerships are built on customer needs.
"As our dispatchers refine their understanding of the customer's requirements, they're able to establish similar close relationships with the trucking companies that can serve those specific customer needs," he explains. "Then the dispatcher will offer more attractive rates to the carrier that is willing to commit capacity to cover those needs. The truck and Stonier become intertwined in the service of that customer. It doesn't just develop with a snap of a finger; it develops as a consequence of a specific customer having specific lanes with specific needs."
Core Carriers
The "core carrier" concept might mean that shippers are reducing the number of carriers with whom they work, but it doesn't mean those selected carriers will be the only ones hauling their freight.
"More and more of our customers are asking us to function as their traffic manager," says John Vesco, vice president of customer service for Schneider National. "They're allowing us to take their freight and choose the best carrier or even the best mode, based on service and price."
Schneider's fleet of easily recognized orange trucks numbers some 14,000 tractors, including approximately 3,000 single and multiple truck owner-operators leased to the various divisions. It also has an intermodal operation, a logistics operation and a thriving freight brokerage with a database of some 8,600 qualified carriers.
According to Mark Rourke, vice president and general manager of the brokerage operation, they use about 1,500 outside carriers on any given month. Some of the business is overflow freight that Schneider can't haul itself, but a good portion comes directly to the broker division from shippers that have no requirement that it move "orange."
"They allow us to make that decision," he says. "The shipping community likes the fact that someone has the accountability to manage the process - and Schneider is accountable, regardless of who is moving the load up and down the road."
As for acceptance of the program by other trucking companies, Rourke says they're much more open to doing business with Schneider than they were even a few years ago. "At that time we were seen as a competitor," he notes. "Now we're seen as someone who can provide opportunity for them."
Dealing With Drivers continued...
