Private & Dedicated Fleet Market Sentiment
The market disruptions and uncertainty created by the pandemic will strengthen the private and dedicated fleets´ hold on the market, as consumers look to secure a high-quality and reliable service, a service synonymous with private and dedicated fleet operations. While every attempt has been made to provide data related to private and dedicated fleet providers, where this data is not available in the public domain, the industry-wide data is presented. Trends are shaping the competitive landscape and driving the industry direction.
DRIVER & FLEET AVAILABILITY
Driver Demand Exceeds Driver Availability
- Both private & dedicated transport fleet markets have played a role in minimizing disruptions caused by the pandemic. In the six months between April and September, the pandemic forced private fleets to reconsider their operation models. The emphasis government placed on the supply chain, combined with the pandemic’s disruptions, caused changes at an industry level.
- The pandemic initially saw private fleet operators in food and grocery transportation struggling to keep up with the increased demand, as panic buying saw shelves stripped. Gary Petty, president of the National Private Truck Council, explains, “Panic buying in the early days of the pandemic accelerated replenishment — and pressured private fleet resources — as stores struggled to keep certain goods in stock.”
- There was a surge in demand as the consumer shift toward e-commerce escalated. This was compounded by the need for additional delivery drivers when local restaurants moved into the delivery space. In an industry already facing driver shortages, the increased demands have stretched fleets to their absolute limits.
- Papa John’s provides an excellent example of the need to adapt to the changing landscape. Their in house transport network delivers dough, pepperoni, sauces, and other essentials to the 5,300 stores in their network. Since May, Papa John’s has added 14,000 new jobs to their short-haul delivery network, with another 20,000 are slated for next year.
- It is not just the delivery network that Papa John’s has been forced to expand; an additional 50 commercial drivers have been added to the Class A commercial fleet drivers. Papa John’s is just one company, but these changes are indicative of changes most private fleet owners in the space are making.
- For some of the 62,000 private carriers, accounting for 53.3% of the US transport fleet, business dried up overnight, especially those servicing the national restaurant chains and food service distributors. Up to 50% of their business disappeared within two weeks, forcing a reorganization of services, focusing on the increased demand from grocery and e-commerce.
- Demand for drivers within the private network saw temporary regulations enacted by FMCSA creating an out of hours exemption for drivers. This exemption was initially enacted for five weeks, although it has been extended for additional periods subsequently. The exemption applied only to specified categories of goods, such as medical supplies and food, and is the first time in history exemptions of this nature have been enacted.
Dedicated Fleet Availability
- The dedicated fleet saw a 3% decrease in revenue for the first half of 2020. Generally, shipping volumes fell in the segment over the first part of 2020. With shipping volumes down for the segment, it is long-term contracts signed pre-COVID-19, currently sustaining these operators. These contracts shielded many dedicated fleets from the effects of the drop in volume, experienced in March and April 2020.
- Forecasts suggest the dedicated fleet will benefit from the economic volatility associated with the reopening process. Operators will continue to benefit from contracts negotiated before the pandemic while engaging shippers looking to secure capacity for their loads. The new business implementations will gain momentum in the third and fourth quarters of 2020.
- The sector has maintained the per truck per week revenue levels at pre-pandemic levels (excluding fuel charges). Customer retention rates have been maintained at 97%.
Truckload Capacity and Availability
- Previous research by the National Private Truck Council has shown 82% of the medium and heavy-duty trucks in the US are part of a private fleet. They transport over 4.45 billion tons annually, accounting for 56% of all motor freight. The fleet is more than 2 million vehicles strong and represents the largest transport sector segment.
- The Fleet Owner For Hire 500 rankings show there are 256,188 trucks, 580,520 tractors, and 1,511,233 trailers operating in North America.
MAINTENANCE EXPENSES & EQUIPMENT COSTS
High Labor Costs Increase Cost of Routine Maintenance
- Higher labor costs are proving to be the causative factor in increasing routine maintenance costs for private fleet operators. This increase is exacerbated if the service center is located in a high-cost metropolitan area. When combined with a skilled labor shortage, the resulting extended periods of downtime for routine maintenance have the potential to cause a nasty headache within the industry.
- Kelley Hatlee, of Enterprise Fleet Management, explains, “Due to skilled labor shortages and other factors, the increased cost of labor and parts in the automotive service industry has outpaced inflation for the past several years. With the current job market outlook for automotive technicians, machinists, and other technical fields, this trend will likely continue in the near future,”
- Also contributing to the rising cost associated with routine maintenance are high commodity prices and the increasing complexities of vehicle technology.
Sanitizaton & Compliance
- Increased requirements relating to the sanitization of trucks and the protection of drivers have added increased the compliance and day-to-day operating expenses of most private and dedicated fleet operators.
Shorter Trips — Higher Overheads
- The change in consumer buying behaviors over the course of the pandemic has seen a 60% increase in the workload of fleets involved in final mile e-deliveries. These fleets are typically light-duty tucks. The number of fuel-ups required daily has increased for these vehicles due to the work’s stop-start nature. The flow-on effect is the fuel costs have increased. This has also increased general wear and tear on the vehicles.
- The reversal of several years of increased investment in new equipment by private fleet operators in 2019 continued into 2020. The 800 operators that failed in 2019, contributing to the cautious approach by operators. Contributing to the reduced investment in equipment is the increased costs of insurance, many operators are facing.
TECHNOLOGY APPLICATION TRENDS
Adoption of Onboard Technology Utilizing the Internet of Things
- Private & dedicated fleets lead the transport industry, adopting and implementing technology to make the drivers’ job more manageable. A recent survey found 44% of private & dedicated fleets have both forward and rear-facing cameras on-board to assist the driver and improve safety
- The increasing utilization of onboard sensors has played a huge role in relation to routine maintenance and repairs. Fleet managers can schedule maintenance on the fleet to minimize the disruptions that maintenance can create for an operation. The volume of information generated by the sensors is almost unbelievable and ranges from tire pressures to load stability.
- The sensors are becoming increasingly more relevant; incorporating AI technology is presenting development opportunities for the industry. Changes to the HOS regulations relating to driver hours and breaks (see regulation trends) will also highlight one of the key advances in onboard technology this year,
- What makes this technology even more impressive is that it is still very much in its infancy, with semi-autonomous and platooned truck systems already being trialed, and looming as a very real addition to the commercial fleets within the next few years.
OPERATING COST TRENDS
- The upward trend of drivers’ wages over the last couple of years has continued into 2020. Despite increases in both 2018 and 2019, wages still present as a major pain point for drivers. The pandemic has mot dampened driver discontent regarding wages; if anything, it has amplified claims.
- The discontent among drivers was further illustrated earlier this year when more than 30,000 raised concerns regarding the pandemic. 25% of drivers felt the pandemic warranted a further wage increase. In March 2020, only 8% of drivers had expressed concerns. However, this had risen to 38% by April 2020.
- While providers understand some of the issues from drivers around wages, the increased burden placed on them by previous increases, coupled with their ongoing positional weakness resulting from the industry-wide driver shortage. The escalating costs of driver wages have a flow-on effect on companies operating in the space and must be addressed if economic viability is to be maintained.
Creating Industry Flexibility
- There has been an increasing trend toward creating industry flexibility so that supply is better equipped to address the industry’s changing demands. This trend is reflected in changes to the regulatory environment governing commercial drivers due to come into effect on 29 September 2020.
- The rules are designed to create increased flexibility for commercial drivers. There have been four changes, all centering on maximum driving hours and mandatory breaks, including:
- Non-driving on-duty periods will be able to be used for the mandatory 30-minute break after eight hours of continuous driving, whereas previously, the break had to be taken while off-duty;
- The “sleeper berth exception” will enable drivers to split the required ten hours off-duty into two periods, a 7:3 or 8:2 split, without affecting their 14-hour driving window;
- A two-hour extension of the “adverse driving conditions” exception for those experiencing an unexpected delay; and
- Increasing the “short-haul exception” from 12 to 14 hours for those starting and finishing work at the same location. The short-haul distance will also increase from 100 to 150 miles;
- The cost of this trend toward industry flexibility must be weighed against the increased safety risk it poses due to driver fatigue. Driver fatigue is responsible for 13% of accidents in the transport industry. Four safety advocacy groups have launched legal action to have the new regulations reversed, arguing the costs to society far outweigh any benefit to the industry.
- The mounting volume of statistically meaningful research irrevocably proving the causative link between worker fatigue and adverse safety events will make a compelling argument in support of the safety group. This burden placed on the industry in defending the changes will be amplified by the volume of research focusing specifically on commercial drivers and pilots.
- Should the court rule in favor of the advocacy groups, the effects could be devastating and present a long-term and severe challenge to the industries´economic viability. The increased costs around compliance would create a huge burden. This trend presents as an anomaly, with its deescalation not escalation presenting as the greater potential industry disruptor.
- Building on the pop-up store concept, the pop-up fleet is an emerging trend on the private and dedicated fleet landscape. This concept provides immediate capacity to shippers in times of market volatility, where shippers are exposed to fluctuating rates and tight capacity. While the pandemic has contributed to this emerging trend, the continuation of hurricane season, driver shortages, and predictions of a busy holiday period have equally played a role in driving the trend.
- Pop-up fleets are a solution to a short-term increased demand for capacity among those with high-capacity needs, short delivery times, and the need for guaranteed delivery dates.
- These factors have resulted in rising consumer interest in:
- The pop-up concept provides a window of opportunity for shippers looking to secure capacity in a market reminiscent of the days in the immediate aftermath of 911. It began to gain momentum in March/April 202O as private and designated operators recognized the increased demand from consumers for “short-term [60 days or less] committed capacity, deploying assets in certain lanes or between certain regions to address.” Industry experts consider the pop-up fleet design complements the designated fleet model, creating a degree of certainty for both the shipper and the transporter.
Adaption is the New Authentic
- The current need for authenticity, the foundation of more than a few marketing campaigns in recent times, looks set to be shown the door, as adaption becomes the new standard. Throughout 2020, necessitated by a need to survive, private and dedicated transport providers have had to adapt to new realities. The pandemic has become arguably the biggest disrupt or in industry history.
- Like a wildfire fueled by the wind, the pandemic’s flames have engulfed what used to be reality scorching the transport industry landscaped irreversibly. In doing so, laid a foundation for the emerging trend toward adaption and adaptive strategies. The transport industry has adapted to become one of the winners in the wake of the pandemic- Private and dedicated fleet operators are two pf the biggest winners, both using their strengths to adapt to the new environment, having to address the increasing consumer demands.
- With the pandemic’s destructive path still increasing by the day and the market looking increasingly uncertain, the trend toward adaptive strategies that has emerged over the last six months is looking set to become the new industry standard in the not so distant future.