You choose, we deliver
If you are interested in this story, you might be interested in others from The Journal Gazette. Go to www.journalgazette.net/newsletter and pick the subjects you care most about. We'll deliver your customized daily news report at 3 a.m. Fort Wayne time, right to your email.

Business

  • New-homesales slowto a trickle
    WASHINGTON – U.S. sales of new homes were nearly flat in September, after the government sharply revised downward what was initially an August surge in buying.New-home sales edged up 0.
  • Stocks see best week in 2 years
    NEW YORK – The stock market closed out its best week in nearly two years on a positive note Friday, helped by strong quarterly earnings from Microsoft and other big U.S. companies.
  • Ford quarterly profit falls
    DEARBORN, Mich. – Ford’s new aluminum-sided F-150 will be a lot lighter and more efficient when it goes on sale this year. But for now, it’s a serious drag on profits.
Advertisement
Bloomberg News
A J.B. Hunt Transport Services truck travels north on Interstate 87 past Lake George, N.Y.

Stores favor dedicated fleets

Driver shortage continues to crimp trucking industry

– Retailers and grocery stores are among companies increasingly using dedicated-fleet services as a shortage of drivers constrains U.S. trucking capacity while the economy heals.

J.B. Hunt Transport Services and Werner Enterprises are among carriers benefiting from an “accelerating trend that’s helping to buoy the trucking industry, according to John Larkin, managing director in Baltimore at Stifel Nicolaus & Co. Dedicated-fleet services – provided by a carrier that allocates a fleet of trucks to specific customers – are in vogue because shippers want to eliminate the uncertainty related with procuring vehicles, he said.

These services now are “the preferred approach to lock in capacity” for core shipments, Larkin said. Further, because customers are charged the same amount whether a truck is empty or full, they can better manage their costs in a shortage by negotiating rates for defined, predictable routes in advance.

Businesses also can preserve capital while avoiding expenses from accidents and other risks associated with operating their own trucks, said Vincent McLoughlin, chairman of Cardinal Logistics Management.

The Concord, N.C.-based carrier sees more interest in dedicated-contract carriage services, particularly from retail and building-supply companies, boosting revenue for this $330 million business, he said. Cardinal Logistics provides supply-chain consulting, warehousing and distribution to AutoZone, Office Depot and others.

J.B. Hunt has made “significant efforts in driver hiring due to shortened lead times for contract start dates,” the carrier said recently. This shows demand is accelerating as customers want quicker access to dedicated-fleet services, said Larkin, who maintains a “hold” recommendation on the company.

Retail sales rose 1.1 percent in September following a 1.2 percent increase in August, the best back-to-back showing since late 2010, according to Commerce Department data. Retail sales for October, however, dropped 0.3 percent, according to a report Wednesday.

Building supplies also are rebounding as the housing market improves. New-home starts jumped 15 percent in September from the prior month to an 872,000 annual rate, while residential permits – a proxy for future construction – rose to 890,000, based on Commerce figures.

Both were the best since July 2008 and exceeded the median forecasts of economists surveyed by Bloomberg News.

While J.B. Hunt’s dedicated-services business is expanding, growth slowed in the third quarter, when this segment accounted for 21 percent of the Lowell, Ark., carrier’s total operating revenue, down from 23 percent a year ago, and revenue rose 1.4 percent, compared with 7.2 percent in the first quarter of this year.

This could be a result of the sluggish economy, Larkin said.

“You can read between the lines to conclude what we already knew, that the third quarter was pretty soft.”

Gross domestic product grew at a 2 percent annual rate in the three months ended Sept. 30, more than the 1.8 percent median forecast of economists surveyed by Bloomberg but trailing the 2.8 percent average for the five years before the recession, according to data from the Commerce Department.

The average number of trucks in J.B. Hunt’s dedicated-contract services fleet grew 4.8 percent to 5,153 in the three months ended Sept. 30, company data show. The increase was “more or less in line with expectations,” Larkin said. Omaha, Neb.-based Werner Enterprises has a long-term goal that one-third of its revenue will come from dedicated-fleet operations, he said.

It’s onerous for shippers to operate their own trucks, said Charles Clowdis, managing director of transportation advisory services at IHS Global Insight in Lexington, Mass. They must cope with Department of Transportation regulations, including pending and recent rules from its Federal Motor Carrier Safety Administration.

There’s a shortage of qualified drivers, as some rules have made it more difficult to add workers, while other industries have poached potential employees, Clowdis said. This “phenomenon is getting worse,” which could hinder hiring even more, though dedicated contracts tend to appeal to potential drivers because they have an established route each day or week, increasing the likelihood they can be home more often, he added.

Though rates may be a bit higher for customers to use dedicated-fleet services, supermarkets and retailers like this option because it’s “better to have capacity when they need it,” Clowdis said.

A sense of urgency also is fueling the increased popularity, even if shippers must pay when there isn’t merchandise to fill the trucks, Larkin said.

The benefits appear to be outweighing costs as more Cardinal Logistics customers are looking “more critically” at this option, McLoughlin said. “Why invest in the trucks if you don’t need to?”

Advertisement