Armstrong examines differences between Dedicated Contract Carriage and Dedicated Truckload Capacity

A new report recently issued by Milwaukee-based supply chain consultancy Armstrong & Associates, entitled “Dedicated Contract Carriage vs. Dedicated Truckload Capacity—The Search for Untapped Capacity,” takes a deep dive into the challenges the trucking sector faces, at a time when capacity is perhaps tighter than it has ever been.

Armstrong defines Dedicated Truckload Capacity (DTC) as when a motor carrier agrees to provide ongoing trucking capacity to a customer account in specific lanes, or routes, and equipment can be shared between customers. And it added that this segment has seen major growth over the last decade, with net revenues rising 30.6%, to $6.3 billion, in 2020, for dedicated transportation service providers.

As for Dedicated Contract Carriage (DCC) segment, the company defines it as more traditional and asset-heavy, with specific trucking assets dedicated to a customer account for a given contract length, providing core trucking capacity to buyers in a market that faces cyclical driver and tractor shortages. In 2020, DCC posted its second-highest net revenue growth, at $20 billion, with a 0.3% increase. This was well below the 12.1% DCC net revenue increase, in 2019, with Armstrong noting that 2020 was impacted by the “negative effect of COVID [making] 2020 a volatile and lower-volume year than 2019.”

In an interview, Armstrong & Associates President Evan Armstrong told LM that DCC has been around since the trucking industry was deregulated in 1980, calling it a good way for shippers to lock in capacity.

“Usually, you have one-to-three-year agreements that tend to specify numbers of assets that are going to be dedicated to a customer,” he said. “A lot of times the routes will be managed by a 3PL, and it is done under a long-term contract, so the shipper knows the supply is always going to be there. That is the traditional way to do it, and really what we have seen with more and more truckload entrants away from the leasing companies and those who came out of truckload, there has been this shift to more dedicated capacity.”

This DTC, he explained, is not really specifically tied to the assets, noting it is more geared towards what the customers’ needs are, in terms of routes and lanes, and guaranteeing capacity for those routes and lanes while sharing the equipment between customers.

“That is more of a flexible approach for shippers and carriers and is the approach that is growing versus traditional DTC,” he said.   

With significant 2020 revenue growth for DTC, Armstrong said that it showed how DTC was growing relative to DCC, with the caveat that there was a need to figure out how fast it has been growing, with DTC capacity growing much faster than DCC.

“I think it goes back to that flexibility for both shippers and providers and is still a good way to lock in capacity,” he said. “It is kind of the market’s response to where things currently are with tight capacity and where things have really been since 2010 and making sure you have available capacity as a shipper. DTC meets those needs like DCC. Of course, if a customer has more interest in having some say in what assets will be used and obligating to those assets, then DCC is a better option for them. But, for a lot of customers, DTC provides guaranteed capacity and the flexibility to meet their operational needs.

As for what sectors typically leverage DTC or DCC, the report noted that the sectors that typically use DCC are food & groceries, retail, automotive, household goods, and appliances, with these sectors typically focused on traditional direct-to-store delivery and moving freight between distribution centers.

Looking ahead, Armstrong said it looks like market activity, for both DTC and DCC, will be very solid through 2022, in terms of not exiting the current post-pandemic state of affairs, at the moment.

“Consumer demand is too strong, and the ports are too [congested], and capacity is too tight,” he said. “We also have the driver shortage headwind, too, which is not going away anytime soon…unless we find more people interested in becoming drivers. It is all about a supply chain management strategy. As a shipper, it is about how you are going to manage your transportation, and, for a lot of shippers, the answer is using a core carrier group and a mix of for-hire carriage and dedicated capacity. And with seasonal spikes that can make it hard to fill lanes, then comes the need to work with freight brokers.”

These are parts of an overall strategy, related to: knowing what to do on the core carrier side; knowing what to do with dedicated capacity to meet needs; and how to plug in non-asset-based carriers to meet needs, according to Armstrong.

“The nice thing is, in our market, even as tight as things are, we do have a lot of choices in kind of that buffet of transportation management services that shippers an choose from,” said Armstrong.

For more information on this report, please click here.