Heartland Express, Schneider & the US FTL Market: Dedicated Contracts Hedging, Utilization & Backhaul Economics

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What's the advantage for a trucking company to have dedicated contracts other than higher fleet utilization?

Higher fleet utilization is a significant advantage [of dedicated contracts], but it has many disparate benefits. For example, with a dedicated contract, you can more easily recruit drivers, which is a major issue. Drivers appreciate knowing their schedule, which is crucial for them. You also have better knowledge of where your assets are. You can assign office employees to work solely on that contract, allowing you to find economies of scale and efficiencies in the dedicated network. Having a set schedule, a set customer, and a set number of assets is much easier than moving freight to a random location and then having to find profitable freight to another location.

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What's in the dedicated contract? There's a certain price that you agree on. What else is in there?

Essentially, you're promising to move a certain volume of freight. That's the essence of the contract. Along with that, there's usually a certain amount of equipment dedication included. There's typically a minimum and a maximum amount of freight specified in the contract. If you don't meet the minimum, you still have to pay for the amount of freight you moved. Maximums aren't as crucial because trucking companies usually like to flex up. But typically, you agree to a minimum and a maximum. For example, with Trader Joe's, the dedicated account I managed, they specified a certain number of trucks and trailers dedicated solely to their operation. In return, they essentially own your services throughout the day. So if they ask you to do something extra on your way back to the facility, you have to do it.

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Even though it was dedicated?

For example, if you're moving dedicated freight, one significant difference between dedicated and one-way freight is that dedicated usually pays for the round trip. They typically pay more than the one-way loaded freight miles, including some for coming back empty.

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