The driver shortage is leading to delayed deliveries and higher prices. Also coupled with driver shortages are equipment shortages, including in the maritime container/chassis environment.
Many, if not most, retailers are subject to seasonal cycles when timely delivery is key to a “make-it-or-break-it” year. Other retailers, such as e-commerce retailers and other lesser-known industry groups (the animal feed industry, for example) do not have seasonal peaks, but a substantial percentage of these industry segments have same-day or next-day delivery requirements essentially on an ongoing basis.
The retailer industry, including e-retailers, are looking to different solutions for addressing these real bottom-line issues — i.e., getting all kinds of goods to customers in a timely manner.
In this demanding environment, we are seeing creative approaches to minimize commercial risk and enhance opportunities to deliver products to/from distribution service centers; to retail brick and mortar facilities; to/from port terminals; and/or to customers directly. So how are some retailers thinking or should be thinking outside the proverbial box (no pun intended) to address these conditions of driver and equipment shortages?
Our suggestions/observations are not intended to be a universal panacea for the driver and equipment shortage, but for some retailers, these are approaches with which they may be already involved to some degree or, if not, may be positioned to consider as partial solutions to this current trucking/equipment dilemma. We would suggest a review by retailers of the following possible approaches:
The Property Broker/Dedicated Carrier Relationship Solutions. Many retailers operate their own private fleets, or there are those who own no power units but do own or lease trailer equipment. However, what all retailers have in common is that they are feeling the impact of driver and equipment shortages, and they are looking for solutions to meet their own special issues.
This is no different for the service providers themselves. Giant e-commerce service providers, such as XPO Logistics (even as a 3PL), own and operate their own significant fleet of equipment, but still require third-party motor carriers to meet their service needs in last-mile and traditional delivery environments. To meet these requirements, they also operate as Federal Motor Carrier Safety Administration (FMCSA) property brokers. XPO Logistics has a brokerage network of approximately 38,000 vetted, independent carriers representing a million trucks. That seems to be the trend for not only service providers but also for retailers and others with needs for predictable, reliable motor carrier services.
Retailers are now becoming proactive in the process itself, rather than just sitting back waiting to be serviced by third-parties which may or may not have timely equipment and drivers to meet their needs. Retailers are involving themselves in the process by owning/leasing equipment; by entering into dedicated service agreements with select motor carriers; and lastly, by assuming the role of property brokers for insuring backhaul transport for their moves, thereby reducing costs. Property brokers operate pursuant to authority granted by the FMCSA.
The following are areas where retailers are focusing their energies and resources to meet the trucking dilemma and to reduce costs in the process:
Owning and Leasing Equipment. Retailers are, to a greater extent, owning or leasing trailers, semi-trailers, chassis or other specialized equipment for their industry segment to ensure equipment availability.
Establishment of Select Motor Carriers for Dedicated Services. These relationships guarantee specific equipment and drivers for specific locations and tasks for specified time periods that can address the cyclic needs. Obviously, the selection of specific motor carriers for these roles would be based on the retailer’s experience with current service providers. Dedicated services should contractually consider the utilization of both retailer/shipper owned/leased equipment as well as motor carrier equipment.
Leasing or Subleasing Equipment to Dedicated Carriers. This feature, of course, ensures equipment availability and cost reductions. Agreements with dedicated carriers should include transport credits and other relevant provisions when retailer-shipper equipment is utilized for transporting the retailer’s goods. Agreements of this type include specific allocation of risks as to the leased/owned equipment. This approach helps to provide guaranteed equipment as well as transport cost reduction features.
The Backhaul Revenue Stream Incentive. In the dedicated service environment in which equipment and drivers are guaranteed, pricing is predictably higher than the normal shipper/motor carrier transaction. Therefore, from the retailer’s perspective, the obvious spotlight is on the backhaul revenue possibilities to reduce transport costs.
Agreements with dedicated motor carriers must include provisions for crediting this backhaul revenue stream to the retailer whether the backhaul shipper is provided by the motor carrier, the retailer acting as a property broker or by third party property brokers.
Technically, in a dedicated service arrangement, the backhaul space is the contractual “property” of the retailer/shipper, since pricing to the retailer is set by assumptions that the backhaul will not generate revenue.
Agreements with motor carriers should make this clear, while also ensuring that any incidents resulting in damages to third parties occurring during the backhaul are for the account of the motor carrier.
Retailer as Property Broker. To the extent that retailers find themselves in dedicated service environments, the retailer should also be mindful of the corresponding backhaul space, which creates a revenue stream opportunity to reduce overall transport costs. The retailer should take an active role in procuring shippers for this space.
It has become now more common for retailers to become FMCSA property brokers. Besides meeting the federal requirement of obtaining an FMCSA permit for arranging motor carrier transport, the retailer also minimizes the risk of being considered a “carrier” in the event of transport mishaps which may result in death, personal injury and property damages. This status also allows the retailer, as a property broker, to enter agreements with other property brokers for seeking shippers requiring the backhaul space from the motor carrier created by the retailer’s initial transport.
This activity should be carefully included in the agreement with the dedicated motor carriers, not only from the revenue side, but also in defining the role carefully so as to minimize risks to the retailer in the event of any claims arising from the transport related to property damages, personal injury and/or wrongful death during the backhaul stage.
Caveat: If the retailer is a private motor carrier (with its own power units), it may only carry its own cargo. A retailer can only accept cargo on the backhaul from third parties as an authorized motor carrier — i.e., it has to obtain motor carrier operating authority for this task from the FMCSA.
However, if it is leasing its trailer equipment to an operating motor carrier, as noted herein, it can act as a property broker to arrange for the transport of cargo with that authorized motor carrier.
Conclusion. While we cannot stress enough that the above is not the cure-all for driver and equipment shortages, the approaches noted are ways to structure efficient utilization of retailer and motor carrier equipment and driver capacities.
The above also focuses on ways for the retailer to maximize the use of usually empty backhaul space in a dedicated service environment. Contractual terms should clearly structure the relationship, and should be sensitive to commercial/legal and regulatory factors involved in this process.
Carlos Rodriguez is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He practices in the international trade and supply chain group of the firm’s technology, manufacturing and transportation industry team.