For high-volume shippers constantly moving critical freight, juggling multiple active transportation providers at once can be as stressful as it is inefficient.
To solve this logistical conundrum, many shippers turn to dedicated transportation — a service model in which a shipper is guaranteed exclusive access to a set number of trucks and drivers from a carrier’s fleet for an agreed-upon period.
For many shippers, the promise of consistent capacity and stable pricing makes dedicated transportation an attractive alternative to some of the more uncertain elements of over-the-road (OTR) trucking.
But with those benefits come questions about cost: How is dedicated transportation priced, and is it worth the investment compared to other freight solutions?
Anderson Trucking Service (ATS) has been answering shippers’ questions and helping them find the right transportation solutions for their budget for 70 years. In this article, we’ll explain the pricing structure of dedicated transportation and the factors that influence those costs, and then compare them to standard OTR pricing.
You’ll come away with a better understanding of the finances of dedicated transportation — and a better idea of whether this solution could help your business save money on its shipping activities. Let’s get started!
- What is dedicated transportation?
- How it works: Dedicated transportation pricing
- Cost comparison: Dedicated vs. OTR
What is Dedicated Transportation?
Dedicated transportation is a logistics service model in which a transportation provider allocates a fixed portion of its fleet to a customer’s shipping needs for a contracted period.
The carrier “dedicates” a certain number of trucks and drivers to haul the customer’s freight for the duration, which is typically a contract of one to three years.
The shipper then has control of how those trucks and drivers are utilized to service all (or the majority portion of) its freight for the length of the contract.
The key elements of dedicated transportation services are:
- Exclusive use of allotted trucks and drivers
- Predictable, stable pricing/cost model
- Consistent service levels
- Long-term partnership between a shipper and carrier
For shippers, the fixed rates offered by a dedicated transportation contract are often the most appealing benefit of such an agreement. Let’s take a closer look at what this pricing structure looks like in practice.
How It Works: Dedicated Transportation Pricing
Dedicated transportation pricing works by combining fixed and variable costs to create a predictable, customized rate for the duration of the contract.
Carriers consider factors like equipment, driver wages, fuel, maintenance, route distance, specific service requirements, and market conditions to determine each dedicated customer’s costs.
Shippers who choose dedicated transportation often enjoy more reliable, seamless service. The ability to lock into a stable rate long-term allows shippers to budget out their transportation costs a full year or more in advance.
This can be a great relief to shippers who have been tossed around on the choppy waves of the freight market over the past few years.
A static rate not only delivers peace of mind, but it can also deliver cost savings by empowering more stable and efficient use of transportation dollars. It also eliminates the burden of managing shipping logistics across multiple carriers.
Carriers benefit from this service model, too. Consistent freight is sought-after in the trucking industry because of its namesake regularity, and carriers are willing to give shippers a better rate to secure those contracts.
A dedicated contract gives carriers the opportunity to optimize their asset utilization and scheduling, as a certain number of trucks are guaranteed to be consistently running and loaded for the duration of the agreement.
This also ensures consistent revenue and reduced reliance on the volatile spot market.
And speaking of the spot market: A common concern for both shippers and carriers is the potential for the market to dramatically change, calling into question the suitability of their contracted rate.
To help put some of those fears to rest, let’s talk about the differences between dedicated transportation rates and over-the-road (OTR) trucking rates.
Cost Comparison: Dedicated vs. OTR
It’s the first thing most shippers want to know: Is dedicated transportation more expensive than standard OTR transportation?
Not necessarily. Like nearly everything in the transportation industry, it depends.
OTR pricing is typically based on spot or contractual rates that fluctuate with market conditions, load availability, and capacity, often calculated per mile or per shipment. Supply and demand drive constant rate changes, as the supply of available trucks is shared among all shippers demanding capacity.
On the other hand, dedicated transportation pricing is more stable and customized, reflecting fixed costs for exclusive use of assets and predictable service. While each provider’s pricing structure will differ, dedicated rates are typically a flat monthly or mileage-based fee.
So, if dedicated service rates aren’t affected by the day-to-day fluctuations of the market, couldn’t shippers actually end up paying more for their dedicated shipments than they would on the spot market?
Yes — some shippers may pay a premium compared to their previous OTR rates. With that said, there are a variety of “soft benefits” that can balance those costs in terms of avoiding unnecessary charges and hassle:
- Guaranteed capacity means shippers will never have to search for a truck or struggle to secure reasonably-priced coverage for high-volume or time-sensitive shipments.
- More reliable service supports fewer delays, failed loads, and accessorial fees.
- Dedicated drivers’ familiarity with shippers’ freight and procedures contribute to a smoother shipping process with fewer mistakes and misunderstandings.
- Route optimization gives shippers more bang for their buck by reducing empty miles.
- With logistics management handed off to a dedicated carrier, shippers free up in-house resources to focus on other business priorities.
Ultimately, dedicated transportation only works if it works for everyone involved.
In a strong dedicated partnership, when factors that could warrant a rate change do arise — like a major market shift, a sudden change in shipment volume, or an expansion of service needs in terms of geography or equipment — both parties should feel comfortable having an open, respectful conversation about how to proceed.
That’s why we recommend asking any prospective dedicated carrier how it will determine your rate and what its policies are regarding market fluctuations and rate changes.
You can then take the opportunity to express your own comfort (or discomfort) with those positions and share your expectations regarding communication, operational transparency, and other key elements of your future partnership.
Enter your dedicated service contract negotiations in the spirit of collaboration, and together, you’ll come to an agreement you can all agree on.
Find the Right Dedicated Carrier
With term lengths measured in years, not by shipment, dedicated transportation is not for the commitment-averse. For those whose businesses align with the value promised, though, dedicated transportation can offer both shippers and carriers a powerful solution for building stability and efficiency in their operations.
For shippers, this model eliminates the constant search for coverage and allows for better budgeting and planning. For carriers, it provides steady revenue and operational efficiency that fosters growth and long-term stability.
While the cost might appear higher than traditional over-the-road transportation in some cases, the long-term benefits of consistent capacity, static pricing, and reliable service often outweigh the challenges of navigating the unpredictable spot market.
In any business agreement, the financial facts are king. The most successful dedicated transportation arrangements place equal importance on clear communication, mutual respect, and a shared commitment to partnership.
By understanding the pricing structure — including its potential advantages and disadvantages — and asking the right questions during negotiations, shippers and carriers can tailor a dedicated transportation solution that meets their needs today and lays the groundwork for a successful working relationship long-term.
If you’re considering dedicated transportation, take the time to consider your specific needs, discuss your goals openly with potential carriers, and explore how this model could transform your supply chain. We recommend using our Freight Carrier Selection Checklist as a starting point.
It provides an easy-to-follow framework for comparing your shipping needs and goals to the expertise, equipment, and technology of any prospective carrier. And the best part? It’s 100% free to download. Enjoy!
