Section 3: 
Dedicated Fleet Pricing and Design

Section 3 provides highly detailed coverage of all phases of dedicated fleet pricing and analysis.

Chapters 8 and 9 cover the basics of dedicated pricing including types of dedicated fleets, dedicated fleet contract types, cost forecasting and pricing.

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Chapter 10 explains in great detail the extensive risk of pricing specialized dedicated fleets only on a cost-plus or standard operating ratio target basis.  The chapter also provides a suggested approach for establishing the margin on a dedicated fleet based on investment analysis criteria in addition to the traditional operating ratio approach.

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Chapter 11 covers many secondary items related to dedicated fleets such as estimating backhaul revenues, customizing the driver pay program, and evaluating dedicated fleet performance and efficiency.

Chapter 12 focuses on situations where the carrier deploys a dedicated fleet operating solution but must price the network on a one-way / activity basis.  The chapter provides a detailed example of all phases of a mileage-band contact design including fleet sizing, dedicated pricing, and the accurate conversion of the dedicated pricing to the mileage band rate structure.  The mileage band example also includes an indepth illustration of sensitivity analysis in the fleet size design process.

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Chapter 8:  Introduction to Dedicated Pricing
Chapter 8 covers the basics of dedicated fleets including example dedicated fleet solutions, the reasons for dedicated fleets, the common dedicated contract structures, and the primary steps in the dedicated pricing and analysis process.  Key topics include:
  • Common Types of Dedicated Fleets
    • High Utilization
    • Short Haul Networks
    • Multi-Stop Distribution
  • Common Dedicated Contract Structures
    • Fixed-Variable
    • Over-Under
    • Utilization Scale
    • Backhaul Revenue Sharing
  • The Dedicated Fleet Contract
  • The Dedicated Fleet Invoice
  • The Steps in Dedicated Pricing
    • Fleet Design
    • Cost Forecasting
    • Margin and Pricing

Chapter 9:  Dedicated Pricing and Cost Forecasting
Chapter 9 provides a detailed spreadsheet model for forecasting costs and determining pricing for a dedicated fleet proposal.  The chapter includes sample pricing for a dedicated fleet in the common contract structures of fixed-variable, over-under and utilization scale.  The chapter specifically covers methods for assigning revenues to each rate coomponent of a fixed-variable rate structure, an over-under rate structure, and a utilization scale.  Key topics include:

  • The Dedicated Pricing Spreadsheet
    • Fleet Parameters (trucks, trailers, drivers, utilization)
    • Driver Pay
    • Variable Costs
    • Fixed Costs
    • Overhead Costs
    • Pricing and Analysis
  • Dedicated Fleet Pricing Example
    • Fixed-Variable Pricing Design
    • Over-Under Pricing Design
    • Utilization Scale Pricing Design
  • Handling On-Site Management Costs

Chapter 10:  Establishing the Proper Margin for a Dedicated Fleet
Chapter 10 provides a very detailed financial analysis of the risks and weaknesses of establishing the margin for a dedicated fleet based exclusively on a target operating ratio.  Key areas of the analysis include the impact of utilization levels and trailer-to-tractor ratios on the dedicated fleet margin decision.  The chapter then introduces a recommended approach for determining margin on an investment analysis and operating cash flow basis.  Key topics include:

  • The Risks of Operating Ratio Pricing
  • Critical Operating Ratio Pricing Mistakes
  • The Weakness of Operating Ratio
  • Utilization Sensitivity Analysis
  • Trailer Ratio Sensitivity Analysis
  • Investment-Based Dedicated Pricing
    • Operating Cash Flow
    • Net Present Value
    • Internal Rate of Return
  • Other Consideratios in Investment-Based Pricing
    • Monthly Cash Flows
    • Project Risk and Required Rates of Return
    • Pricing and Cost Inflation
    • Dual Pricing Criteria:  Operation Ratio and Internal Rate of Return

Chapter 11:  Special Topics in Dedicated Pricing
Chapter 11 covers a variety of unique considerations in dedicated pricing including backhaul revenues and the design of the driver pay structure.  The chapter also includes several methods for evaluating dedicated fleet operations including tractor utilization charts (TUC).  Key topics include:

  • Estimating Backhaul Revenues
  • Backhaul Revenue Sharing Process
  • Customizing the Dedicated Driver Pay Program
  • Analysis of Driver Pay Structure Alternatives
  • Matching Driver Pay to Dedicated Revenues
  • Evaluating Dedicated Fleet Performance
    • Plan vs. Actual Financial Analysis
    • Tractor Utilization Charts (TUC Charts)

Chapter 12:  Semi-Dedicated Pricing and Design
Chapter 12 focuses on pricing situations where the operating solution calls for a dedicated fleet but the pricing must be in a form of one-way or activity-based pricing.  The chapter includes a highly detailed analysis of a mileage band network including fleet sizing, dedicated pricing, mileage band pricing and fleet design sensitivity analysis.  Key topics include:

  • Mileage Band Pricing and Design
  • Slip-Seat Pricing and Design
  • Converting Dedicated Pricing to One-Way Rates
  • Modeling Short Haul and Mileage Band Fleet Sizes
  • Hybrid Dedicated / One-Way Solutions
  • Fleet Size Simulation Modeling

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