Explain the advantages and disadvantages of private trucking. Why do firms have private trucking fleets?

Answer 1

The primary reasons for a firm to have a private trucking fleet are to improve service and/or reduce transportation cost.

The advantage of a private fleet come from the flexibility the private fleet give to the company to respond to both external and internal customers. The flexibility means improved levels of service in the form of lower transit time, and an ability to differentiate their product through superior time and place utility. The firm is likely to achieve reduced cost, as they do not have to pay the contract carriers profit margin. But that is not always the case. Sometimes, a contract carrier is able to generate economies of scale and/or has such expertise that they can offer a lower cost service than private trucking even with their profit included.

Private fleets also have the advantage that the driver is an employee of the seller, and is therefore, hopefully, more likely go the extra step to improve the firm image. Additionally turnover among private fleet drivers is much lower per year. Additionally, some firms require specialized equipment to handle the goods associated with their production. Such requirements practically force firm to employ private fleets.

A major disadvantage of a private fleet may be the amount of capital required to purchase and operate the fleet. Additionally for some manufacturers transportation is not their expertise. Running private fleets is difficult and mistakes can quickly eliminate the profit that would have been spent on a contract carrier. When the drivers of the private fleet are members of a union, it may present another managerial challenge if the organization has limited experience with unions or they are members of a different union than current employees.