Outsourced vs In-House Transportation: A Guide

All companies at some point have to make a decision on what aspect of a business to keep in-house, and what should be outsourced. Transportation is such a critical part of a supply chain that many companies leave it to specialist third party logistics (3PL), but depending on the type of company and the trajectory of the business, insourcing could be a valuable investment.

The three main options for transportation are:

1. Contract Carriage: An agreement between an established carrier and another party for transportation. This is the most popular option as it is the most well-known and the most flexible. The upside to this option is that there is no transportation management other than scheduling pickups and deliveries for products as they are ready to ship. The downside is that the transportation is at the mercy of big trucking companies and if there are emergency shipments it’s not always possible to schedule last-minute transportation.

2. Private Fleet: Owning tractors and trailers and employing drivers to run transportation operations. A private fleet enables a company to have complete ownership of the transportation network. The benefit to this is that there is total control over the operation, but this comes with the burden of managing a separate entity that is likely not the company’s specialty. It requires capital to invest in trucks and trailers, as well as hiring and retaining drivers and adhering to regulations for these truck drivers. Very consistent demand and shipments would be required to justify this option.

3. Dedicated Fleet: Assigning a group of tractors, trailers, and drivers exclusively to fulfill transportation needs. This option is essentially a private fleet but is managed by experienced companies, so is somewhere in the middle of insourcing and outsourcing. This is a desirable option often because companies do not want to deal with the intricacies of owning a private fleet, but they want the flexibility and service levels that come with owning it. Dedicated fleets are usually run through 3PLs.