No matter the situation, managing the little things drives the most success. We hear the importance of managing the most minute details from athletes, and we hear it from business leaders. In the logistics and supply chain space, the smallest detail to manage is drayage.
To drive the point forward, just think of all the dollars and hours spent moving containers in, out and around the ports in 2021 and early 2022. The inefficiencies drove millions in storage and demurrage accessorial fees and increased companies’ inventory purchases because of the lack of trust that the product would be moved through the ports.
What Does Drayage Mean in Shipping?
Drayage is the shipping of goods over a short distance via truck.
Drayage is most often thought of as the origin and destination legs of an intermodal shipment that uses rail for the long-haul leg, whether the intermodal shipment originates from a sea port (IPI) or an inland intermodal ramp (domestic intermodal).
Drayage moves are generally round-trips when a shipper is dealing with ocean containers because there is an emphasis on getting a container back to port as quickly as possible to avoid per diem and/or storage fees.
From an operational perspective, dray moves are a well-orchestrated series of events that optimize the movement of containers over short distances and time periods. The goal is to provide the highest level of service and turn the equipment the most times in a given day, allowing the operator to offer the best price to their customer and produce the most profit for their operation.
Utopia in the dray world is obtained when sales and operations teams work together to find freight that allows for what are called street turns, which is moving emptied shipping containers directly to another shipper versus returning it back to the port or intermodal ramp. Street turns not only improve the efficiency for the truck driver by increasing freight turns in a day, but they also reduce ocean port and intermodal ramp congestion.
Other Freight Services Coming from Drayage Operations
Drayage’s short-haul characteristics allow logistics professionals to tap into various other logistics solutions using a variety of equipment when market conditions shift. As an example, the dray truck driver can haul trailers and flatbeds when dray demand is down or chassis and container shortages exist.
Also, through dray brokers and agents there are opportunities for dray operators to roll into larger logistics solutions through 3PL relationships that have a need to feed: transloads, cross-dock operations, warehousing, distribution and yard storage options. Dray helps to move equipment quickly and hold down total supply chain costs.
Savings to Consider from Drayage Costs
Drayage’s importance in slimming freight budgets cannot be overstated. By closely monitoring containers at ocean ports or intermodal ramps to where the dray operations is turning out the oldest ISO and intermodal boxes first holds down and avoids per diem and storage costs, which increase exponentially the longer the equipment sits past their free days.
Inventory management was a critical issue in 2021 and 2022 and inefficient dray work caused many containers to be delayed or lost, which drove unnecessary buys and/or additional expedited freight trips to clear up backorders.
A potential cost benefit worth mentioning within dray operations is that they can drive down a shipper’s standard outgoing freight when rolled through an intermodal provider that offers repositioning solutions. A repositioning service solution, often referred to as the repo market, involves shipping domestic freight in 40’ and 45’ ISO containers at much reduced costs for shippers. The reason for the advantageous pricing is, steamship box owners more often than not ship their containers back to port cities without paying freight on them.
Repo freight service solutions are the best fit for shippers that find their truckloads weigh out before they cube out. In these situations, shippers do not have to change anything with their order levels because their freight will fit nicely within the smaller box versus those customers that need the full 53’ capacity found in a trailer or domestic intermodal container.
Composition of Drayage Market Providers
The drayage community is highly fragmented with much of dray capacity coming from small operators.
As a localized example of the fragmentation of the drayage market, the best estimate is over 700 dray carriers serve the Southern California market alone.
The largest national drayage companies: JB Hunt, HUB Group and Schneider do offer dray. But more often than not, they have their capacity tied up in managing their own network. That makes dray brokers and agents the best option for shippers to gain access to greater dray capacity without having to manage several dray operators in a market.
Dray agents are beneficial for the small to medium asset dray operators as well, as they perform all the back office functions, provide the cashflow for the operations and act as a sales team bringing additional business opportunities to the dray business.
What Do Drayage Companies Require to Price and Service a Dray Shipment?
The shipment information is very similar to the requirements when buying truckload capacity:
- From and To Locations
- Dry or Refrigerated
- When Available
- Delivery or Pick-Up Dock Requirements and Hours
- Container Size
How Is Drayage Cost Calculated?
The dray provider prices the move based on the previously mentioned shipment characteristics, with a very close eye on time. Time in transit, time to load and time to unload are essentially how drayage cost is calculated. Price per mile and other similar pricing models found in standard truckload do not come into play because there are not enough miles in dray to spread the efficiencies of long haul into a short day trip.
The most common dray pricing is a flat rate, plus fuel percentage or an all-in rate that includes fuel.
In addition to the standard rate, there are accessorials to be aware of as adds because of their impact to time:
- Port Congestion Fees: Included for freight originating or terminating at a congested port
- Chassis Fees: Pricing will differ based on whether the dray carrier has their own equipment or rents it
- Chassis Splits: Covers time spent picking up a chassis from a different location than the one where the container resides
- Flip Fees: Charged at intermodal terminals when they need to pick a container up off the ground and mount it on a chassis an extra time
- Driver Delay: A dray term that coincides with detention charges for truckload shipments. These are charges for shipments that take longer than the allotted “free time”
- Demurrage: These fees are applied to containers that sit at the shipper longer than the allotted free time
- Pre-Pull: When the drayage carrier transports the container to a facility to hold it until the shipper is ready to accept delivery. Often times pre-pulls are introduced to avoid rail storage charges that would be far more than a pre-pull charge. The reason being is a port or rail ramp’s acreage is a premium that a railroad does not want to become congested, and they introduce a storage charge to encourage the container to leave the port or ramp
- Tolls: Fees that are added when a driver passes through toll zones on their route
- Power Only: In some cases, when a container is already onsite the accessorial charge is power only, which is exactly as it sounds. A truck and driver, without the need for any equipment
- Drop Fees: More often than not, logistics operators like drop options versus live load and unload, but in situations where a pool of containers needs to be built up, the operations will add these fees to cover the cost of bobtailing into a facility to drop off equipment
- When the program is over, the shipper will be charged for the teardown of the excess boxes that their service provider needed to pull through bobtailing
- The best way to avoid or minimize the charges is to communicate the intentions early, so the majority of containers can be reduced from the pool through “normal” outbound shipments
Keep in mind, when you are contracting an intermodal freight move, the intermodal provider (IMC) will give you an all-in rate that would include all of the above so the pricing appears just like a truckload shipment. In that case, you’d only receive one invoice and that would be from the IMC.
What Are the Characteristics of Drayage Carriers?
The working conditions and regulations involved in hauling drayage mean that drivers and drayage carriers have some characteristics and priorities that are a bit different than truckload operators, which include:
- They Are Local
- Drayage drivers work daily schedules moving between ports, intermodal ramps and facilities in their local area and return home every night.
- With that said, they are impacted by local regulations, like California’s AB5 labor law.
- A Commercial Driver’s License (CDL) Is Required
- The vehicles that haul drayage chassis are Class 8 tractors. Drivers need to be appropriately licensed to operate them, even though the hours of service requirement for CDL holders does often come into play for drayage
- They Participate in a Large Contractual Equipment Pool
- The vast majority of drayage carriers sign the Uniform Intermodal Interchange & Facilities Access Agreement (UIIA). This standard industry agreement lets drayage drivers use chassis owned by railroads or other equipment providers without excessive contractual and insurance hurdles
- They are Required to Register to Access Ports and Intermodal Ramps
- State and local governments issue Drayage Truck Registry (DTR) stickers to drayage drivers and vehicles. These regulate the amount of traffic in and out of ports and ramps and help ensure carriers comply with other regulations such as state emissions standards
- Service and Communication Are High Priorities
- Time is money for a dray operator, so they tend to want to communicate often and move quickly because delays or additional stops cause appointments to be pushed or missed, which takes money out of their pockets
How Do You Book Drayage?
There are two flavors of drayage, with one being part of a door-to-door intermodal move and another where a shipper is working to turn equipment out of (or into) ports and ramps themselves.
In a door-to-door intermodal move, shippers do not need to do anything other than book the full intermodal move with their intermodal provider (IMC). The IMC will book and coordinate the origin and destination dray, along with the linehaul leg with the railroad for a seamless solution and single invoice.
In the situation where a shipper is looking to turn containers in or out of a port or ramp, the shipper will book and coordinate the work directly with a dray provider.
In summary, drayage is the linchpin in IPI and domestic intermodal shipments, as it is the first and final mile delivery segment in an intermodal shipment moving goods between ports, terminals, warehouses and retailers.
We can expect drayage needs to increase and be more critical as the global economy continues to be more interconnected. The more fluid and transparent drayage operations are will improve cost, provide continuity, reduce risk and keep an uninterrupted flow of goods moving through a company’s supply chain - driving a competitive advantage.
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