Common vs Contract Carrier

Kroger TruckA recent query on APICS Supply Chain Channel asked…(what is the) Difference Between Common Carrier and Contract Carrier. I’ll answer at two levels. Level 1 will help you pass the CLTD exam. Level 2 provides a deeper understanding of the terms.

Level 1:

The APICS Dictionary, 15th edition, defines a common carrier as:

‘…transportation available to the public that does not provide special treatment to any one party and is regulated as to the rates charge, the liability assumed, and the service provided.’

The APICS Dictionary, 15th edition, defines a contract carrier as:

‘…a carrier that does not serve the general public, but provides transportation for hire for one or a limited number of shippers under a specific contract.’

Level 2

While legally there are key differences from a government regulation perspective (i.e. UPS is not a common carrier – UPS reserves the right in its absolute discretion to refuse carriage to any shipment tendered to it for transportation), it is better to see the differences from a customer (shippers) perspective. Specifically what the carrier does and when they do it.

A common carrier will work with multiple shippers from day to day. They are NOT dedicated to servicing a specific shipper and will frequently have multiple shipments for multiple companies on a load to help them optimize their costs. An example of a common carrier is Delta Airlines. You can call them today, rent a seat, and be on your way across the country with 150 other travelers. If you are a shipper, you will typically “rate shop” your loads with common carriers to determine the most efficient and economical carrier service. For example, if I want to fly from Atlanta to Chicago I would rate shop my trip on http://www.Kayak.com to check the common carriers for best service (delivery schedule) and cost. Kayak may even suggest I fly Delta to Chicago but use United for my return flight to Atlanta.

Example truck common carriers in the States include:

  • Old Dominion
  • YRC Freight (formerly Yellow)
  • Southeastern Freight Lines
  • R+L Carriers
  • Central Transport
  • CH Robinson
  • B. Hunt
  • YRC Freight
  • FedEx (maybe)

A contract carrier will work with the shipper on a longer-term contract. The carrier will reach an agreement (level of service and cost) and work with a specific shipper over the length of the contract. Specialty carriers, i.e. refrigerated, flat bed, etc. may be better off establishing longer-term contracts with shippers to help them spread their higher operating costs over more certain shipments. As a shipper, I’m assured of terms and conditions for my shipments over the length of the contract. While I may still work with common carriers for one-off shipments, I fully expect to use my contact carrier as much as possible.

Back to my Chicago trip example, I may decide I take enough trips to Chicago to warrant a more dedicated air service and may opt to sign a contract with NetJets (https://www.netjets.com/Home/) to serve my air travel needs.

Contract carriers may also subcontract some of the shipments to independent carriers (i.e. owner operators or smaller companies who own tractors). This provides them more flexibility without higher overhead costs of owning assets.

Example contract carriers in the States include:

  • Interstate Distributors
  • CH Robinson
  • B. Hunt
  • MCT Transportation
  • Total Transportation of Mississippi
  • Ryder
  • UPS
  • FedEx

Some confusion might result given you still have a contract with a common carrier but it is a short term contract (Bill of Lading), for a specific shipment. The contract with a contract carrier is longer-term. When working with a contract carrier you might be in a collaborative, outsource agreement as a strategy to strengthen your competitive advantage.

Frequently a carrier can be listed as both a common and contract carrier. This is typically done through different company divisions. The blurring line between common and contract carrier becomes even more fuzzy doing a Google search on “Is UPS (or FedEx) a common (or contract) carrier”. The results are surprising. The UPS Terms and Conditions of Carriage, states, “UPS is not a common carrier and reserves the right in its absolute discretion to refuse carriage to any shipment tendered to it for transportation”. The highlighted verbiage restricts UPS from being considered a common carrier (common carriers cannot generally refuse service to a shipper).

Alternatively, the search on FedEx as a common carrier results in a criminal charge case where FedEx claimed “common carrier” exemption to certain possession laws. They used the “basic notion that if they are in the business of shipping pretty much everything for pretty much everyone, they can’t be expected to always know, or be liable for, certain illegal uses of their service”.

Common and contract carriers are third party (for-hire) companies organizations. As an option, a company might opt to be a private carrier, to own and manage their own fleet internally.

The APICS Dictionary, 15th edition, defines a private carrier as:

‘…a group that provides transportation exclusively within an organization.’

There are many reasons companies would opt to in-source (private) vs out-source (common/contract) transportation. The primary being costs, management defined core competencies and marketing. Marketing may seem odd but think about a trailer as a mobile billboard traveling through populated cities capturing the attention of everyone passing by. In Atlanta we might see an Advance Auto, Dollar General, Little Debbie, Kroger or Publix truck traveling around Interstate 285. You would be safe to assume these are private carriers. However if you have gotten this far and are confident you understand the differences in carrier types, I propose, when you see that Kroger truck on the highway, chances are it is not a private carrier Kroger asset. I would bet it is owned and managed by Atlas Logistics a contract carrier, 3PL and possibly an LLP.

We will cover 3PL and LLP in a future post.

Advertisements