Private Trucking: No Simple Answers on Fleets

By Walter Weart

Private trucking has been a part of the transportation mix since almost the beginning of motor carriage. However, the size and scope of this sector is undergoing change along with the rest of the trucking industry.

According to the National Private Truck Council (NPTC), private fleets account for approximately 82% of the medium- and heavy-duty trucks registered in the United States. These trucks transport about 4.45 billion tons of freight annually, which is 56% of all motor carrier tonnage. This sector consists of more than two million vehicles, making private fleets the largest segment of the trucking industry.

Armstrong & Associates conducted a survey of the private trucking sector in 2006 and found that about three-fourths of the fleets were used to deliver finished products while about one-fourth of the operations were used to support manufacturing operations. Almost one-half of operations are truckload with roughly one-third of the fleets engaged in multiple-stop inbound or outbound direct store deliveries.

"We use our fleet to deliver to our customers from our 70 distribution centers and we have a separate fleet that handles vendor pickups," says Rick Gilchrist, director of transportation for Unisource Worldwide, Inc.

"Our fleet operates up to 500 miles from our 14 distribution centers and we also backhaul from vendors," say Tom Grove, corporate delivery service manager for Ace Hardware.

Deregulation may have helped private fleets by allowing fleet operators to obtain both trucks and drivers from the same source, thus opening the door to dedicated carriage or contract carriage. But, along with competition from the commercial truckers, fleets are experiencing many of the same concerns as the for-hire sector—raging from fuel costs to drivers.

While initially dedicated carriage eliminated many fleet operations, the tide seems to be changing. "We see private fleets growing and adding capacity, addressing the need for unique customer service, particularly when for-hire capacity was tight," said Gary F. Petty, president & CEO of the National Private Truck Council (NPTC).

A survey conducted by the NPTC in 2006 found that 72% of the respondents report the primary reason for operating a private fleet is because it provides better customer service to key customers. The Armstrong study supports this in finding that the top two major concerns are on-time service and undamaged and correct deliveries.

"We have seen growth in our business as our clients are moving back into fleet operations because of continuing service demands by their customers—such as JIT applications," said John Deris, senior vice president sales and marketing-Central Region for Ryder Systems, Inc.

One such case of a fleet coming back in house is that operated by Unisource Worldwide, Inc. They decided to outsource to dedicated carriage but after two years found that they were not getting the service or benefits they had planned for.

"While we hoped to reduce our risk and see some other benefits, what we found is that we were not getting the service our customers required," said Unisource Worldwide's Gilchrist.

"The new fleet is smaller than before but is more closely related to our customers, so the service levels are where we need them to be," says Gilchrist.

"Ace Hardware looked into outsourcing but made a conscious decision not to for service requirements," says Grove, adding they do not use outside carriers for store deliveries unless the Ace fleet is unavailable.

"We have expanded our fleet as our business has increased 22% in the past five years," says Grove.

Another example of the unique requirements that private fleets fill is that of Lance Foods.

"We did look at outsourcing a few years ago but our delivery requirements with five to 15 stops combined and a piece count of 2,200 to 2,600 pieces, quickly eliminated dedicated carriage as a possibility," says Todd Hennis for transportation manager for Lance Foods. He explains that they deliver orders to their sales representatives, who in turn service the final customer.

At the same time, dedicated carriage is also experiencing growth--and for many of the same reasons as with private fleets. Dedicated contract carriage was a $10 billion per year business in 2005 according to the Armstrong & Associates 2006 private trucking study.

"While the service requirements remain unchanged, we see some firms moving to dedicated because of concerns about labor, hours of service, liability and the new 2007 engines which are much more expensive," says Hernan Vera, director of supply chain marketing for Ryder System, Inc. Some of this is an outgrowth of movement towards third-party logistics companies (3PLs) as well adds Vara.

"We do use dedicated carriers for deliveries for our large customers such as COSCO, Wal-Mart and others so our fleet can concentrate on our deliveries to our representatives," says Hennis.

According to the NPTC survey about 45% of the respondents are incorporating dedicated contract carriage and other third-party alternatives into devising a corporate transportation solution. These dedicated carriers haul 22% of the inbound freight and 19% of the outbound freight.

"Deregulation allowed dedicated carriers to include more well defined controls and contract provisions which guarantee a high level of service while moving away from the costs of equipment exclusivity," says Dick Armstrong, president of Armstrong & Associates.

Another factor, according to Armstrong, was that dedicated contract carriers started to backhaul freight for companies other than primary customers, which reduce empty miles, increase utilization, and make dedicated carriage even more marketable.

An additional competitor of private fleets is "dedicated capacity" which Armstrong defines as an exclusive use of an agreed upon amount of capacity without an assigned driver or vehicle.

"Dedicated capacity is usually priced at a 20% to 25% discount from dedicated carriage and is often used for longer haul service," says Armstrong.

"Regardless, there is no ‘magic answer' nor is there a right or wrong way, and I have seen fleets change to outsource, stay in house or revert back to in house," says Kenneth Amato, president and owner of Private Fleet Consultants Inc.

Amato's firm works with shippers to find the optimum solution for questions dealing with fleets.

"While we seek to reduce the cost of the fleet, we look at how the client obtains their trucks, how they are organized, conduct an operational review, look at own versus lease or variations of this as well as examine dedicated carriage," says Amato. He adds that they try to "unbundle" the fleet to look for cost reductions or profit improvements.

One way fleets are seeking to reduce expenses is by filling empty miles on backhauls.

The NPTC has launched a unique backhaul networking program designed to help its fleet members fill empty miles through strategic private fleet partnerships.

"According to NPTC's most recent Private Fleet Benchmarking Survey, private fleets reported that 25% of all private fleet miles are empty," says Petty. He adds that this creates an opportunity for filling backhaul capacity and for cost savings to the fleet.

The initiative called, Member Match Backhaul Network Program provides an information exchange which allows member companies to fill empty capacity with shipments from other member fleet companies or to utilize other private fleets to haul their own traffic.

Another "wrinkle" in the private carriage mix deals with who owns or provides the equipment.

"We have seen instances where the lessor has required the lessee to furnish the trailers, particularly in those instances where the trailers have unique requirements," says Dr. Edward J. Marien, professor emeritus, School of Business Executive Education, University of Wisconsin-Madison. He adds that this also requires "buy in" by the customer and an assurance that the lessor will not be stuck with unusual equipment that has little other application.

Regardless of equipment or structure, fleets are not without problems, with many of them the same as those facing their "for hire" brethren.

One of the most pressing problems and the one leading the list of concerns in the NPTC survey is fuel.

"Our fuel expenses rose by 136% in the period from 2002 to 2006," says Ace Hardware's Grove.

"We can get bulk fuel at our Charlotte location but our other fleets at two locations in Texas and one in Florida buy fuel at the pump so we are at the mercy of the market," says Hennis.

Wal-Mart, operator of the second largest fleet, released a statement last year detailing their plans for a more efficient truck, and their goal is to double the efficiency of their trucks by 2015. Hybrid vehicles are included with the company having more than 100 hybrid vehicles in operation in 2006 and have requested another 100 for 2007.

The Wal-Mart prototype truck includes trailer side skirts, super single tires, an aerodynamic tractor package, replacing the second drive axle with a "Tag" or non powered axle and auxiliary Power Unit which eliminates the use of the tractor's main engine to provide heat or cooling for the driver.

"The fleet is already running about 15% more efficiently at an average of about seven miles per gallon compared to a 2005 base of about six mpg," Tim Yatsko, senior vice president of transportation for Wal-Mart Stores Inc., said in a recent presentation at the NPTC annual meeting. Increasing the average mpg by one gallon saves Wal-Mart between $35 million and $50 million a year.

Given the size of its fleet, WalMart could have a profound impact on tractor and trailer design, particularly as they start phasing in these changes this year.

The next most pressing problem currently for fleets is drivers, but not to the same extent as it is for the for hire sector.

While commercial carriers experienced an annualized turnover rate of 136% in the fourth quarter of 2005 according to the American Trucking Associations, NPTC members report turnover of 14%, down slightly from the 16% levels recorded over the previous two years. Some of this turnover can be attributed to fleet realignments and distribution center closures.

"Our turnover is very low. For example, we have one driver with 33 years and many with 20 plus years," says Hennis. He attributes this to the fact the drivers get home quite often and have the same run over time.

Seasonal driver needs can present unique challenges even for the private carrier.

"As we gear up for the fourth quarter, we add more drivers to our fleet and recently we have had to add signing bonuses and guaranteed hours to attract these extra personnel," says Tom Stedman, director of corporate transportation for Walgreens Co. He adds that the core fleet is very stable with many drivers having long-term careers with Walgreens.

Not all personnel problems are concerned with drivers.

"For the past two years, we have had more positions available than we have had qualified candidates for fleet manager openings," says George Fieser, practice leader, Truckload & Dedicated Contract Carriage for MRI Executive Solutions. He says part of the demand is from expansion but part is also due to "Baby Boomers" coming to retirement age.

TAGS: Archive
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish