at a glance
This article looks at strategies used by private fleet operators to compete against for-hire carriers.
Much talk these days revolves around the impact of new hours of service (HOS) rules on carriers and shippers and how capacity may shrink while costs rise. Some of the greatest challenges have come to those in commercial trucking, while private fleets are seeing HOS as more of a benefit to them than other segments of the trucking community.
For Bill Patterson, president of ADM Trucking, HOS haven't made a difference in operations, but their ramifications may provide more justification for maintaining and strengthening this private fleet. ADM operates as a separate company for its parent, food processor giant Archer Daniel Midland Co., as a profit center. It has fully allocated costs, probably more than a normal trucking company since it must take on some corporate allocations as well. The fleet has established rates for everything it hauls, based on the competitive truck market.
Gary Petty, president & CEO of the National Private Truck Council (NPTC), observes that companies relying exclusively on dedicated and third-party are more exposed to increases beyond their control, like HOS. “Many private fleets also use dedicated services and third-party as part of their total transportation solution,” he says.
“They see the proportionality of transportation, over time, shifting back to the private fleet market, especially where those fleets have a proven record of cost control and even profitability,” Petty continues. “So, where private fleets are able to demonstrate not only a lower cost per mile to the company, but are able to have greater control of the total capacity requirements of their retailer or manufacturer, a greater portion of the transportation solution will become private fleet in many cases. In some cases more private fleets will be created that were previously outsourced.”
In describing ADM, Patterson says the company has more than 500 drivers, about 450 tractors and 800 trailers. “Most of what we handle is bulk-food grade products and fuel alcohol,” he says. “We run a blend for our transportation needs, contracting out some bulk. The private fleet handles about 50% of our total truck volume and maybe 75% of our total bulk truck volume. But we contract out most of our package freight and some bulk in isolated locations. We have about 20,000 truckloads a month and of those, 10,000 are handled by the private fleet.”
Petty notes that many NPTC members operate blended fleet operations. They have their own private fleet network of drivers and trucks that serve their core customers, and have dedicated contacts and third-party carriers in markets where they don't have the in-house capacity or don't need it year round.
As for the impact of HOS on operations, Patterson sees little effect on ADM Trucking, but acknowledges the possibility of some market shift as they play out for for-hire carriers. ADM has always run in accord with HOS regulations, and was already requiring a minimum nine-hour driver layover, and has just added one more hour to that time to meet the new rules.
Patterson feels the new rules play to ADM's advantage in comparison to outside carriers because of the company's small volume of weekend work. ADM is a national company in having terminals around the country, but most of the freight it moves is regional, generally within a 250-mile radius of its facilities.
“We haven't seen any impact on our operations,” says Patterson. “The new rules haven't slowed us down or cost our drivers financially. We have addressed abusive receivers at a few locations where they use up our time in loading and unloading. We don't have as big a problem with bulk on the unloading end as we do with the packaged freight.”
ADM has a high volume of packaged freight and in seeing itself as a profit center doesn't think it makes sense to handle that part of the business as a private fleet.
Patterson thinks a possible advantage for private fleet comes because of the nature of bulk carriers.
“An advantage other carriers have is they network for backhauling,” he notes. “But that's becoming less and less desirable. New HOS make it not worth trying to sit around for a backhaul to go 300 miles. Also, it's more difficult to backhaul because of restrictions on what you can backhaul in food-grade product and tanks are much smaller today. If for-hire companies can't backhaul, there's no reason we can't compete head-on with any carrier.”
For the market at this point, however, Patterson offers the proviso that running a private fleet just for cost reasons does not make sense if there is no way to save money over using outsourced carriers because of the backhauling required to maintain a rate structure.
“You have to look at getting the quality backhauls for-hire carriers can,” he notes. “If you're doing it for service reasons, that's different. For example, we run some vans for our animal health group where we make five or six stops out on farms. To get a for-hire carrier to do that costs a lot of money. So, we're doing it for service where we can't get it economically.”
NPTC's Petty observes that HOS problems have a number of variables, depending on the type of company, products and routes. “Certainly, companies with a lot of deliveries who have built driver quality of life into a daily routine are going to be hit more adversely in terms of economic impact than companies that haven't,” he says.
Petty notes that more private fleets are adopting on-board technology to track cargo for security, performance of equipment and the operation of the driver. “Many of the private fleets that operate as profit centers — and that's a growing trend — use on-board technology not only for security and driver tracking but also for cost control by being able to precisely capture cost data on a daily basis,” he observes. They can make adjustments in course and shape the outcome of the monthly financial statements.”
Until recently, private fleets have generally been less embracing of technology compared to major for-hire companies, Petty says. “But we've certainly seen a trend for more on-board equipment that tracks the total operation of the truck and driver and cargo, and that trend will continue.”
Gaining visibility at a higher corporate level is not as great a challenge for ADM Trucking as it might be for others. Archer Daniel Midland is a commodity company and, as Patterson notes, “In our business, transportation is what makes the difference between whether you buy beans or corn, or where you buy them. Corporate management recognizes the importance of transportation in marketing. What sets us apart from the competition is basically transportation costs.”
ADM is deeply seeded in transportation, with its own barge company, an extremely large rail fleet and ADM Trucking.
Petty thinks private fleet managers are increasingly looking for benchmarking data that compare their operations to true peers, not just trucking in general. “It's no longer enough to simply prove your private fleet is operating safer and more cost effectively than the general trucking industry,” he says. “They want peer-to-peer comparisons to permit them to aggressively sell to their corporation the value of the private fleet — to make sure leadership understands by real numbers and real performance comparisons.” LT
For more information on hours of service regulations, go to the following related articles: “Horrors of service” and “Small package shippers face hours of service crunch.”
Archer Daniel Midland Co./ADM Trucking
National Private Truck Council
U.S. Environmental Protection Agency