Private Fleets: Your Own Private Ride
Targeting service, capacity and cost issues, companies turn to private fleets.
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For some shippers, operating without a private truck fleet is unimaginable. "In many ways, our private fleet is the heart of our business," says Richard Buchanan, outbound transportation director for Chicago-based hardware chain True Value.
True Value is one of thousands of businesses nationwide that have resisted the temptation to outsource carrier operations, opting instead to operate their own fleets. For these companies, the lure of enhanced customer service, improved scheduling flexibility, and guaranteed capacity is hard to resist.
"Many companies find it more cost-effective to run fleet operations themselves," says Beth Enslow, a supply chain analyst at Aberdeen Group, Boston.
On a downslide for decades due to increasing competition from common carriers and 3PLs, private fleets are once again hot. More stringent hours-of-service rules, rising fuel costs, and other factors have combined to squeeze available carrier capacity, inspiring more companies—large and small—to consider assembling their own fleets.
"The historical trend has been fewer companies using private fleets," says Enslow. "But that trend is shifting with the changing capacity situation."
"Private fleets are the largest part of the trucking industry," says Gary F. Petty, president and CEO of the National Private Truck Council (NPTC), an Alexandria, Va.-based trade group that represents private fleet operators. "There are approximately 33,000 private fleets in the United States with 10 or more vehicles," he notes.
Despite potential advantages, creating a private fleet can be a daunting proposition for any business, large or small.
"Many companies have to start from scratch, hiring their own drivers, and acquiring their own equipment," says Petty. "However, companies can lease drivers and equipment to avoid capital expenses."
Still, private fleet operators face numerous ongoing challenges, such as fleet maintenance, logistics management, and driver recruitment.
Most private fleet operators, however, believe the benefits are worth the extra effort.
"Within the past year, several carriers expressed an interest in taking over our fleet at a few locations," says Buchanan. "But after evaluating these companies, we realized outsourcing was not cost-effective."
As a 5,800-member hardware store cooperative, True Value ships thousands of different products daily to stores across the United States. The company realized decades ago that only a private fleet could meet its diverse, high-volume shipping needs.
"We did use traditional trucking companies at one point," Buchanan says. "But I've been with the company for 32 years, and the conversion to the private fleet happened before I came on board."
Eliminating claims is one major reason True Value opted for a private fleet.
"The products we ship are not always in a box or carton. A shipment may contain a bundle of shovels or rakes," Buchanan explains. "It can be difficult for a carrier to determine whether we count that bundle as one rake or six rakes," so inaccurate claims for missing items were an issue when using common carriers.
With its private fleet, True Value moves approximately 42,000 truckloads per year, covers 27 million miles, and makes 240,000 deliveries totaling some 940 million pounds.
To a lesser extent, the company also relies on its fleet for inbound runs—nearly 30 percent of the merchandise that moves inbound from its vendors is transported on True Value's own trucks.
True Value designed its fleet to meet its own specific needs, another advantage for companies that choose private fleets.
"We have 325 tractors and 900 high-cube trailers," says Buchanan. "We chose to use high cube because our freight isn't dense or heavy and we need as much cubic space in our trailers as we can get."
Driving Customer Service
Like most private fleet operators, True Value views its drivers as more than just people who move products from place to place—they are also a customer service asset. True Value's drivers have more face-to-face contact with store managers and employees than anyone else in the company.
"We're a customer service-oriented company, so we try to give the stores every type of service we can," Buchanan says. "Our private fleet is the best customer service tool we have."
Like True Value, Bridgestone Firestone North American Tire relies on its private fleet to provide enhanced customer service. "It puts us in control," says Ron Tartt, the company's private fleet general manager. "We're not giving our product to a third-party carrier that perhaps doesn't have the same interest in customer service that we do."
Bridgestone Firestone launched its private fleet in the mid-1970s. The operation now includes 300 tractors and 700 trailers, which covered 34 million miles across the United States and Canada last year.
"The private fleet is the company's crown jewel," says Tartt, who in May received the NPTC's Private Fleet Executive of the Year award.
The benefits of a private fleet go beyond reduced shipping costs, Tartt explains. "While costs are certainly important, I rate private fleets on the ability to improve three areas: customer service, on-time deliveries, and, finally, cost," he says.
It is challenging, however, to effectively manage service, deliveries, or costs without steady and reliable carrier access. That's why many private fleet operators view guaranteed capacity as a major reason—perhaps the ultimate justification—for bypassing common carriers.
"Companies simply can't obtain enough capacity from the common carrier marketplace," says Enslow. "Shippers often say they can't get all their loads covered, or they need a more reliable transportation supply."
Petty agrees. "Companies realize having control of their own capacity to get their product to market is becoming essential," he says. "Capacity control is increasingly seen as a core competency that a company cannot afford to be without."
Fleets Fly for Giant Eagle
Capacity is a major concern for all businesses these days, but it's an overriding issue in the food industry. For a grocery retailer, a chronic lack of capacity can be fatal because many products have short expiration dates and stores need rapid and continual replenishment.
"We need to have an asset that is devoted and dedicated to supplying our retail stores," says Bill Parry, vice president of logistics for Giant Eagle, a Pittsburgh-based supermarket chain that also operates a private fleet.
Giant Eagle uses 250 tractors and 800 trailers to serve more than 400 stores. "We use 45-foot trailers, and we ship roughly 1,800 trailerloads per week," says Parry. "Our truck fleet is at the core of our operation."
While Giant Eagle prizes its private fleet, the company isn't reluctant to use outside carriers for less-critical deliveries. It has found an advantage in mixing both services.
"We've always had a private fleet, but our health and beauty care facility has used a third-party dedicated fleet for 10 years," says Parry. "Blending resources from the carrier group and private fleet provides a nice mix."
One crucial problem that private- fleet operators share with common carriers is driver availability.
"The driver shortage is a challenge for the entire transportation industry," says Buchanan, noting that True Value has to work hard to find available drivers.
"More money is not the answer for all drivers, and neither is being home every night," he says.
True Value has found success offering potential drivers a choice of routes—short hauls with a lot of stops, and various kinds of long hauls, for instance. "Different drivers want different driving profiles," explains Buchanan.
Ongoing vehicle maintenance is another headache private-fleet operators share with common carriers. Owning a fleet of trucks means facing a considerable amount of tractor and trailer maintenance.
Although some large fleet operators run their own maintenance facilities, most companies seek outside help, either by outsourcing maintenance work or by leasing their vehicles.
"Some private-fleet operators fare better with a full-service leasing company that will take care of the maintenance work," says Buchanan.
In addition, operator-owned vehicles need to be replaced as they become obsolete or wear out—which, of course, is costly, and can lead to paperwork and delays.
"To keep our equipment in usable condition, we have to replace it periodically," says Buchanan. "And to purchase expensive equipment, we have to submit capital equipment requests. We must prove a strong cost justification for making these purchases."
The requests also need to be fully researched and documented, which takes time, he explains.
Fleet Management Tools
With a private fleet, complex scheduling and routing issues also fall into the operator's lap. Technology can help companies cope with these concerns. Global Positioning Systems and route management software can help companies boost efficiency and cut costs while gaining valuable insight into their operations.
"These tools allow fleet management to become an information hub for the company, not just an internal focus between the dispatcher and the driver," Enslow says.
While most private-fleet operators claim that cost savings isn't their primary motivation, few companies would choose to run their own trucking operations at significant losses.
In fact, many private fleet owners leverage their excess capacity by carrying loads for other businesses, generating revenue that can help defray the fleet's capital and operating costs.
"The average empty capacity of a private fleet is around 25 percent," estimates Petty, so many private fleet owners pick up extra revenue on backhauls from businesses near delivery sites.
Such is the case for PVS Chemicals, a Detroit-based industrial chemical manufacturer. The company, which operates a private fleet of 60 tractors and 80 tanker-trailers, often carries chemical loads for other businesses.
Although PVS isn't usually cost-competitive with common carriers, many companies are willing to pay a premium for its services because of its excellent safety and driver training, says Mike Haller, PVS transportation services manager.
Like many private-fleet operators, Bridgestone Firestone supplements its core outbound shipping with backhaul opportunities—carefully. "We're not a 'you call, we haul' business," says Tartt. "We don't accept backhaul opportunities unless they provide enough money to reduce fuel costs or offer some other advantage."
Still, the company manages to attract a large amount of for-hire and drayage work. "Last year, we transported more than 600 million pounds of goods in for-hire deliveries," says Tartt. That compares with the 1.2 billion pounds of tires and auto parts it transported to regular customers.
In offering trucking services to other companies, PVS and Bridgestone Firestone are hardly unique. More than half of all private fleets are in the for-hire trucking business, according to Petty.
But while such services help defray costs, they aren't likely to turn a private fleet into an enterprise profit center. "The majority of private fleets—up to 70 percent—operate as cost centers," he says.
To further reduce costs, most private- fleet operators require drivers to follow rules that stress productivity and efficiency. "Many private-fleet companies run incentive programs for fuel economy, making sure drivers are trained to operate equipment in the most fuel-efficient manner," says Petty.
At True Value, for example, drivers are coached in safe and sensible driving practices. They are prohibited from making "jackrabbit" starts, sudden stops, and traveling at excessive speeds, and encouraged to coast when appropriate.
Bridgestone Firestone caps vehicle speeds at 68 miles-per-hour to conserve fuel. The company also has a "no idling policy" that requires drivers to shut off their vehicle's engine at extended stops. To reduce fuel costs, the firm continuously searches for low-cost fuel stops around the country, and tells its drivers where those stops are located.
The company also maintains its own bulk fuel tanks at several of its distribution centers. "We buy in bulk to help mitigate rising fuel costs," explains Tartt.
One small way a private fleet can help its operator is by boosting the company's public profile—the trucks are veritable rolling billboards. "Our trailers all carry True Value store advertising so customers are reminded about our stores and products," says Buchanan.
words of advice
Any company considering a private fleet needs to keep an open mind and carefully balance the potential benefits and drawbacks.
The decision to assemble a fleet is rarely clear-cut, says Buchanan—and even True Value, with its large and established fleet, could potentially be swayed to use a common carrier.
"If a carrier presents a compelling argument, we will certainly listen," he says.
Tartt has three words of advice for companies that opt to create their own fleets: "Plan, plan, plan," he says. "Decide what you want to achieve, then constantly analyze every step to reach that goal."