Private fleets are getting a lot more attention these days and projected to grow at 10 percent over the next several years. As the trucking industry continues to struggle with capacity crunches and a lack of qualified drivers, shippers are re-examining the value of a private fleet.

“Many companies realize the shipper is no longer in the driver's seat,” notes Gary Petty, president and CEO of Alexandria, Virginia-based National Private Truck Council. “The tables are turned today,” continues Petty. “For-hire trucking prices have skyrocketed and in many cases companies can choose customers willing to pay premium dollars. Some companies can't get the transportation requirements they need-at any prick-to get their product to market.” So manufacturers, retailers and distributors are exploring the feasibility of adding a private fleet component to their total supply chain solution.

Getting there

Freight volumes in the trucking industry continue to grow robustly, despite a shortfall of about 20,000 drivers nationwide-a shortfall predicted to soar to 100,000 in 10 years. “The whole market is focused heavily on finding and keeping good drivers and creating good working conditions, pay, incentives and safety protocols to optimize the retention of good drivers,” says Petty.

This impediment to capacity is prompting shippers to re-think their transportation processes. “The ability to control transportation capacity to get your product to market when your customers need it,” Petty says. “Capacity control positively impacts shareholder value, while allowing companies to deliver superior customer service with on-time deliveries and to have the flexibility to re-route shipments or create specialized custom shipments to meet customers' requirements.”

But switching from using outside carriers to starting your own private fleet operation requires a careful and realistic analysis. Although some fleets operate as profit centers (with shippers selling excess capacity in certain lanes on a for-hire basis, offsetting their costs of operating a private fleet), seven out of ten fleets operate as cost centers.

“The most important thing you need is on-staff personnel who really understand the trucking business and cost analysis,” Petty cautions. “You can get whipsawed into thinking you are saving when you really aren't if you don't calculate all indirect costs.”

Private fleets tend to operate short-haul deliveries (50 to 250 miles per day) where on-time delivery and customer service is of premier importance and thus fleet managers recognize the importance in having the same driver week-in and week-out delivering to the same customers. This model exists commonly in the wholesale and retail food industry (over half of the top 100 private fleets are involved in the food industry).

Rolling billboards-or vehicle advertising-offers yet another leveraging tool contributing to the cost of operating a private fleet. Companies can promote their branded products at significantly lower costs compared to traditional methods of advertising. Research conducted by EPIC Media Group, El Segundo, California, finds that about 60,000 people a day see a truck ad while driving the nation's roadways. According to EPIC's research, this equates to about $4,000 a month's worth of monthly impressions, per truck or trailer, which contributes significantly to a company's annual marketing and advertising value.

Part of the solution

Private fleets support driving flat cost-per-unit performance year over year, says Gregg Roden, director of transportation for Dallas-based Frito Lay North America. “This is difficult if you are bidding 100 percent of your freight every year,” he says. “As input costs rise, carriers will typically pass these on to the shipper, so we leverage our private fleet to offset these costs.”

Operating a private fleet may be perceived as a component supply chain solution within a set of solutions, Petty says. “Very often, it's a combination of your private fleet in conjunction with dedicated carriers, owner-operators and contract drivers who can help meet volume demands,” he says.

About 41 percent of private fleets are blended. “The key is to know where to apply your private fleet to maintain capacity control,” Petty suggests. That could include a company's most important runs, most critical customers or most profitable product lines.

For example, Boise Cascade Trucking in Boise, Idaho, operates a blend of its private fleet with owner-operators. The bulk of its operation is hauling paper, forest products and general commodities in dry-vans using Class 8 tractors. “If we are not price- and service-competitive, we will not get the freight from our own people at Boise Cascade LLC,” notes Roger Olds, general manager, adding that about 40 percent of its work is for outside companies. “But they still have a captive trucking company; when they are in trouble, they know who they can call.”

The company operates at 98.5 percent on-time delivery. “Our customers are Six Sigma black belts, looking for very small margins of efficiencies, operating with lean inventories and needing 98 percent on-time service. Many times the best way to achieve this is with a company truck,” he says.

“Because we are a profit center, we use the private fleet as leverage to assure we have negotiating clout with other carriers,” Olds explains. “Operating a private fleet gives us the information we need so we can determine if rates outside carriers are asking for are realistic or not,” Olds explains.

Private fleets offer advantages-such as surge protection-dealing with changing demands in the supply chain. “Certain times of the year we have product surges and we need more trucks on hand,” Olds says. Sub-haulers are called in to help handle surge periods. “If there is ever a strike at one of our plants, we have this trucking company so Boise Cascade can still do its business.”

Olds notes the ability to handle surges seamlessly equates to cost protection. “With today's tight capacity, your common carrier might only offer eight trucks a week instead of the 14 you need,” he says. “The reason is they are using those trucks to haul for someone else for more money. So you have a little control over your own destiny with a private fleet.”

But, Olds advises companies might not want to do all its own trucking. “It's like the 80/20 rule, where 80 percent of the time your combination of company trucks and hired carriers will work just fine,” he explains. “But 20 percent of times there could be an emergency. You want to be able to handle that emergency with your own trucks. This is our philosophy in a nutshell.”

Bridgestone Firestone Private Fleet in Nashville, Tennessee, has been operating its private fleet for about 30 years. “We are committed to providing distribution services and logistics solutions our customers find reliable, consistent and cost effective,” explains Bill Swinehart, operations manager for private fleets.

Bridgestone Firestone delivers to each customer the same time and day each week. “We also strive to have the same driver and the same truck making these deliveries,” Swinehart says. The company delivers tires and automotive parts to 2,200 company-owned stores and 4,000 dealers from a network of its seven DCs throughout the country. It operates a bank-leased fleet of 350 Class 8 tractors and 700 trailers (predominately 48-footers). It leases its drivers. Leasing, rather than purchasing, equipment allows the company to maintain a state-of-the-art fleet by turning over equipment about every four years.

The company also sells excess capacity for backhauls. Petty notes more private fleets are seeking growth in back-haul capacity. Currently, 56 percent of private fleets operate with for-hire authority.

Wal-Mart developed its private fleet back in the late 1970s. “Large trucking companies didn't want to go out of their way to service small towns, and that's where Wal-Mart stores began-some 60 to 70 miles off trucking routes,” explains Tim Yatsko, senior vice president of transportation for the Bentonville, Arkansas-based corporation. “LTL companies used hub and spoke and freight had to travel miles away to Dallas or Kansas City just to come back to a store that needed product.”

Today, Wal-Mart runs about 1 billion miles a year, making almost 2 million store deliveries from over 40 regional distribution centers, and moves over 1 million loads into those DCs from its base of suppliers. Wal-Mart's fleet consists of 8,000 drivers, over 7,600 Class 8 tractors (95 percent with sleeper units), and over 30,000 rolling-billboard trailers (both 48-foot and 53-foot equipment). The company is installing auxiliary power units on its trucks to reduce idle time and improve MPG.

The company uses a third-party dedicated carrier network that delivers grocery loads from over 30 Wal-Mart grocery DCs. “We also operate an internal LTL network that consolidates LTL movements on private fleet trucks from suppliers at most of our regional DCs and moves consolidated TLs to the other 40 DCs in the network on either Wal-Mart or outside carrier trucks,” Yatsko explains.

Wal-Mart's private fleet-operating consistently at 99.8 percent efficiency-contributes significantly to supply chain flexibility and adaptability with contingency assets to handle peak seasons or crisis situations, notes Yatsko. “The fleet often comes to the rescue when our inbound TL or LTL providers fall short on capacity,” he says. Dropping trailers at suppliers and DCs maximizes the productivity of both driver and truck.

Frito Lay leverages high-cube equipment, using a drop floor to achieve a cube advantage of about 13 percent, says Roden says. “Because our products are light in nature it's important that we take advantage of every nook and cranny on the trailer to create a larger asset.”

Frito Lay operates about 200 DCs throughout the country, typically located in populated areas. It also operates 'bin warehouses' located in rural areas, out of which one to 12 route sales people work. “We also heavily leverage our private fleet for those rural locations because they are not ordering full-pallet quantities of the same item,” explains Roden..

Driving dfficiencies

Managers of private fleets rank highly the value of their truck operators. For example, one key value component to Wal-Mart's successful private fleet are its drivers, notes Yatsko, who adds Sam Walton's attitude toward his drivers still prevails today. “He (and we today) believed a Wal-Mart driver is a true professional who not just drives a truck, but is dedicated to servicing (our) stores,” Yatsko says, noting driver turnover is less than 5 percent.

So critical are Frito Lay's drivers to the success of its private fleet operation that a healthy percentage of them are involved in developing the company's annual operating plan. “The drivers and other team members contribute ideas on how to improve service to our customers, drive network efficiencies, and find safer ways to operate our equipment and deliver our products,” Roden says.

Swinehart at Bridgestone Firestone notes the company's drivers are critical to supply-chain efficiency. “We get high marks (from our customers) for our clockwork operation, since our customers always know when our truck will arrive so they can have the proper staffing at the right time to unload the truck when it arrives,” says Swinehart.

Private fleet drivers typically are older, more experienced drivers with exceptional safety records. Many companies, realizing the critical service their drivers provide, continually recognize and reward top-performing drivers with performance-based incentives programs.

Bringing it all back home

Petty notes some companies miss opportunities to capitalize on growing shareholder value by overlooking the transportation component as an integral part of the value of the products they bring to market. “We know many private fleets able to demonstrate their value to the company-not only in terms of shareholder value-but in terms of customer service to the point that it actually becomes hard to distinguish between the value of the product and the value of transportation of that product to market,” he says.

“So, companies adamantly opposed to anything but a narrowly defined notion of core competency will probably not be in the private fleet business, notwithstanding strong arguments to the contrary,” says Petty. “But it may well be to their loss.”

Sidebar: Trends From Truck Manufacturers

What are the trends in fleets? Truck manufacturers like Jim Michon, truck fleet marketing manager for Ford Motor Company, point out that while payload is an important item to fleet managers sometimes 'less is more' in certain cases where having a lesser GVWR is important. “For instance, there are a number of regulations out there that require excessive logging and reporting if you go over 10,001 pounds,” says Michon. “That can get very expensive for them, so we offer 10,000-pound GVW on our heavy-duty pickups and our E-series cutaways and stripped chasses.”

Ford's options include smaller sub-compact Rangers, F-150 pickups, Class 2 (F-250) and Class 3 (F-350) heavy-duty pickups, Classes 3 through 5 super-duty platform trucks (F-350, F-450, F-550) and Class 6 (F-650) and Class 7 (F-750) medium-duty trucks. Ford does not participate in the Class 8 market.

Fuel economy often is discussed in terms of the preferred engine type, says Michon. “Some fleet managers choose diesel for fuel economy as well as torque capacity,” he says. Others might choose gasoline engines because of the lower acquisition cost. The strongest growth for the company is in the Class 3 through Class 7 range.

Steve Higgs, medium-duty truck marketing manager for GM Fleet and Commercial Operations, reports the company-manufacturing GMC, Chevrolet and Isuzu trucks-offers Class 4 through mini-Class 8. “We work closely with our private fleets right from the early design stage in order to meet their requirements such as choice of transmission, engine, axel and tires,” Higgs says.

Higgs reports the industry-wide medium-duty market (Class 3 through mini-Class 8) showed an 11-percent increase last year over the previous year; industry-wide, the largest market growth was in the Class 8 segment in 2005 over 2004.

January 1, 2007 looms in the industry as the date by which special filters will be required on all diesel engines and this is having an effect on the market, Higgs reports. “Some fleets are considering buying early to avoid extra costs down the road,” he says. “I foresee the market will spike toward the second quarter in 2006 and will continue an upward trend to year's end.”

Another noticeable trend is the increase in sales of smaller trucks for deliveries of Internet-ordered food products, says Higgs. “This customer segment has really shown growth where vehicles like the GMC, Chevrolet and Isuzu W-series with a 14-foot cube box continue to be the preferred choices,” he says.

Sterling Truck Corporation offers vehicles in Classes 6, 7 and 8. Art Schuller, vocational sales manager, notes the majority of private fleets operate Class 8 (33,001 pounds GVW and over) vehicles. Smaller trucks for retail and local delivery customers (with fleets between one and five units) are in the Class 7 and Class 8 range.

“Sterling's Class 8 tractors-A-line models-are the preferred choice for highway applications, as they are designed for the rigors of both short- and regional-haul day-cab operation,” Schuller says. The primary choice for local delivery fleets is the Acterra model, available in Class 6 and Class 7. “This straight truck offers the same comfortable cab as the A-line, but it's versatile to handle a multiple of medium-duty applications and bodies,” says Schuller.

Kalmar Industries Corporation, Ottawa, Kansas, manufactures the Ottawa model terminal tractor. “These are specialty tractors used primarily in terminals, ports, railroad and intermodal yards, and DCs,” says Jeff McCullough, marketing manager for terminal tractors. “Major companies operating their DCs and warehouses use our tractors, which can move trailers about three times faster than a regular truck can.” McCullough reports the company's orders for terminal tractors have increased substantially in 2004 and 2005.

Sidebar: The Face of Private Fleets

Private motor carrier fleets, the largest segment of US trucking, represent about 76 percent of U.S.-registered medium and heavy-duty trucks and consist of over 3.2 million vehicles, comprising the largest segment of the U.S. trucking industry. The number one reason for operating a private fleet is better customer service and on-time deliveries.

Over 35,000 private fleets have 10-plus trucks in operation, consisting of 470,000 tractors; 1 million trailers; and 2 million straight trucks (Classes 4 through 8). There are also over 100,000 with 10 or fewer trucks in operation. Most private fleets own their own straight trucks; 15 percent lease their trailers; and 20 percent to 25 percent lease their tractors.

About 41 percent of private fleets are 'blended' operations, which use dedicated, for-hire, and owner-operator trucking to enhance the efficiency of the private fleet.

Although leading private fleets do use innovative on-board technology systems to collect and analyze data, only about 29 percent use electronic logs and about 51 percent do not collect operational data with on-board technology systems.

Leading private fleets achieve additional optimization of fleet efficiencies through backhaul loads and this is a common goal throughout the private fleet industry. Cost comparisons for operating private fleets are favorable in the current market.