April 29, 2002 8:00 AM, EDT

Opinion: Private Fleets on the Rise

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By Gary Petty

More than 31,500 private truck fleets with more than 10 vehicles each operate in the United States. Some 1,000 of these have more than 50 vehicles. Examples are Frito-Lay, with more than 20,000 trucks; Schwan’s Sales Enterprises; with nearly 7,000 trucks; SUPERVALU, with more than 1,200; Fleming Companies, with more than 500; Perrier, with more than 2,000 — just to name a few.

Also, there are more than 100,000 private fleets with fewer than 10 vehicles. In fact, industry sources say that the average truck leasing contract to private fleets includes only four or five pieces of equipment. Taken as a whole, private fleets represent some 60% of the $465 billion trucking market.

The benefits of private fleets are well established. A recent study of in-house private fleets reported that they are maintained primarily to ensure quality on-time service and satisfaction to key customers, to increase productivity at lower overall cost compared to other alternatives and to assure dependable, flexible vehicle availability during seasonal shipping surges. Most operate as expense-line items, but a surprising number are profit centers. Taken as a whole, private fleet safety performance is consistently among the highest in the commercial motor carrier field.

Private fleets are not panaceas. They must earn their keep, or else. The “else” is dedicated fleet or third-party logistics outsourcing, which is often the choice to replace private fleets when they have unacceptably high operating costs compared with one-way haulers, have too frequent claims and losses and have sub-par performance in customer service.

In some mergers, the acquiring company may have no cultural reference to the private fleet of the acquired company. It may not see trucking as a core competency and may have no desire to acquire equipment and assume risks of injury and loss.

For these, outsourcing offers alternatives.

Today, private fleet trucking is a combination of services. These include pure private fleets, “blended” fleets of in-house and dedicated operations, and wholly dedicated or outsourced fleets. Here are three examples:

A privately held packaged food manufacturer operates 275 power units (sleeper Class 8s) with 500-plus trailers and employing some 600 nonunion drivers. Maintenance is handled mostly with employee mechanics. The typical driver has more than 15 years with the company and turnover is less than 8%. A cost center, this fleet is the quality assurance bridge in getting product to customers.

Another company owns its in-house truck fleet of 370 power units and 1,200 trailers and employs 450 drivers, 200 of whom are union members. This in-house fleet handles mostly bulk product. The company also has outside contracts for dedicated and for-hire trucking, which handle more cost effectively most of the company’s van freight shipments. Each month, both the in-house and dedicated fleets handle 10,000 loads. A separate accounting division of the company tracks pricing of both in-house and outsourced fleets to ensure competitive services at market rates. The in-house private fleet operates as a profit center.

A major food manufacturer spends more than $260 million in transportation, virtually all through dedicated fleets. A key reason for year-round dedicated fleets is the high seasonality of their business, which has end-of-quarter spikes demanding extraordinary truck capacity for short periods. The company also uses its dedicated fleet in an Internet-based collaborative logistics alliance to leverage high-volume, high-cost lanes with appropriate shipper partners to achieve savings, truck capacity and predictable service.

Private fleets have had a topsy-turvy history since the early 1980s. Before trucking economic deregulation, private fleets felt bulletproof. Many fleet managers believed their operations were an indispensable cost of doing business. They had obtained operating authority, bought the best equipment, hired the best drivers and upheld high standards of safety and maintenance.

With a wave of consolidations and mergers, the new reality of numbers intruded sharply.

Often new owners had no concept of the private truck culture and did not see or want themselves in the trucking business. Outsourcing became all the rage, as cutting costs became the dominant game. Hundreds of private fleets survived, but many just vanished. Those that held on found that their justification got suddenly tougher.

Many private fleets disappeared when their numbers didn’t add up after true indirect costs were factored. Analysts with no sentimental attachments to trucks often looked at private fleets as obsolete luxuries out of touch with new bottom-line thinking.

The well-run private fleets of today are models of financial discipline. They continue to invest in top-notch equipment, drivers, and maintenance and safety personnel. The best fleet managers know their costs and justify them financially. They are constantly challenged to raise the bar of efficiency higher each year. Effective fleet managers consistently challenge the processes of all activity within their organizations. No sacred cows escape scrutiny. They also are excellent communicators and work proactively within the political climate of their companies. They work hard to ensure that private fleets continue to be a viable option for the businesses they serve.

A case can be made that private fleets will actually grow in the years ahead. The business model still makes sense, but heightened security, safety and liability exposures, plus the growing financial instability of the for-hire carrier market, may well swing the pendulum toward private fleets.

The prevailing economic mantra of many corporations is "feed what works and starve what doesn't."

Successful private fleets get the message and sing well and loud for their supper.

Gary Petty is president of the National Private Truck Council, based in Alexandria, Va.

This story appeared in the April 29 print edition of Transport Topics. Subscribe today.

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