By Daniel P. Bearth, Senior Features Writer
This story appears in the April 30 print edition of Transport Topics. Click here to subscribe today.
Shipper-owned fleets are growing in size and importance where companies see value in controlling transportation capacity and service levels, private fleet managers and corporate executives have said.
“Private fleets are adding equipment and improving utilization of drivers. They are in a growth mode,” said Gary Petty, president and chief executive officer of the National Private Truck Council.
Petty said more corporate executives understand the “dynamics” of freight transportation, and private fleet managers are bringing more logistics expertise to bear on critical business issues.
“We’re seeing a migration of fleet managers from being a traditional manager of equipment and drivers to a more financially sophisticated professional who is running a business as a profit center,” Petty said.
Private fleets carry one-third of all truck tonnage and account for three out of four commercial vehicles on the road, he said.
Shippers spent at least $300 billion on private truck transportation services in the United States last year, according to estimates by American Trucking Associations.
Although not all private fleets are growing, an analysis of the companies on the Transport Topics 100 list of the largest private carriers in the United States and Canada shows a large percentage of the fleets have added freight-hauling capacity by increasing the number of tractors in their fleets (see story, below).
“The rationale for having a private fleet is this: We can control the process,” said Michael Pughes, corporate director of traffic and logistics for General Parts Inc., Raleigh, N.C.
The company’s fleet of nearly 400 tractor-trailers and straight trucks delivers auto parts to about 3,800 CarQuest stores daily throughout the United States and Canada.
“We are in a highly competitive business in the automotive aftermarket,” Pughes said, “and customer service is primary. Stores place orders today; the orders are delivered before they open tomorrow.”
To do that, he said, truck drivers, who are called professional driver representatives, head out from 38 distribution centers to drop off merchandise at stores around the country and return with used parts such as alternators, batteries and drive shafts to be remanufactured.
Some routes are set up for drivers to exchange trailers or slip-seat to reach more distant locations.
“We’re growing the capacity of our fleet by increasing the number of and size of our vehicles,” Pughes said. “Three years ago, we had very few tractor-trailers. Now, it’s a 50-50 split between tractors and straight trucks.”
Bigger equipment gives drivers the ability to deliver pallet loads, complete more stops and cover more territory, he said.
The company also recently purchased a software program that is expected to further improve the efficiency of its store delivery routes.
“We are also looking at picking up products for delivery to our distribution centers,” Pughes said. “That’s a viable possibility.”
Service and versatility are the key reasons that drug store retailer Walgreen Co. continues to expand its fleet of 550 tractors to haul goods from 14 distribution centers to more than 7,000 locations in North America and Puerto Rico.
“Our biggest challenge is keeping up with 300 to 500 new store openings every year,” said Thomas Stedman Sr., director of corporate transportation for Walgreen’s in Deerfield, Ill. “As we build stores, we build distribution centers.”
Delivering to every store every week often requires juggling loads between warehouses and adjustments to driver schedules, which were difficult to do with outside carriers.
“We manage the deliveries. We set the schedules for the distribution centers,” Stedman said.
When Walgreen used common carriers, Stedman said drivers would show up each morning, count the freight going into the trailer and not pull out of the warehouse until almost midnight, then make deliveries over the next couple of days.
“We laugh about it now,” Stedman said. “We used to consider on-time to be delivery on the day promised. Today, we measure on-time delivery within one hour.”
Mark Wagner, Walgreen’s executive vice president of store operations, said the biggest benefit to the retailer of having a private fleet is the positive relationship between drivers and store managers.
“It’s the same person making the deliveries each week. They understand how the store works. And it’s important that they work together because each one can make things difficult for the other.”
Drivers scan goods as they are unloaded, and many trailers are equipped with conveyors to quickly move products into the store.
The gain in productivity by minimizing the time spent unloading “alone has to be millions of dollars a year,” Wagner said.
The key to success in any private fleet enterprise is the ability to connect with the needs of the corporation, said Larry Monaghan, a former private fleet manager for a major retailer who now works for electronics and appliance maker LG.
“Private fleet managers need to understand [a firm’s] strategic direction and interface with the whole company,” he said. “So many people have good technical skills but don’t have good collaborative skills and [the ability to] identify opportunities to improve service levels and be more competitive from a cost standpoint. In many cases, a private fleet combined with a for-hire fleet and possibly dedicated operations may be the most cost-competitive.”
At his previous job, Monaghan said he was able to meet corporate cost-cutting objectives by bringing in millions of dollars in revenue from backhauls. That revenue helped to lower the cost of store delivery for the firm’s private fleet below what the company could get from using for-hire carriers.
Wal-Mart Stores, the world’s largest retailer, has long recognized the importance of having a private truck fleet to keep its store shelves stocked, and the fleet now is also the focus of the company’s quest to conserve energy and reduce waste.
In 2005, Wal-Mart President Lee Scott, who at one time headed up the Wal-Mart Transportation fleet, pledged to double the fuel efficiency of its trucks within 10 years as part of a broad-based corporate commitment to environmental sustainability (10-31-05, p. 1).
“Environmental sustainability may well be the most important initiative we undertake at Wal-Mart this decade, maybe even this century,” Scott said in an article written for Greenpeace Business. “It will have huge impacts on the way things are made, farmed, packaged, transported, displayed and sold worldwide.”
Scott said Wal-Mart is investing $500 million annually to reduce energy use, conserve packaging and improve fuel efficiency of the fleet of 7,100 tractors and 44,500 trailers used to deliver merchandise to 4,000-plus discount stores, Wal-Mart Supercenters, Sam’s Club warehouse stores and neighborhood markets in North America.
“At today’s prices, if we improve our fleet fuel mileage by just one mile per gallon, we can save over $52 million per year,” Scott said.
To meet its goal of doubling the fuel efficiency of its truck fleet by 2015, Wal-Mart has ordered new tractor-trailer rigs with enhanced aerodynamics, auxiliary power units to eliminate idling and fuel-efficient tires.
The company also is increasing the number of diesel-electric hybrid trucks in its fleet and agreed to work with ArvinMeritor Inc. to design a new generation dual-mode, diesel-electric drivetrain for use in its International Class 8 ProStar tractors with Cummins diesel engines.
To minimize empty trucks on the road, Wal-Mart said it will try to reload equipment with materials to be delivered for recycling or return.
Reduced packaging size also enables the same number of trucks to deliver more goods. Making the packaging a little smaller on just one private-label brand of toys means that Wal-Mart will use 497 fewer containers and generate freight savings of more than $2.4 million a year, according to the company’s Web site.
By focusing on packaging made from renewable and recyclable materials, Wal-Mart officials said they intend “to reach the point where there will be no Dumpsters at our stores and no landfills with Wal-Mart throwaways.”
At Shaw Industries, a carpet manufacturer in Dalton, Ga., fleet director Mitch Land said Shaw Transport serves two important purposes. One is to provide critical next-day store delivery and linehaul service in lanes, such as Florida, that are not well served by for-hire carriers because there is limited freight available for backhauls.
“We go where others don’t want to go,” Land said. “We have 120 loads a week going into Florida.”
Another important purpose, however, is the leverage a private fleet gives Shaw in negotiating with for-hire carriers.
“Without a private fleet, carriers tend have a freer pencil when asking for higher rates,” Land said.
Shaw’s private fleet consists of 303 tractors providing linehaul service to and from 32 distribution centers, mainly east of the Mississippi; 565 tractors that pull loads from distribution centers to retail outlets and 70 tractors than handle interplant loads.
“We have enough volume to coexist” with for-hire carriers, Land said. “We see financial savings where we are both serving a market.”
Likewise, officials at Toyota Motor North America said the reason they operate three carhaul delivery fleets is to give them knowledge they can use to improve service and raise quality standards for other carriers that serve the company.
Michael Nelson, national manager, Highway Transportation Logistics, was interviewed in the September issue of Automotive Logistics magazine’s Finished Vehicle Logistics supplement. He said he is working with trailer manufacturers to design equipment that uses soft-tiedowns instead of chains to secure Toyota, Scion and Lexus vehicles.
“Soft-tie carries should improve the quality of the vehicle delivery process while minimizing the chances of the drivers’ injuring themselves while handling our vehicles,” Nelson said.
“We need between 850 and 900 transport trucks to meet our wholesale shipping objectives. At this point, nearly 700 new transport trucks are either in service or on order for delivery in 2007. Approximately 35% to 40% of our vehicles are equipped with the new soft-tie equipment,” he said.
Toyota Transport, which operates in five Western states, has reduced damage from 0.09% to 0.07% after switching to the soft-tie system.
Other private distributor fleets are GST Transport (Gulf States Toyota) and STS Transport (Southeast Toyota). All three Toyota-branded carriers handle about 25% of Toyota’s North American vehicle deliveries.
Toyota Transport has expanded into the Pacific Northwest and now distributes imports from the Port of Portland, Oregon, while GST Transport has added two new distribution areas in Memphis, Tenn., and Albuquerque, N.M.
“Our branded carrier has given us more control over quality,” Nelson said. “Toyota Transport became a ‘learning laboratory’ for us to obtain a thorough knowledge of carrier costs and operational issues. This knowledge base gives us a solid foundation when negotiating contractual issues with our external carriers.”
Corporate fleet ownership has other advantages as well, company officials said. Toyota Financial Services can offer financing or leasing to contract car haulers that agree to use the new soft-tie equipment.
Control, Capacity Needs Boosts In-House Trucking
By Daniel P. Bearth, Senior Features Writer