This story appears in the May 4 print edition of Transport Topics.
Corporate-owned truck fleets are facing growing pressure to justify their in-house freight operations as manufacturers and retailers target transportation expenses in response to the sharp nationwide downturn in sales.
Almost 80% of 170 companies surveyed last year by research firm Aberdeen Group said managing the costs of transportation and shipping was one of the biggest challenges facing their organizations.
“The sudden spike in fuel and other charges caught many organizations by surprise, and many lacked sufficient processes to manage the changes effectively,” analyst Brad Wyland said in a report published in March.
“Not only have rising freight costs and shipping charges forced many executives to panic and throw more resources at trying to solve the problem, but more groups within the organization are suddenly seeing the true costs behind transportation and creating mandates to try and bring it under control,” the report said. Corporations generally use their own trucks to make store deliveries, carry specialized or dangerous materials, or guarantee dependable and flexible freight-hauling capacity on key traffic lanes. Most firms also outsource a portion of their transportation needs to for-hire and dedicated carriers.
Increased scrutiny has put a damper on tractor growth among private fleets as corporations shift more freight to dedicated for-hire carriers. And it is forcing fleet managers to step up use of technologies, such as routing and freight optimization software, that can trim costs by reducing miles driven, industry experts said.
“Private fleet justification exercises are a fact of life at many companies — more so perhaps in tough economic times,” said Harry Haney, associate director of logistics operations at Kraft Foods in Madison, Wis.
After several years of double-digit percentage growth in tractor count in response to tight freight hauling capacity, the total for the 10 largest fleets on the Transport Topics Private 100 list for 2009 is projected to reach 46,653, less than 1% more than the year before.
At Kraft, Haney said, “We benchmark our fleet performance against other private fleets, as well as with our contract carriers against their fleet operations.”
Key performance indicators include the percentage of miles driven without a load, the ratio of tractors to trailers and fuel economy.
“On a monthly basis, we look at how we performed against our plan,” Haney said. “Our network changes significantly from year to year and as a result of these assessments, we’ve made significant changes in the domiciles and activities of our private fleet operation.”
Gary Petty, president of the National Private Truck Council in Arlington, Va., said that while many private fleets are stable, and some are even able to grow during an economic downturn, others have scaled back and are looking for ways to improve efficiencies.
“There is a sense of urgency to preemptively define the value of private fleets,” Petty said.
To help corporations better understand the costs and effectiveness of their private fleet operations, NPTC will offer a new, Web-based performance-assessment tool.
The group’s Private Fleet Assessment Program combines the features of an existing benchmarking program used by some NPTC members with an analytical process developed by consulting firm Optima Associates, plus operational data from Schneider National Inc.
Details of the fleet assessment program were expected to be released at NPTC’s annual conference May 3-5.
Petty said the program allows fleets to analyze information “in an interactive and dynamic way” and is the “most comprehensive fleet assessment program on the market today.”
Steven Hirt, president of Optima Associates, DePere, Wis., said the program measures 40 different attributes of a fleet’s overall performance and enables fleets to compare their operations with industry benchmarks in eight categories — safety and fleet organization, network planning, customer management, fleet management, information management, driver management, continuous improvement and financial management.
“While each fleet has its own performance characteristics,” Hirt said, “there are common dimensions influencing the outcomes and success of each fleet.”
Gary Strausbaugh, vice president of transportation for Mennel Milling Co. in Fostoria, Ohio, said he currently is testing the program and likes the way it’s set up.
“The systematic way in which the program captures and scores relevant data gives a private fleet a realistic picture of how it stacks up against best-in-class standards,” Strausbaugh said.
Chris Ferrell, a consultant with Tompkins Associates in Raleigh, N.C., said many corporate fleet managers cite service requirements as the sole justification for running a private fleet.
“They also need to understand costs,” he said. “Both need to be scrutinized.”
Ferrell has conducted benchmarking programs for about 180 retail, manufacturing and distribution companies since 2004. Participating firms include: Campbell Soup, Hallmark, JCPenney, Target, Coca-Cola Co. and Whirlpool.
When corporate executives are asked to list the reasons for maintaining a private fleet, on-time delivery is listed first, followed by operating flexibility and cargo security. Cost is last on the list, Ferrell said.
“Best-case scenario is to keep costs on par with common carriers,” Ferrell said. “If you can’t, someone in corporate management is going to ask, ‘Why are we spending money on trucks?’ ”
Ferrell said he doesn’t see a major shift away from private fleets, but he does see common carriers pursuing dedicated freight hauling much more aggressively.
“Carriers have capacity like they haven’t had in years, so carriers are attracted to the idea of a guaranteed commitment of freight,” he said.
Jim Van Hefty, vice president of commercial development for dedicated services at Schneider National, said he sees more shippers adopting a strategy of having both a private fleet and a dedicated fleet.
In addition, companies may have two dedicated providers serving the same facility, or a different dedicated operation at multiple facilities.
“What you may lose in terms of synergies with this approach, you may gain in keeping things competitive,” Van Hefty said.
The “shared provider” approach offers a degree of protection if anything happens to one of the other providers, he added.
Michael Miller, director of transportation for Shopko Stores Inc., Green Bay, Wis., said he initiated a fleet-assessment program after being promoted to the job of overseeing Shopko’s fleet of 37 tractors and 500 trailers.
“I didn’t have direct experience in running a fleet,” said Miller, who previously was in charge of managing the flow of merchandise within the company’s three distribution centers. “I wanted to take a fresh look.”
Shopko uses its truck fleet to haul merchandise from distribution centers in Wisconsin, Idaho and Nebraska to 136 stores and six Shopko Express drug stores in 13 states throughout the Upper Midwest, Rocky Mountains and Pacific Northwest.
Miller’s analysis found that cost-per-mile calculations were understated and the process had identified improvements in safety policies and procedures.
“We had great tribal knowledge,” Miller said. “We have some very smart people. But if someone is hit by a bus, we don’t have someone else who can come in and perform the job.”
At some firms, assessments go well beyond truck and trailer utilization and driver productivity.
“Many companies started by looking at things like [equipment] idling and maintenance,” said Tom Flies, senior vice president of product management at Xata Corp., a company that provides onboard computing and communications systems. “Next, they moved to optimize driver time, looking at work flow and payment processes.”
Now, Flies said, firms look at the entire enterprise, from distribution center to customer.
This kind of analysis means companies are looking at traffic lanes and where they have distribution centers and how many trucks they need.
“They also look on their network of customers,” Flies said. “What are the good ones? What are the bad ones? And how do they make adjustments to better compete?”
Many technology vendors say they have seen a spike in interest in systems designed to help control costs better by increasing equipment utilization and driver productivity.
“Normally in an economic downturn, companies slow down the buying of technology,” said Ed Ryan, executive vice president of global field operations for Descartes Systems Group.
“In this economic crisis, more companies than ever are buying technology. Companies tell us that, ‘We only have two or three initiatives because of the economy, and this is one of them.’ ”
Ryan said interest is especially strong in systems that enable fleets to monitor equipment use and map more efficient routes.
For example, AmeriGas Partners, Valley Forge, Pa., a retail propane supplier, said it is rolling out a routing, dispatch and automatic vehicle locator service for its fleet of 3,000 delivery trucks.
Eugene Bissell, chief executive officer, said the technology allows AmeriGas to modify routes as changes occur during the day.
Likewise, Wolseley North America put in place a system to link dispatchers and drivers in its Ferguson Enterprises plumbing supply truck fleet, providing real-time visibility of assets and automatic updates on the status of deliveries.
“It puts us right next to the driver every step of the way,” said Brad Marsh, director of transportation for Wolseley.
Aside from service issues, two other elements that are major considerations in maintaining a private fleet are high load density and specialized product knowledge, said Frank Erzinger, vice president of supply chain consulting for Chemlogix, Blue Bell, Pa.
Wal-Mart’s store-delivery fleet is an example, Erzinger said, of an operation that is cost-effective because it has a high concentration of freight moving to predetermined locations.
Another is USALCO Inc., a Baltimore-based company that makes aluminum-based chemical compounds. The company ships the chemicals in large batches to municipal water treatment plants, pulp and paper mills and other industrial plants.
Most of the shift away from corporate-owned private fleets occurred soon after the trucking industry was deregulated in 1980, Erzinger said.
“The companies left all have extremely high load density or very specific product knowledge,” he said. “They are the cream of the crop.”