Private Fleets: Control of Operational Costs Is Essential to Fleet Success, Industry Officials Say

By Dan Calabrese, Special to Transport Topics
This story appears in the April 28 print edition of Transport Topics.
For any company that goes the route of running its own private fleet — seeking the advantage of always being its own highest-priority customer — the most common pitfall is failing to properly manage operational costs, industry officials said.
Companies that choose to operate a private fleet need to understand that they have become trucking companies and must make informed decisions regarding compensating drivers, purchasing or leasing trucks, operating a maintenance shop and trying to fill backhaul loads.
“For most of those private fleets, the old model was to say, ‘I’ve got my own drivers, and we do our own stuff,’ so they took more interest when the company said they had to maximize a certain priority,” said Les Brand, chief executive officer of logistics consultants Supply Chain Solutions, Grand Rapids, Mich. “But private fleets turn into a little business.”
Brand used Wal-Mart as an example of a retailer able to use the fleet to its advantage and ensure store shelves remain stocked. However, even Wal-Mart’s fleet faces many of the same issues as every other trucking company.
One of the costs of running a private fleet — compensating the drivers — is not as simple as putting them on a salary and hoping they pay for themselves. The private fleet industry has sought for years to find the best method for compensating drivers in a way that reflects productivity and profitability.
The current favorite is a system called “activity-based compensation,” which gives drivers incentives tied to miles per day, miles per gallon, on-time delivery, customer relationships, safety meeting attendance, appearance in uniform, traffic-ticket avoidance and even their ability to accelerate and brake properly. Onboard technology now allows fleets to track many of these variables.
Gary Petty, president of the National Private Truck Council, said activity-based compensation helps private fleets not only offer a more rational form of compensation but also make more accurate and complete assessments of driver performance.
“The ability of so many companies using onboard technology to track behavior is really a powerful way of measuring this performance on an individual-driver basis compared with the rest of the drivers in the fleet,” and allows companies to pay drivers accordingly, he said.
“We have one company that’s paying their drivers, on average, $59,000 per year, but it’s possible for a driver to make $10,000 or $11,000 more if he optimizes the performance requirements that the company has established,” Petty said.
John Platz, vice president of TZA Consulting, Long Grove, Ill., said his firm works with private fleets to track and measure such factors.
“We verify and validate the drive times, then take those values and put them into the routing systems,” Platz said. “So, we have a measurement based on type of roads, time of day, delivery times and particular kind of customer — depending on unloading requirements, whether they’re a hand-unload, dock delivery . . . or whatever it is for that particular customer.”
For example, the TZA system would note that the same liquor store may take two shipments of 20 cases each on consecutive days, but if the 20 cases consist of 18 cases of liquor and two cases of beer, the delivery will take 45 minutes longer than if it consists of 18 cases of beer and two cases of liquor — because the checking requirements are different.
Once the expected metrics are programmed, private fleets use driver performance against the metrics to perform evaluations.

NPTC claims private fleets account for more than half of the entire trucking industry, at $300 billion in annual revenue. They range in size from the 53,317 vehicles (not including trailers) of Verizon Logistics to the many fleets that have just a few vehicles.
NPTC said private fleet vehicles outnumber for-hire trucks by 3.2 million to 1 million. Petty said he believes the ranks of private fleets are growing as more shippers seek to tightly control delivery of their goods.
“An overwhelming percentage of our members are adding equipment and adding drivers, in the range of 5% to 10% a year,” Petty said. “This is consistent with the overall growth of their companies.”
Wal-Mart, which ranks No. 2 on the Transport Topics 100 list of the largest U.S. and Canadian private carriers, makes 1.8 million store deliveries a year with 8,000 drivers, 1,500 shop employees, 7,200 tractors and 44,000 trailers operating out of 42 terminals and four regional operation centers. Its drivers cover 900 million miles a year and carry 1.5 million backhaul loads from suppliers. Its volume is so enormous that if it shaves just one mile off its fuel mileage, it saves $52 million a year.
At the same time, it also uses for-hire carriers to deliver goods to its distribution centers. The challenge to carefully manage its operations leads many other private fleets to take a halfway approach — going the for-hire route, but with a dedicated carrier whose trucks display the shipper’s logo, and whose drivers wear the shipper’s uniform.
J.B. Hunt Transport Services, Ryder System and Penske Truck Leasing are among the carriers that do significant dedicated-carrier business. Brand, of Supply Chain Solutions, said he often recommends that would-be private fleet operators go the dedicated carrier route if they don’t seem quite ready to run their own operation.
But even a dedicated fleet is not your own, and some companies find the differences unacceptable.
That’s why Perdue Farms, Horsham, Pa., a producer of fresh and frozen poultry, decided in 1961 to establish its own private fleet to ensure timely delivery of its products.
“We’ve got to have on-time delivery,” said Ray Hall, director of transportation for Perdue Farms. “If a guy says, ‘I want it at 7 in the morning,’ then I want my truck there at 7 in the morning.”
Atrium Cos., a Dallas-based manufacturer and distributor of residential vinyl and aluminum windows and patio doors, moved in 2004 from a dedicated-carrier relationship with Ryder to the establishment of its own fleet. Steve Ingram, who served as the company’s chief financial officer at the time and now runs the fleet operation, said service and cost were the two primary reasons.
“When I talk about control over drivers, they were still Ryder employees and it was up to Ryder to do the hiring,” Ingram said. “It seemed like there was always somewhat of a shortage of drivers, and from their perspective they can’t, or don’t want to, keep enough drivers on the payroll to service our spikes. The volume moves up and down from week to week, and certainly, with the seasonality, it is slow in the wintertime.”
Rosario Rizzo, senior vice president and general manager of dedicated contract carriage for Ryder, said the entire industry is grappling with a driver shortage.
“For companies that don’t have the core competencies, resources or infrastructure to manage these areas of their business, a dedicated contract carriage solution can be very valuable and part of a solid logistics business strategy. In fact, during challenging economic times like we are in today, outsourcing these functions can be a viable way to reduce costs and improve efficiencies,” Rizzo said.
When Atrium established its private fleet, it immediately hired many of the same Ryder drivers who already were used to driving its routes. With the drivers now on Atrium’s payroll, that company was now responsible for paying them during slow times, whereas Ryder simply could have put them on another customer’s route. But Ingram finds that it works out well.
“They’re our employees, so we have the direct relationship,” he said. “If we have to leave the guy home for a week, we have the ability to make it up to him if need be, as opposed to going through Ryder.”
Atrium’s fleet now has 60 drivers and 75 tractors. Ingram estimates the company is saving $700,000 a year by running its own fleet.
A built-in disadvantage for private fleets is the fact that, if they ship only to their own customers, they will always make their return trips with empty trailers. Private fleets use many methods to secure backhaul opportunities as a way of covering their operational costs. Some use brokers who work full-time to arrange shipments and simply pay a fee to the fleets. Others, including Perdue Farms, employ staff members for the specific purpose of seeking backhaul loads.
Still, Perdue’s Hall cautioned against private fleets losing sight of their main purpose, which is getting goods to their parent companies’ own customers.
“We have a little, small backhaul operation,” Hall said. “We go out and solicit backhauls for our private fleet. Over the years, there were a couple of [brokers] we used, but we try to deal directly with companies if we can. We use the lanes we have our trucks in, and that’s where we try to solicit backhauls and return loads. But I will say this: Our business comes first.”