It's been six years since Walgreen Co. last used a common motor carrier to ship merchandise to one of its stores. Instead, the Deerfield, Ill.-based drugstore chain relies on its private fleet of 420 leased power units and 850 leased trailers to stock existing locations and fill the shelves of the 350 to 400 new stores it opens every year.

Although Walgreens established its private fleet when it began business in the early 1900s, it depended on common carriers to deliver certain types of merchandise until a few years ago. When the company began rapidly expanding, though, it found that for-hire carriers couldn't provide the specialized service it needed.

"When we open a new store, things have to go like clockwork," says Tom Stedman, director of corporate transportation for the 4,500-store chain. "Once a store is ready, we put a 25-man crew in place to stock it and open it within 36 hours. If they end up standing around waiting for a common carrier, it costs us money and delays openings."

That companies like Walgreens enjoy the timeliness and reliability of private fleets comes as no surprise to Gary Petty, president and CEO of the National Private Truck Council (NPTC) in Alexandria, Va. Petty estimates that there are 135,000 private fleets in the United States; of that total, 35,000 run 10 or more vehicles while the rest have fewer than 10. NPTC's 450 members operate fleets that range in size from 50 to 200 vehicles.

The percentage of all commercial trucks in the United States that operate in private fleets has declined from 85 to 90 percent in the 1950s to 55 to 60 percent today. Much of that contraction can be attributed to corporate consolidations and mergers, says Petty, who points to the grocery store industry as a prime example. "The fleet capacity didn't go away, but some of the individual companies autonomously operating smaller fleets in local and regional markets did," he says.

Today that trend may be reversing itself as more shippers are now looking at establishing private fleets, Petty believes. Those that already have private fleets are increasing their capacity, and some companies that strayed from the fold are now converting some or all of their fleet operations back to a private-fleet business model, he says.

What's driving them back to private fleets? Like Walgreens, many companies working on tight schedules and thin margins want better control over service quality and reliability. "If a company needs to get retail merchandise to stores by 8 a.m. for a 10 a.m. opening, a common carrier can't guarantee that," says consultant Brooks Bentz, an associate partner with Accenture in Boston. "With its own fleet, however, the company gains more control."

Higher-value products and those that are subject to just-in-time inventory requirements may be better served by private fleets, says Dan Moore, senior vice president at investment bank Stephens Inc. in Little Rock, Ark. He cites Wal-Mart and Tyson Chicken as two examples of companies that operate private fleets for precisely those reasons.

For manufacturers and retailers that want to boost brand awareness among consumers, private fleets can provide another tool in their marketing arsenal. "It's not only the 'cool' factor," says Bentz, "but having 'Rite-Aid' or 'Wal-Mart' on the side of the truck helps create an image."

Employee drivers, moreover, can be effective "ambassadors," Petty notes. Take the example of one NPTC member, a tire manufacturer that works with a nationwide network of dealers. Through its private fleet, the manufacturer not only gains an army of trucks and drivers, but also front line customer-service employees who work directly with the dealers. "To the dealer, those drivers are the face, attitude, and personality of the manufacturer," Petty observes. "They show up on time and with the right product, handle expedited deliveries, and reroute their loads when necessary," he explains.

Petty contends that private fleets also can reduce costs for some shippers. Bentz, however, disagrees. "With a private fleet you're going to be less efficient than a common carrier, from an asset-utilization and an operating-cost standpoint," he says. "The number of empty miles and the operating cost-per-mile will be higher, but that tradeoff comes in the form of better, more reliable service levels."

Some industry observers are predicting that the federal government's new driver hours-of-service (HOS) rules will encourage shippers to rely more on private fleets. Those regulations limit drivers to 11 hours behind the wheel during a 14-hour on-duty period, which includes driving, loading/unloading, and waiting time. (For details, see "Coping with the Hours-of-Service rules" in the May 2004 issue, accessible through our Web site, www.logisticsmgmt.com.)

Petty notes that factors such as the number of stops a truck makes and whether the driver performs loading and unloading can lessen or increase the HOS rules' impact on operations and costs. But private fleets already are regaining some business from for-hire carriers thanks to the new rules. Petty reports that some of his members are picking up more business because for-hire carriers no longer have the capacity needed to meet shippers' requirements.

Also working in private fleets' favor is the fact that the HOS restrictions are pushing for-hire carriers' rates and charges upward—13.5 percent on average since January, according to a survey of Logistics Management readers. Petty believes that will widen the gap between the cost-per-mile of for-hire carriers and private fleets, leading companies operating private fleets to reclaim some of the traffic lanes they'd assigned to outside carriers.

Walgreens has actually seen a small reduction in productivity since the hours-of-service rules went into effect, but not enough to significantly change its cost picture. Several years ago the company built some distribution centers in locations that allowed its fleet to serve a large number of stores while complying with the hours-of-service regulations in place at that time. When those rules changed in January of this year, the retailer was forced to rethink its distribution strategy.

A typical run from Allentown, Pa., to Long Island, N.Y., with a 48-foot truck dropping off at three stores takes about 13 to 14 hours. After factoring in a half-hour lunch break (which Walgreen Co. requires), Stedman says, it was evident that the company would need to cut back the number of stop-offs on each trip. It also became clear that drivers would have to pick up the pace—something the shipper could work out with its own employees, but which might not have been possible with for-hire carriers.

"We saw an improvement in productivity, thanks to drivers shaving off 15 minutes here and there," Stedman says. "We also found that we couldn't short-load anymore, and had to put two stops on the trucks instead of three, which would have made the driver run over his HOS limit and lay over to take a break."

Stedman estimates that 35 to 40 percent of Walgreen Co.'s stores were affected by the stop-off issue, suffering productivity losses of 3 to 5 percent. That's not too bad, in his opinion: "We had to back off a little bit, but it still hasn't affected us as significantly as we thought it might."

Even with all the advantages private fleets have to offer, many shippers are unwilling to take on the costs and responsibilities of owning equipment and additional personnel. For those shippers, outsourcing private-fleet operations may be the answer.

The number of companies that outsource private-fleet management to outside service providers is growing. "We've seen a shift over the last decade from owning, maintaining, and driving your own trucks to outsourcing that to a Penske or Ryder," says Bentz.

Moore predicts shippers will do more outsourcing in the future. "The trend toward private-fleet outsourcing hasn't subsided, but fuel prices are higher and access to drivers is getting more difficult as the economy improves," he says. "I see increased incentive to outsource one's fleet to someone who does it every day, and who knows the ins and outs of the business."

Regardless of how a shipper chooses to approach the asset management issue, operating private fleets can be both challenging and rewarding. Knowing what to buy, when to buy it, how to use it, how to optimize capacity, and how to track performance all play key roles in the success or failure of a private fleet. "A decision to grow the private fleet is complex and directly related to the quality and sophistication of the management team in charge of the initiative," Petty observes. "You really have to know what you're doing."

When that challenge has been met, shippers can enjoy the rewards that come from maintaining consistently high levels of customer service and reliability.