The nation’s $300 billion private truck market is thriving. In fact, three out of every four Class 4 through Class 8 trucks on U.S. roads today are from private fleets, operated by such household names as Pepsico, Coca-Cola, Sysco, Wal-Mart, U.S. Foods, and Halliburton.
The private fleet market share of all outbound freight has jumped markedly in recent years. According to a new benchmarking survey by the National Private Truck Council (NPTC), private fleets captured a 78 percent share of all outbound movements in 2013, up 10 percent from 2012.
In addition to outbound, private fleets are gaining market share of inbound freight—40 percent in 2013, up from the 31 percent in 2011. In the meantime, the top 500 private fleets have grown their vehicle count by 50 percent over the past 10 year, according to the NPTC survey.
“The vehicle count alone would suggest that private fleets are the largest sector of the trucking industry and are growing and prospering as a group,” says Gary Petty, NPTC president and CEO, who adds that two-thirds of private fleet managers say they plan to grow their fleets in the coming years.
For example, Orgill, the world’s largest independent hardware distributor, has 300 drivers today, compared with 180 a decade ago. That private fleet helped support $1.6 billion in sales last year—a whopping increase from its $200 million in revenue in 1992. Orgill operates a private fleet of more than 200 Class 8 trucks.
According to Petty, there are three major reasons why companies like Orgill are able to see this level of growth with the help of a well managed private fleet operation. “It allows them to gain direct control of transportation capacity on demand, control costs, and provide consistently high levels of service,” adds Petty.
In LM’s annual analysis of the private trucking sector, we’ll examine the mounting challenges facing private fleets, disclose some tips and strategies that the best fleets are using to overcome roadblocks, and unlock the cost/benefit equations realized from operating a tightly-managed, modern private fleet.
Capacity is at the top of most shippers’ minds these days. The nation’s for-hire fleets are operating roughly the same number of trucks as they were in 2008 before the recession wreaked havoc on the industry.
Since then, for-hire fleets have rebuilt capacity, albeit cautiously. However, fleets can only expand incrementally these days due to the fact that compliant drivers are scarce and cost more. Making matters even more challenging on the driver front, the Obama administration continues to crack down on unsafe drivers through tougher enforcement and by heaping more regulations on fleets—and it’s expected to get worse.
Thomas Albrecht, trucking analyst for BB&T Capital Markets, estimates that the newest mandate of electronic logging devices (ELDs) required on all trucks by 2016 will cause company drivers to lose about 3 percent to 4 percent in miles, with owner-operators likely to suffer a 5 percent to 8 percent hit. “ELDs will make it nearly impossible to cheat on a driver’s hours of service,” says Albrecht.
Because private fleets already have ELDs, their productivity hit from the new rule will be minimal. “That goes hand in hand with a private fleet’s ability to absorb and adapt to changes in regulations and enforcement,” says Albrecht, “which have been coming at breakneck speeds toward all trucking operators in the past decade.”
According to the NPTC, the No. 1 challenge for private fleets is change and the rapid pace of that change. There are emission changes, changes in the Federal Motor Carrier Safety Administration (FMCSA) requirements, and changes in the driver landscape and pay.
Even though the best private fleets are adapting to these changes, they’re hardly immune from their effects. But private fleets do appear to be a step ahead when it comes to embracing technology as well as in their ability to utilize drivers as a strategic part of their operations.
“Certainly a big part of what we do is deliver product,” says Doug Sanford, vice president of distribution for The Britt Hunt Co., the largest distributor of Hunt Brothers Pizza. Its fleet of 77 professional drivers and 25 professional sellers operate 103 vehicles—mostly Class 6 trucks or smaller—in an area covering 14 states, delivering a line of products and services designed for convenience stores.
“It’s important to note that our dedicated people are more than just delivery drivers,” says Sanford, “they’re company representatives striving to bring additional value to their customers beyond just the product.”
Tips and strategies
Overall, the key to operating a successful private fleet is a professional and well-trained transportation team that can measure its performance against the best of their peers.
“The best private fleets are testing every route and every run to make sure that the application of a private fleet is the right choice,” says NPTC’s Petty. “If it isn’t, it makes no sense to operate in that particular lane or region.”
Most private fleets are “blended operations,” made up of a mixture of private and for-hire capacity, while many fleets also have for-hire operating authority. In fact, nearly two of every three private fleets have for-hire authority, a percentage that has stayed roughly the same over the past four years.
Another strategy private fleets use to boost efficiency is the use of “slip-seating,” or assigning more than one driver to a piece of equipment. This technique allows one driver to haul a load to a certain destination, and then allows another driver to take over, adding up to better equipment utilization and faster service. Sixty-nine percent of NPTC survey respondents say that they’re using this technique for at least a portion of their fleet, while 23 percent say that they slip-seated their entire fleet.
Reducing empty miles, a goal of any trucking operation, is another technique that the best fleets use to mitigate their costs. Last year, private fleets reported a significant reduction in empty miles, down to 21.5 percent of overall miles traveled. That’s a dramatic decrease from the 30 percent of overall miles reported just four years ago. Most large, for-hire TL fleets now report empty miles in the 11 percent to 13 percent range, depending on seasonality and other factors.
Private van fleets reported 17.5 percent empty miles, while reefer fleets reported 22 percent. Even private fleet flatbed and bulk operations, which traditionally have tough challenges on backhaul lanes, had empty miles of 27.5 and 21 percent, respectively. “That’s a very dramatic and positive trend,” Petty says.
According to the NPTC survey, the best-run private fleet operators say that they have three components in place that help them achieve long-term success: A cultural commitment and the support of upper management; a sound business model that allows command and control of capacity to make a company’s product or services seamless for the customer; and a tactical execution of trucking’s “blocking and tackling.”
The benefits of a successful private fleet are many, but most are associated with delivering higher levels of customer service and branding.
However, the best private fleets do more than provide top-notch service for their companies. Increasingly, they’re being used as leverage against for-hire carrier service and pricing. Some 71 percent of respondents in the NPTC benchmarking survey said that they use their fleet as such a hedge, up from 51 percent five years ago.
And those private fleets appear to be operating much more safely than their for-hire brethren. The Federal Motor Carrier Safety Administration estimates that private fleets are operating about three times more safely than the for-hire side. In an era when jury award in wrongful death trucking lawsuits can exceed $20 million, that is money in the bank. The primary reasons for such safe operations are newer equipment and better-trained and more experienced drivers.
The most recent report from the American Trucking Associations has for-hire truckload driver turnover in the 95 percent annual range; however, driver turnover among private fleets is around 10 percent. According to the NPTC survey, there’s no secret to this.
Private fleet drivers are paid more, an average of $62,163 in 2013—up more than $2,000 from the previous year. Starting pay is around $50,000, but jumps up to an average of $61,545 in three years. Maximum pay for private fleet drivers was $71,733, up more than $4,000 from the previous year’s maximum, and about $10,000 more than the non-union average in the for-hire sector.
When considering these better wages, it’s important to keep in mind that a typical private fleet driver spends 35 percent to 40 percent of his time devoted to non-driving functions, such as being at stores, DCs, or delivering product face-to-face and interacting with external and internal customers. Those are skills that go well beyond operating a truck and would be hard to replicate in the open market when shippers are buying capacity.
So, even as the best private fleets operate as a balancing act between cost and service, the best private fleet managers say those costs can be mitigated. In an era of tightening supply and looming capacity shortages, private fleets appear to hold some key advantages.