December 8, 2009
Column | fastlane

Interest in fleet ownership holding steady

Despite current glut of trucking capacity, companies continue to weigh private fleet option.

By Clifford F. Lynch

Motor carrier capacity may be in plentiful supply at the moment, but that hasn't dampened interest in private fleet ownership. Over the past several years, an increasing number of companies have been wrestling with the decision of whether to use for-hire carriers or operate their own fleets.

Although it's often assumed that companies get into the fleet business primarily to ensure they'll always have the capacity they need, that's not necessarily the case. There are plenty of legitimate reasons for operating a truck fleet that go beyond the mere availability of common carrier services.

For example, for some companies, it's all about marketing. They see their private trucks as moving billboards that roll up and down the nation's highways every day, and it's hard to argue with that. If you spend any time at all on the road, you're certain to see constant reminders of the existence of Wal-Mart, Steelcase, or Coca-Cola. This sword cuts both ways, of course. If you've ever been cut off by an 18-wheeler, the experience may have soured you on the brand in question. Generally speaking, however, trucks are an advertising bargain, particularly if you're going to invest in them anyway.

Other companies see their private fleets as bargaining chips. For them, the fleet is an important hole card when they negotiate rates with for-hire carriers. Even in today's buyer's market, many of them would rather go into a negotiating session with this leverage than without it. If, of course, you require a service that's not readily available, this chip isn't worth much in a negotiation.

For still others, private fleets are a source of revenue. Many companies operate their private fleets as profit centers, earning valuable revenue by hiring out their excess capacity. Today, more than 50 percent of the nation's private fleets operate with for-hire authority. And indeed, about the same percentage of the total transportation of goods in the United States is handled by private fleets. Private carriage can be extremely important in that it offers not only for-hire front haul opportunities, but also can provide backhaul revenue.

But for all these potential benefits, in the end, the fleet ownership decision inevitably comes down to service. Almost every company that runs its own fleet does so because it has unique service requirements that it believes can be met only by a private fleet. And indeed, that is often the case. For example, which common carrier do you call if you're a major drug chain and need someone to make daily just-in-time deliveries to 5,000 stores? You don't. You do it yourself. And there are hundreds of other examples. For these companies, there is no reliable substitute for having their own drivers —drivers who understand their business, who know their customers, and who can be available day or night —and for having their own equipment in the right place, at the right time, in the right condition.

So how do you know if fleet ownership is right for you? Obviously, there is no standard answer to this question. The decision will depend on your company's individual needs and characteristics, as well as the availability of services that meet your specific requirements.

But if your interest in fleet ownership lies primarily in protecting your company from price run-ups in times of tight capacity, a word of caution is in order. Operating your own fleet will not shield you from rising costs. Private fleets face many of the same cost pressures that other carriers struggle with. In fact, smaller fleets might find themselves at a disadvantage because they don't have the buying clout the big players wield when they bid for new drivers or negotiate the price of fuel, tires, or maintenance services. If you're mulling over the idea of fleet ownership, be sure to weigh all the cost and service components before making a decision.

About the Author

Clifford F. Lynch
Columnist
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author of Logistics Outsourcing – A Management Guide and co-author of The Role of Transportation in the Supply Chain. He can be reached at cliff@cflynch.com.

More articles by Clifford F. Lynch

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