The rise of private fleets (and dedicated operations)
The desire for committed capacity, reliable service, and predictable cost has created a surge of interest in dedicated and private fleets. That will change the complexion of trucking over the next five years.
By Gary Frantz
When Sam Walton decided to launch his own private fleet back in the 1970s, it was to solve a uniquely specific problem: the inability or lack of desire on the part of commercial carriers to deliver goods to Walmart's mostly rural stores, which tended to be located far from established trucking routes.
Little did he know that some 50 years later, his business decision would be the seed from which would sprout one of the nation's largest private fleet operations, with more than 8,000 drivers, 6,400 tractors, and 60,000 trailers. Today, Walmart is the third-largest private carrier in North America and if ranked as a commercial for-hire carrier, would be among the nation's top 10 operators.
The issue Sam Walton was trying to solve five decades ago—access to and control of guaranteed truck capacity—still exists today.
It's exacerbated by the modern realities of today's e-commerce-driven and Amazon-influenced supply chains, which require much more short-haul, rapid-response fulfillment. Layer on top of that a robust economy driving record freight levels; an ongoing, worsening driver shortage; increasingly challenging city congestion and highway driving conditions; and rising operating and equipment costs, and you have a perfect storm impacting available capacity—and generating more and more interest in private and dedicated fleets.
For big retailers that are adding DCs, having a dedicated fleet can shrink the length of haul, says Greg Orr of truckload carrier CFI.
What's the primary incentive for establishing a private fleet, or contracting for a dedication operation?
"It's really about [access to] steady capacity to support the [shipper's] business and having better control over service," explains Greg Orr, executive vice president of U.S. truckload operations for TFI International and president of TFI's largest North American truckload unit, Joplin, Mo.-based CFI. "In some cases, it's also a more predictable model in terms of cost." Orr noted that his company runs both dedicated and for-hire irregular-route truckload operations for customers. And dedicated is growing.
"Especially the big retailers who have a big network footprint and are adding more and more DCs, it's shrinking the length of haul in their networks," he says. "A lot of people are putting eggs in the [dedicated] basket." And while there will always be a market for long-haul freight, "to keep drivers, you will see a lot more push toward regional plays. [Demand for dedicated and private fleets] will absolutely change the complexion of trucking over the next five years."
CHANGING FACE OF TRUCKING
Use of dedicated fleets will are rising, and will continue to do so for the next two to three years, says Satish Jindel, president of SJ Consulting.
The shift is well under way, notes Satish Jindel, president of SJ Consulting Group. According to his firm's research, from 2017 to 2018, there was a 10.4-percent decline in truck count for one-way truckload for the industry's top truckload operators. At the same time, truck count devoted to dedicated operations rose 6.6 percent. (See Exhibit 1.)
He cites two truckload carriers to illustrate the trend. "At U.S. Xpress, the number of trucks in one-way service was down 6.0 percent, while dedicated was up 10.7 percent. Similarly, at Marten Transport, one-way was down 12.2 percent, but dedicated was up by 28.5 percent," he says. "It's definitely the way the market is evolving, and as [current economic and market] conditions persist, we won't see this trend change for the next two to three years. And we'll see some dedicated operations converted to private fleets."
"If you have a large amount of freight, especially if it is concentrated, why not manage it yourself?" Jindel asks.
Although capacity considerations may be the driving force behind fleet launches, customer service and cost play into it as well. "[For private fleets,] transportation is integral to the overall view of product quality and satisfaction," says Gary Petty, chief executive of the National Private Truck Council (NPTC). "They're indistinguishable." And as shipping costs with for-hire carriers have skyrocketed in the past year, "more and more it's also about cost management," he says.
Petty believes that particularly in the ongoing battle for drivers—which is the real source of the capacity crunch—private fleets (and to some extent, dedicated contract operations) have a competitive advantage. He notes that private fleets pay higher wages and benefits. For example, published reports cite Walmart drivers earning average annual pay of about $87,500, with some longer-tenured drivers earning over $100,000. Other industry estimates peg the initial pay of a long-haul irregular-route commercial carrier driver somewhere between $55,000 and $60,000—although some of these jobs can reach six figures as well.
Private fleets also typically offer a more predictable work schedule, which is highly desired by drivers, and they're able to get home to their families on a more regular basis, all of which contribute to a better work-life balance. They also tend to stay with their employers longer. Petty cites a study the NPTC did last year that revealed that the private fleet driver-turnover rate was about 14 percent annually, whereas the driver-turnover rate for commercial over-the-road truckload carriers was 94 percent. The average tenure of a private fleet driver is 10 years, the study noted. Lastly, Petty says the NPTC's research found that private fleet drivers are generally three times safer than commercial industry drivers as a whole.
"They stick with their company," Petty noted of private fleet drivers. "The driver becomes a permanent part of the team, the face and personality of the company. That's a tremendous upsell value to the customer."
Private fleets do come with risk, says Bart De Muynck of the market research firm Gartner.
Bart De Muynck, research vice president for transportation technology at market research firm Gartner, agrees that demand for private fleets and dedicated operations is on the upswing, echoing the strategic advantages and potential benefits outlined by the NPTC's Petty and others. But, says De Muynck, even with the lure of guaranteed capacity, private fleets do come with some risk. It's a lot more than just buying trucks, hiring drivers, and sending them on their way.
"You need an entire dedicated organization that can procure the equipment, design the network, do the scheduling and routing, and manage all the aspects—maintenance, safety, HR, regulatory compliance, and driver recruiting and retention," he says. Essentially, it's establishing and running an in-house carrier, which may not be a core competency for a company whose primary business is making and selling products.
"If you are not that specialized [in transportation operations] and don't have the expert personnel and resources to manage it, you run the risk of exposing yourself to higher costs," De Muynck says.
A LOWER-RISK OPTION
One way to mitigate those risks—and achieve the goal of guaranteed capacity—is by setting up a dedicated contract carrier operation with a fleet or a third-party logistics service provider (3PL).
In this model, all of the aspects of managing and running the fleet are handled by the contractor, who may also provide additional services such as network design and optimization to help the client come up with the most efficient dedicated solution for its operating footprint. Often, a dedicated solution can provide the same benefits—guaranteed capacity and reliable service—as a private fleet, at roughly the same cost, but with less risk and direct investment on the part of the shipper.
Well-run fleets and dedicated operations have common characteristics, such as a strong safety focus and good management of fuel and personnel, says Andy Moses of Penske Logistics.
"The big dividing line is having responsibility for your operating authority or not," explains Andy Moses, senior vice president of global products at Penske Logistics, which has a large presence in the dedicated market. "If you are private and operating under your authority, you are responsible for insurance and safety. A dedicated solution tends to offer a similar level of control as a private fleet but turns the operating authority and responsibility completely over to the [contracted] carrier [or 3PL]."
Well-run fleets and dedicated operations tend to have common characteristics, Moses points out. "A strong focus on safety. Good control and management over fuel and personnel. A high percentage of loaded miles. Ongoing dialogue around KPIs [key performance indicators]. And they are metrics-driven," he says. For Penske, that's led to a certain amount of crossover among customers, according to Moses. "We recognize that customers for various reasons want to play back and forth across the spectrum [of private versus dedicated]," he says. "Our approach has been to be that solution regardless of where they stand in that spectrum."
It's a similarly fluid picture over at Ryder System Inc., where nearly half of new dedicated business wins have been private fleets converted to the dedicated model, according to John Diez, Ryder's president of dedicated transportation solutions.
Speaking to the appeal of dedicated, he says a dedicated solution can help maximize savings and boost service levels, while giving the client access to up-to-date equipment and the expertise of a well-resourced dedicated provider. As an example, Diez notes that Ryder's customers can leverage its investments in modern fleet equipment with the latest safety technologies, its team of expert personnel, and a strong safety program and planning technologies that can help the shipper design the optimal dedicated operation. The overall package of capabilities represents an investment that shippers can leverage to secure a workable solution and gain the desired guaranteed capacity, at minimal risk, Diez says.
"When we talk about service, it's about securing capacity and having control so you can be assured you will deliver the product on time to the customer," Diez says. "Consistency in the network is the key."
About the Author
Gary Frantz is a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
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