With truck and driver shortages wreaking havoc on their supply chains, some companies find themselves contemplating what was once unthinkable: starting their own fleets.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
It wasn't too many years ago that private fleets seemed to be under siege: In the corner office, they were often viewed as a burden on the balance sheet and a cost center whose operations were completely tangential to the company's core mission. But private fleets have proven resilient, and as for-hire carriage gets more expensive and trucks get harder to find, they seem to be making a comeback. Private fleets may not be cheap to run, but they do offer substantial benefits for some businesses—particularly those with predictable routings, the potential for backhauls, and prickly customers who won't tolerate late or missed deliveries.
It's not that private or dedicated fleet managers are exempt from the problems that plague common carriers—a dwindling supply of drivers, hours of service regulations, astronomical fuel costs (60 cents a gallon over year-earlier costs in mid-June), and so on. But the DC manager who knows he controls his trucks may just sleep a little better at night.
Given the climate, it's probably no surprise that observers are reporting a resurgence of private fleet operations. Gary Petty, president and CEO of the National Private Truck Council (NPTC), a trade group whose members operate and manage private fleets for U.S. businesses, reports that most of his group's members (who represent about 500 private fleets) are expanding or plan to expand their private fleet capacity. In many cases, he says, they're using their fleets to generate cash, selling unused fleet capacity on the open market. At the same time, he reports, some businesses that had given up their private fleets are beginning to explore reviving their fleets.
Desperately seeking trucks
Petty sees several reasons for the revival of interest in the private fleet option. "It's increasingly difficult to get capacity that meets [customers'] delivery expectations," he says. "It's often hard to get at any price. And in cases where you can get it, the price is going up dramatically. Price is in the hands of the carriers. They can pick and choose their customers. That puts the manufacturer or the distributor or the retailer in the unenviable position of being at the mercy of the market."
As a corollary, Petty says some businesses are seeing captive capacity as a component of shareholder value—not only as an assured means of moving freight, but as a valuable marketing tool via the advertising on the sides of the trucks. "That sends a powerful message as well as meeting the transportation needs of the company," he says.
Though he acknowledges that private fleets face the same difficulties finding and retaining drivers that bedevil their for-hire counterparts, Petty believes that private fleets enjoy a few advantages. "The pay is usually better in private fleets," he says, "and working conditions are better. Institutionalized care and feeding programs make private fleets more favorable than others." As evidence of that, Petty points to the results of a survey conducted by NPTC of 200 companies with private fleets. The survey results showed annual driver turnover in the range of 11 to 16 percent—far better than truckload carriers, many of which have turnover rates of 100 percent or higher each year.
Total dedication
Executives whose companies manage dedicated fleets for their customers agree that the capacity shortage is motivating companies to reconsider the private and dedicated options. Gordon Hale, vice president of dedicated operations for Schneider National Inc., says that over the last 15 months, he's seen an explosion of demand for dedicated contract carriage, in which a customer contracts with a third party for exclusive use of fleet drivers and equipment. "People want to lock up capacity," he says, "particularly after the surge of '04. They want to tie up capacity before the surge of '05.
"The second thing I've seen is private fleet owners struggling to find drivers, and they're seeking folks like us to help supplement the fleet," says Hale. "That's driven by the driver shortage." The driver issue affects dedicated carriers, too, of course, although Hale says that for Schneider, finding drivers for those fleets has been an issue only in some regions, like the Northeast and Midwest.
Hale adds that he believes some businesses are turning to companies like Schneider because they want providers that can offer not only trucking, but also the ability to integrate with intermodal, third-party and one-way fleets. He cites the example of one customer with a DC-to-retail operation that needs 10 trucks on Mondays, five each day Tuesday through Thursday, 15 on Friday, and 10 on Saturday. "In the old days, we would size that to a 10-truck fleet. Drivers would sit idle Tuesday to Thursday and some of the Friday freight would be delayed. Now, we can meet the requirement with a baseline of five trucks dedicated. We take the next piece of the surge with a third party, saying we need five trucks on Monday, Friday, and Saturday, giving them three days' worth of freight. For the extra five on Friday, we can cover that with our one-way drivers."
David Bouchard, senior vice president of U.S. supply chain for high-tech and consumer products for Ryder, has also seen an upsurge in the dedicated-fleet business. "We have seen more activity this past year than we've seen in the past several years," he says. "I agree that the capacity situation in the overall market is a factor."
But Bouchard thinks there's more to it than just shippers looking for ways to get around the capacity crunch. "At the end of the day in my mind, a prospect decides on a dedicated operation for service reasons. We see opportunities for companies that have not had dedicated in the past or are looking to make changes in modes or providers. ... Where there can be an engineered solution and improvement in the system to reduce total cost, that's where we see an opportunity."
Like Hale, Bouchard believes customers looking at dedicated carriage see it as part of a bigger picture. "The approach Ryder tries to take is not to focus on the dedicated carriage solution, but to examine movement of product. We try to assess that and come up with the best combination of services to meet the customer's service and cost needs. That's usually an integrated solution."
Like nearly everyone close to the trucking industry, he sees the driver shortage as a serious issue. That includes the private and dedicated sectors of the business. "When families sit around the table, I'm not sure that a lot of them are encouraging their kids to pursue truck driving as a career," he says. "The market should do more to recognize the importance of the driver."
Bouchard echoes Petty's opinion that dedicated and private fleets have advantages over common carriers. "One of the benefits for dedicated is that we make efforts to factor in quality of life into our designs. Being able to be home creates value to [drivers] and their families." That, he says, leads to employees who are more attentive to the service requirements of customers. "A lot of benefits accrue from it."
No shortage of problems
Of course, the driver shortage is by no means the only issue plaguing the trucking industry. Exacerbating the driver shortage are the hours of service rules that took effect at the beginning of last year. Those rules placed new limits on driver work hours, forcing changes in carrier, shipping and receiving operations around the nation. A court challenge has left the fate of those rules uncertain. Right now, they're back in the hands of the Federal Motor Carrier Safety Administration, although Congress may step in and impose the disputed rules.
Petty says that his members generally support the rules, and in some cases, have found them to be unexpectedly favorable. "What we didn't expect that has happened is cooperation and a willingness to find a middle ground for getting access to DCs," he says. "People are realizing that under hours of service, there's really an incentive to ... get in and out and optimize the allowable drive time," he says. "I think the argument can be made, although not in all cases, that there are more opportunities for productivity [improvements] under the new rules. I just hope we don't go back to the drawing board."
Hale agrees that the rules have had a big impact on truckers' operations. "Hours of service have definitely changed the way we operate," he admits. "We have to go to the marketplace to cover that cost. It takes a lot of communication to help customers understand those costs."
Rising fuel costs have also spurred private fleets to focus on ways to boost productivity. In mid-June, nationwide diesel costs averaged $2.31 a gallon, more than 61 cents above year-earlier levels, and with oil selling at close to $60 a barrel, there's no relief in sight.
Those skyrocketing fuel prices, Petty says, have led to redoubled efforts to improve fuel economy. "Companies are putting in incentives to ensure that drivers are operating in the most efficient way possible," he says. He notes that the NPTC has launched online fuel economy workshops, sponsored by Cummins Engine, on its Web site.
Other efforts to control costs involve expanding use of on-board technology, Petty says. The goal, he adds, is more than capturing operational data to improve efficiency; the monitoring tools also enable fleet managers to measure their costs against the market. That's especially valuable, Petty says, if the fleet is operating as a profit center. "There's not a lot a trucking company can do about the cost of fuel or insurance, but they can do a lot to mitigate the unnecessary costs that flow from not paying attention to things." One example: he cites a study by the Federal Motor Carrier Safety Administration that showed that tires 2 percent under the correct pressure can add $500 to operating costs through wear and tear and reduced fuel economy.
Heading for a meltdown?
Though private and dedicated fleets may be finding conditions more favorable than they've been in years, that's not to say they foresee a rosy future. They still face severe challenges, as does the entire U.S. transportation network.
Petty is worried that unless industry and policy-makers address many of the issues facing the network and do it soon, the nation could face a transportation meltdown of sorts. "When you look at the long-term perspective, what the volume of freight is going be, and the pressure on the infrastructure in the next 20 years," he says, "you realize we're ... hitting the wall, where with a lack of drivers and the increased demand for goods, we're going to have a logistics crisis. Add to that the huge congestion getting in and out of major markets—especially with some communities not improving access, but figuring ways to restrict access—and there is a time bomb ticking."
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
However, that trend is counterbalanced by economic uncertainty driven by geopolitics, which is prompting many companies to diversity their supply chains, Dun & Bradstreet said in its “Q4 2024 Global Business Optimism Insights” report, which was based on research conducted during the third quarter.
“While overall global business optimism has increased and inflation has abated, it’s important to recognize that geopolitics contribute to economic uncertainty,” Neeraj Sahai, president of Dun & Bradstreet International, said in a release. “Industry-specific regulatory risks and more stringent data requirements have emerged as the top concerns among a third of respondents. To mitigate these risks, businesses are considering diversifying their supply chains and markets to manage regulatory risk.”
According to the report, nearly four in five businesses are expressing increased optimism in domestic and export orders, capital expenditures, and financial risk due to a combination of easing financial pressures, shifts in monetary policies, robust regulatory frameworks, and higher participation in sustainability initiatives.
U.S. businesses recorded a nearly 9% rise in optimism, aided by falling inflation and expectations of further rate cuts. Similarly, business optimism in the U.K. and Spain showed notable recoveries as their respective central banks initiated monetary easing, rising by 13% and 9%, respectively. Emerging economies, such as Argentina and India, saw jumps in optimism levels due to declining inflation and increased domestic demand respectively.
"Businesses are increasingly confident as borrowing costs decline, boosting optimism for higher sales, stronger exports, and reduced financial risks," Arun Singh, Global Chief Economist at Dun & Bradstreet, said. "This confidence is driving capital investments, with easing supply chain pressures supporting growth in the year's final quarter."