It was launched five years ago with little fanfare. It has mostly driven under the radar since then, despite its association with perhaps the world's most famous brand. Now, it has hit the nation's highways full-bore in an effort to become its parent's next billion-dollar-a-year business.
In 2010, senior executives at Charlotte, N.C.-based Coca-Cola Bottling Co. Consolidated, the largest independent U.S. bottler of Coca-Cola products, recognized that demand for truck capacity to carry Atlanta-based Coke's products had leveled off within its geographies, a trend that mirrored a broader trend of slowing demand for many of the beverage giant's products. The executives also knew the bottler's trucks generally returned empty after the drivers made their deliveries, a common scenario for private fleets whose mission is to return to the base location to load up the company's freight for another run.
In an effort to boost the fleet's capacity utilization and develop a whole new revenue stream, the executives decided to do what few had done with their own equipment: They formed a wholly owned subsidiary to offer an over-the-road dry-van truckload service to all qualified comers. They dubbed the unit "Red Classic."
To get the operation off the ground, Red Classic's trucks—the unit operates 500 power units pulling 53-foot trailers—transported mostly backhaul shipments from Coke's raw materials vendors, as well as materials to be consumed by the bottler. But as the unit got its sea legs, the emphasis began to change. Today, Red Classic has 200 non-Coke customers and is angling for far more. Red Classic's fleet now handles more headhaul traffic than it does backhaul shipments. About 60 percent of its overall revenue, the amount of which the unit would not disclose, comes from freight tendered by property brokers that arrange transport for shippers.
Not surprisingly, Coke Consolidated's business still takes priority on Red Classic's headhauls, with the parent accounting for 60 to 65 percent of the carrier's traffic. However, David A. Heller, senior director of sales, marketing, and strategies for Red Classic, said the carrier's overall focus is to untether itself from the parent's—and by extension, Coke's—long rope. "Our objective is to grow the non-Coke business," Heller said in a late-September interview at the Council of Supply Chain Management Professionals' (CSCMP) annual conference, part of the unit's effort to expand its visibility within the shipping community. Red Classic's customers "will not get kicked to the curb because of Coke," Heller added.
Heller said in a subsequent e-mail that Red Classic is looking to penetrate the "dedicated contract carriage" category, where big shippers sign multiyear agreements that guarantee a specific amount of capacity in return for their carrier partners' being paid for a certain number of roundtrip miles driven. Such agreements have become more popular as a tightening market for qualified truck drivers puts capacity in certain key lanes at a premium. However, they generally make economic sense only for shippers with substantial two-way traffic flows or whose one-way traffic is so meaningfully large that they are willing to absorb the roundtrip costs even if there isn't much coming back.
As of the end of September, Red Classic had 370 company drivers and 80 owner-operators, with an average length-of-haul of 130 miles. Red Classic will restrict its haulage to what Heller called "food grade" commodities, saying Red Classic does not want to risk commingling Coke products with non-consumable items. For Coke products, Red Classic's fleet will operate from plants to the store level. Coke's familiar vehicles with the doors that are manually raised from the side will continue to be the exclusive hauler of product from its distribution centers to the stores.END OF EMPTY MILES
Heller forecast that Red Classic would not be the last private fleet to attempt to wring revenue out of tractors that in the past ran backhauls with empty or near-empty trailers. As capacity is expected to shrink in the years ahead due to a shortage of drivers and an increase in regulatory requirements that could take many smaller operators off the road, deep-pocketed asset-based carriers like Red Classic will be well positioned to benefit, he said. Armed with sophisticated transportation management system (TMS) technology, for-hire, dedicated, and private fleets, in theory, could optimize their equipment by better positioning headhaul and backhaul movements to capture available loads.
There is little doubt that empty miles are inefficient, fuel-wasting, and non-revenue-producing albatrosses. About 12.5 percent of all truckload miles driven in 2012 had no freight, according to estimates from consultancy DAT Solutions. Yet for big companies, the logistics of repositioning private fleets just to fill empty trailer space may make it more trouble than it's worth. Big corporations that use private fleets are generally more concerned with getting their trucks and drivers back to their distribution centers as quickly as possible to reload their trailers for another move, according to Charles W. Clowdis Jr., managing director, transportation, for consultancy IHS Economics and Market Risk. Unless backhaul freight is available near headhaul dropoff points, it is counterproductive for fleets to waste their time looking to fill backhaul miles, Clowdis said.
Richard Armstrong, founder and chairman of consultancy Armstrong & Associates Inc., said at a recent conference when the subject of empty backhaul miles came up that fleets are "often better off not trucking goods and simply letting (the equipment) run empty."
Undeterred by the risks, Red Classic is moving forward on the back of its parent's geographic expansion. On Oct. 30, Coke Consolidated, which at this writing had operations in 13 states, said it would expand its distribution territory into Norfolk, Fredericksburg, and Staunton, Va., and Elizabeth City, N.C., under an agreement with Coca-Cola Refreshments USA Inc., a Coke affiliate. Coke Consolidated also signed a definitive agreement to acquire Coca-Cola Refreshments' plants in Sandston, Va., and Baltimore and Silver Spring, Md., for undisclosed sums. In addition, Coke and several of its bottlers, including Coke Consolidated, have formed a "National Product Supply Group" to oversee nationwide supply activities such as infrastructure planning and product sourcing for participating bottlers, Coke Consolidated said in a statement.
In September, Coke Consolidated signed a nonbinding letter of intent with Coke to acquire manufacturing plants in Indianapolis and Portland, Ind., and in Cincinnati. It also expects during 2016 to acquire additional distribution rights from Coca-Cola Refreshments in Delaware, Maryland, Pennsylvania, West Virginia, and the District of Columbia.
The deepening of Coke Consolidated's production and distribution network will open up new markets and opportunities for Red Classic to ply its trade, particularly west of the Mississippi, according to Heller.