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.
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and 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.
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.
GOING PRIVATE
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."
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.