The nation’s trucking fleets have been under tremendous pressure over the past two years, first dealing with the broad impacts of Covid on truck drivers, shippers, and consumers. Now, facing an uncertain post-pandemic economy beset by loose freight demand, fleet operators are navigating a host of new and familiar challenges, from an inventory hangover, continued supply chain disruptions, and aging equipment to stubborn inflation raising the costs of everything from tires, brake pads, and lubricants to liability insurance, wages, and rolling stock.
How are fleet operators managing and what does success look like in today’s environment?
In an unsettled, inflationary economy, shippers tend to become more risk averse, “circling the wagons” and looking deeply at every area of cost in an effort to control rising expenses and protect margins. For fleet managers, that often can mean that contracted volume commitments the sales team secured with shippers—and which fleet managers plan network operations around—aren’t meeting expectations. That shortfall, combined with surging costs, is throwing a wrench into the best-laid operating plans and puts a premium on flexibility and agility.
Gary Petty is president and chief executive officer of the National Private Truck Council, the industry association for private fleet operators, who account for over 50% of overall trucking capacity. From his perspective, the pandemic and the period after it “was a fertile proving ground for private fleets.” He cites the pre-pandemic year of 2018 as pivotal. “That was a transformative year. There was more freight than capacity, a lot of loads sitting on docks. And 7 million jobs begging for workers.”
Trucking capacity became a vulnerability. “Some really big companies went into private fleets to ward off not being able to get capacity when most needed,” he recalls. Then when Covid hit two years later, “private fleets were in a preferrable position. Some saw volumes increase 50% almost overnight. No way could they buy that capacity [in the for-hire market].”
Private fleets were able to absorb those volumes and deliver against extraordinary demand, Petty says. That was critical for businesses such as food service and medical supplies, where a lack of capacity or inability to deliver with near-100% on-time accuracy could have huge ramifications on consumer health and welfare.
Now in the post-Covid world, Petty sees private fleets adding drivers and equipment, shedding for-hire capacity, which was used as a “circuit breaker” for surging demand, and shifting more inbound and outbound traffic to in-house fleets.
“That helped reaffirm the reputation of private fleets as the gold standard in trucking. It’s proven essential as a competitive resource to get product on demand to customers,” Petty says, adding that private fleet growth bears that out. According to council statistics, in 2022 (vs. 2021), private fleet shipments increased 10.3%, while volumes, shipment value, and miles run rose 7.3%, 11.3%, and 9.2%, respectively, a string of eight years of consecutive growth.
Petty stresses that building a private fleet also is one of the most strategic—and challenging—decisions for a business to make. “You have to decide to be a trucking company, hire professionals, invest in resources, equipment, and technology, and develop the skills and expertise to do it successfully—and earn a reputation that attracts drivers.” That’s a challenge in today’s market, which Petty characterizes as “hysterical” in its efforts to recruit and retain from a shrinking pool of qualified drivers (he points to sign-on bonuses of $5,000 to $10,000 as an example).
Nevertheless, private fleet driving jobs themselves are among the most stable and well-compensated in the business, with an average 14.5% turnover rate in the 15 years leading up to 2021 (before an increase in 2022 to 22.5%). Drivers often can rely on regular runs, consistent pay and miles, competitive benefits, and good home time. “Our last reporting for 2020 found average base pay around $80,000 with another 22% in benefits. That’s a nice ticket,” Petty says.
On the for-hire side of the business, inflation’s stubborn persistence coupled with slackening freight volumes is a continual thorn in the side for fleet managers. “The past 12 months have been anything but stable,” notes Greg Orr, president of Joplin, Missouri-based national truckload carrier CFI. “Think about tires, all the liquids that go into a truck, wages, maintenance as trucks get older, [and] recruiting and retention costs. All these common operating expenses have gone up dramatically. That makes things especially challenging in the current market where freight is not as plentiful and shippers are extremely focused on their financial position.”
It’s a market cycle where shippers are taking advantage of loose capacity and lower rate structures in the short term. And that’s at the expense of loads that originally may have been under a contract. Orr gives the example of a shipper who committed to 10 loads per week on a certain lane, but because of demand or production issues, ends up only providing five. “When you build a plan based on certain expectations or promises, you commit that capacity for that time. Now since we can’t count on those loads for those trucks, we have to adjust and shift that capacity, often on the fly. One customer’s decision ripples through multiple customers, lanes, and our plans for how to service them.
“It becomes extremely challenging to keep your network as tight as normal and still provide the consistency of service the customer demands, in a cost-efficient way.”
Another shift that Orr and others are seeing is a slow but steady return by shippers to “just-in-time” practices. During the pandemic, shippers, finding inventories depleted, deliveries delayed, and store shelves empty, switched to “just in case” practices, essentially ordering more product to avoid stockouts, but also dramatically increasing inventory.
“Shippers are still figuring out where the balance is,” Orr says. They are dealing with two challenges simultaneously: They’re still trying to shed obsolete or overstocked products, free up warehouse space, and drive excess inventory out of their supply chains, while at the same time reverting to making smaller but more frequent shipments to shorten time to market and support quickly changing consumer demands and/or production schedules, he notes.
All these factors complicate the job of fleet managers as they plan for and deploy drivers and trucks, assign capacity to meet shipper deadlines, set and organize maintenance schedules, deal with downtime from truck breakdowns, manage detention at shipper docks, and plan for driver home time.
Another challenge that’s come out of the pandemic is fleets experiencing longer replacement cycles for rolling stock. One fleet manager noted that original equipment manufacturers (OEMs) have such a backlog of orders that a build slot secured today for a new tractor won’t deliver for 24 months—or longer depending on the OEM.
That’s shining a very bright spotlight on fleet maintenance, both capacity and resources. Trucks and trailers in service longer need more maintenance more frequently. As a result, fleets need more mechanics and more maintenance bays—or find themselves spending more on expensive outsourced maintenance from third-party shops.
In this market with the shortage of new equipment, “you can’t take anything out (retire old equipment) so you have to work with what you have and keep it running,” notes Webb Estes, who earlier this year became the fourth generation of the Estes family to take the reins of Estes Express Lines, a privately held Richmond, Virginia-based LTL (less-than-truckload) carrier. “That puts a huge strain on people, parts, and resources, and you’re dealing with more downtime and more parking space for trucks in repair.” That’s had a lot of ramifications, but it also has revealed opportunity for ingenuity, says Estes, who now serves as the carrier’s president and chief operating officer. “We pride ourselves on having a lot of out-of-the-box thinkers, people who see problems differently and come up with solutions,” he says.
One such solution was looking at the Estes network and finding strategic terminal locations where the company could add shops and “spread out the workload.” The advantage: getting more maintenance work done locally, which limited travel time to far-away shops, improved uptime and equipment availability, and reduced use of expensive outsourced maintenance shops.
The other benefit: more locations where mechanics could work day shifts. “Good, qualified mechanics are hard to come by, and they hate working nights,” he notes. “Day shifts, particularly at more of our smaller facilities, give us flexibility and are attractive and [have] helped us staff up effectively.”
Another piece of Estes’ out-of-the-box thinking was in acquiring rolling stock. “We bought a bunch of equipment from Central Freight [which closed in December 2021], and that gave us a lot of additional capacity,” Webb Estes says. That move, however, did come with some challenges, in terms of dealing with different equipment specs, more maintenance needs, and the time needed to get the equipment detailed and up to Estes’ standards before it could be deployed in the network.
Estes also stressed the importance of culture to any fleet management strategy. “It’s not just about trucks and trailers, forklifts and dollies,” he explains. “It’s just as important as a management team to constantly work to prepare your people for success, support them, invest in them, and give them the tools and encouragement they need.”
The pandemic presented all types of challenges to trucking companies, including financial hardships for employees. Estes decided to step up and help in an unusual way: offering interest-free loans to employees. The program kicked off in April 2020. “We intended to offer it just during Covid,” says Estes. “But we got such a positive response, we decided to keep it going,” which proved prescient with the onslaught of interest rate increases and financial institution troubles over the past year.
“Their job is their collateral,” he explains, adding that to qualify, employees were required to take an Estes-sponsored financial literacy class to help them better understand personal financial planning, the impact of debt, and how to manage it. Nearly $10 million has been loaned under the program, with close to 6,000 Estes employees participating.
“We see it as an advantage being privately held and debt-free, and especially in this environment, employees recognize that,” Webb Estes says. “We’re trying to do the little things to support them, make them part of the Estes family. … No matter what comes up in their lives, Estes is a place they can rely on.”
The Covid era, from the second quarter of 2020 through the first quarter of 2022, was such a disruptive force that managing a trucking operation during that time was an exercise in “putting out one fire after another,” notes Avery Vise, vice president of trucking for research firm FTR Transportation Intelligence. Simply getting the freight on the road and dealing with a string of shipper crises was a daily challenge.
And while it was a financially rewarding period for carriers, it also took a huge toll on the workforce, Vise adds. Now, in a more sedate post-pandemic market, the new struggle is “reminding and retraining staff about the blocking and tackling of running a trucking company in a more normal environment, what you have to worry about, how you manage resources to ensure margins,” he notes.
It’s an increasingly important reboot given that freight has slowed, and managing for efficiency and optimizing networks is more critical than ever, he says. And while Vise sees “spot rates pretty much at the bottom—so it’s possible we’re seeing the end of the bleeding [from declining rates]—freight is not going to be gangbusters for most of the remainder of this year.”
The larger question, Vise believes, is whether more capacity will come out of the market as small carriers exit the industry. “There is not a whole lot of [market] shift left to happen,” he notes. “For a carrier to expect much growth [this year] it will have to come organically. The economy isn’t likely to be much help.”
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