Measuring Up

When your only customer literally signs your paycheck, the services provided by your fleet operation had better be beyond reproach and you had better be able to justify frequently that indeed they are. That's the key challenge that's always faced by the executives of private truck fleets even as they deal daily with the operational issues any motor carrier does. But in these tight economic times,

When your only customer literally signs your paycheck, the services provided by your fleet operation had better be beyond reproach — and you had better be able to justify frequently that indeed they are. That's the key challenge that's always faced by the executives of private truck fleets — even as they deal daily with the operational issues any motor carrier does. But in these tight economic times, meeting his or her corporate customer's service requirements has become more challenging for the private fleet manager and staff.

Whether private fleets serve a manufacturer, retailer or distributor, for its managers, the main mission is delivering an unquestionably high level of customer service — and, of course, being able to measurably show what exactly it is doing to meet the specific transportation goals of the corporate parent.

Achieving the customer service mission requires keeping a keen eye on equipment productivity and utilization as well as maintenance and driver relations. Generally speaking, right after customer service — or perhaps more accurately, in tandem with it — comes the need to run the fleet at the lowest possible cost and, of course, as safely as possible.

That customer-service remains the be-all and end-all for private fleets is clearly borne out in the latest edition of the Annual Benchmarking Survey for private fleets published by the National Private Truck Council (NPTC). Seventy-five companies running private fleets participated in the survey and an overwhelming 86% of them responded that "the primary reason for operating a private fleet is because it provides better customer service to key customers than is available using outside for-hire carriers." NPTC noted that the "customer service focus has remained the dominant response to the open-ended question, "Why Do You Operate a Private Fleet?" during each of the past five years of the survey.

Only 12% of the respondents cited their private fleet providing a more cost-efficient means of transportation as the main reason why they operate a fleet. That's not surprising, commented NPTC, "given the increased corporate scrutiny on trying to control expenses." On the other hand, per the survey, private fleets were able to "demonstrate this degree of cost control in a transportation market noted for excess capacity and highly competitive rates. Just 2% gave other reasons for operating a private fleet. These included specialized commodities, image and flexibility — and one could argue all three of those reasons are tied directly to customer service in one way or another. NPTC observed that about 12% listed "both customer service and cost control as the primary reasons for their existence."

To track customer service, the respondents said they monitored these "performance metrics" (listed in order of magnitude from highest to lowest): late deliveries, customer comments, damaged freight, early deliveries and "miles and stops."

KEY CHALLENGES

As for major challenges facing private fleets, 42% of the respondents cited cost control, which was followed closely by — you guessed it — meeting customer demands. Following those top two issues in descending order were fuel, drivers, backhaul, safety, compliance/regs, the economy, technology, staffing and congestion.

To up utilization by filling more empty miles, 68% of the respondents reported having for-hire authority. NPTC said that's a "dramatic increase from previous years." Of those with for-hire authority, 8% have internal sales personnel, 44% use brokers, and 33% act as brokers. In 96% of the cases, internal company freight takes precedence over outside freight. NPTC noted this suggests "private fleets use for-hire authority as a supplemental strategy to fill empty backhauls — a philosophy that enables them to keep their focus on their internal customer."

And private fleet managers will be kept even busier pleasing their customers in the near future. About 60% of the respondents reported they expect their fleet to handle more freight over the next five years, with the average growth estimated at 13%.

Speaking at the annual NPTC conference earlier this year, Ron Tartt, general manager of private fleet for Bridgestone Americas Tire Operations, succinctly summed up what private fleets are all about. "Our job as a private fleet is to provide superior customer service, while operating at a level of efficiency that reduces total cost," said Tartt.

"We must have a balance between the two [while] delivering the right products on time, every time. We serve seven distribution centers [DCs] across the U.S., moving products in from South America and Asia through ports in Los Angeles and Jacksonville, FL, while managing shipments from plants in the U.S. and Canada," he continued. "In the early 1970s, it took 42 DCs to accomplish next-day delivery to any place in the lower 48 states. Now the same task is done via [just] seven DCs" [by a fleet of] 276 tractors and 714 trailers serving more than 5,000 customers.

"In the 1990s," he continued, "we concluded that consistent on-time delivery performance with the common carrier was not achievable, so we started building a private fleet. Every survey we send out indicates that customer service remains key. Every week, we're delivering on time — the customer gets used to that.

"The drivers of our trucks are the key for us. They are our ambassadors to the customer; they are the last link in the supply chain," said Tartt. "If they are in a bad mood, it wipes out all that's come before. So we pay a little more to get good drivers, but we get a lot more in return, for a contented driver results in a contented customer. We have just 10% driver turnover; most are home every night or every other night."

Tartt went on to state that "safety is the fleet's number-one priority; if it's not, we won't be around."

According to Tartt, the fleet closely tracks its cost-per-mile (CPM) and noted that "of course there's always room for improvement, but [CPM] is affected by terrain and the areas we serve. We get a lot of data flowing back to us about the fleet and it changes every day.

JUSTIFICATION

Echoing Tartt's view on customer service at the NPTC meeting was fellow speaker Vince Biondo, vice president-private fleet for Wal-Mart Transportation LLC. "We're starting to see [trucking] capacity shrink; the advantage is shifting back towards carriers now," Biondo stated. "But you better be able to justify the private fleet. There are [common] carriers out there giving low cost-per-mile bids, so when you compare that to the private fleet expense, you don't look competitive. That's why private fleets must continue to tighten their belts and drive toward more efficiency — to drive more cost out.

"We make 2.3 million deliveries per year and 1.3 million backhauls. That tells us what our capacity is," he continued. "There can't be just one winner in the private fleet/common carrier competition; both must win or that will come back to haunt you. Better asset utilization drives efficiency, drives out costs, and helps everyone's bottom line. We even use other private fleets. Obviously, we have a large private fleet but we keep our focus simple. Our core business is simply on-time quality service — that's it."

Larry Ahlers, vice president-transportation for global building products firm Oldcastle Architecture, concurs that the customer is king. "The primary reason our company operates a private fleet is to serve our customers," he remarks. "[We have to meet] special and unique service requirements of our customer base. We evaluate our cost performance by comparing it to the cost of using for-hire trucking. But we do supplement [with for-hire trucking] when we have spikes in the business volume, which occurs seasonally for our companies."

Asked the top three issues his fleet's dealing with right now, Ahlers did not skip a beat in saying, "Cost, cost, cost." As to what the fleet's CPM is, his response reflected the complex role many private fleets pay. "It varies by length of haul, and we have 12 different private fleet operating models. Time was when we established five-year business plans that we reviewed annually. You can't do that when the technology you're using is expected to be obsolete in 18 months. We're tied heavily to technology in this business and will become only more so. That's why even three-year business plans are now considered 'long term' and if you are not reviewing them every quarter, you're doing so every six months," he added.

"According to the NPTC benchmarking survey, customer service has always been the number-one factor for a company moving to their own fleet," says Jim Angel, safety & compliance product manager for PeopleNet. "More importantly, companies are looking at this opportunity to be a revenue stream as well. In short, cost and customer service and the ability to manage to the goals of the company and not to someone else's P&L is what drives the decision to have a private fleet."

"The decision to move freight via private or for-hire carrier is typically based on two main factors, first being service and second being cost," says Olen Hunter, director of sales for Paccar Leasing (PacLease). "Many manufacturers or wholesale distributors have determined they have unique characteristics about their goods or customer expectations that cannot be effectively met by a for-hire carrier. Both private fleet and dedicated contract carriage are options in this situation. Second, the shipper must determine which method is most cost-effective.

"Oftentimes," he continues, "a simple rate comparison may lead one to believe that a for-hire carrier offers the least expensive method to ship goods. However, often overlooked are cost factors such as fuel surcharges, detainment fees, on-time delivery and damages/claim costs. These are not factored into the equation when making a comparison between shipping modes. The ultimate decision point, once all factors have been accounted for, will be the determination as to which mode is most cost-effective."

SERVICE CONSIDERATIONS

Jim Scales, national accounts manager, Qualcomm Enterprise Services, says shippers considering setting up a private fleet must first "determine the level of service requirements for your customers. Over 80% of private fleets exist to provide superior customer service. What type of operation a shipper is running is important. [Will it be] short haul, long haul, multiple stops, etc. Also, [they must consider] what areas of their supply chain need improvement, [including] what is the long-range strategy for logistics?"

For companies already running a private fleet, Scales says the best way to evaluate its effectiveness is via peer operation benchmarking — "to gain relative performance, best practices, and fleet justification. ROI should be performed by both internal and external resources to compare analysis… [this should be done] a minimum of every three years."

Scales contends the biggest issue now facing private fleets is drivers. "The aging driver workforce — average age now is 50-plus — is a concern. Many drivers delayed retirement because of the economy, but this may accelerate when the economy begins to improve. The strongest need is to address the recruitment of new drivers. Driving a truck is not considered a career opportunity to high school students since they are frozen out of that career until they are 21 or 22 years old."

PeopleNet's Angel notes that private fleets should have an advantage when dealing with the new federal safety-scoring system, CSA 2010. In a recent data comparison presented at NPTC, about 200 private fleets were shown to perform better [in safety terms] than the industry average. Private fleets are almost, on average, 40% less likely to receive an intervention in most CSA BASICs," he adds.

Speaking perhaps for all private fleet managers, according to Bridgestone's Tartt, "We will always have to justify our existence. Our challenge is to continually tell our story well enough that everyone understands the value we bring to the company as a whole."

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