Like all motor carriers, private fleets are feeling the pinch of running trucks in an era of escalating operating costs.
But unlike strictly for-hire carriers, they can't just pass higher costs onto customers in the form of higher rates or surcharges. Nor can they expect their corporate parents to simply absorb higher costs without delivering maximum results.
What private fleet executives can do is rethink how they are operating by examining what can be done differently to offset weaknesses or to play up strengths.
Along with hearing what industry experts contend are a number of avenues private fleets can explore, review the accompanying case studies (“Enhancing the fleet” and “Leveraging the fleet”) to learn how two private fleet operations are benefiting from their own insights. In one case, a private fleet operation is launched as a key productivity solution and in the other, the fleet is cleverly revitalized to operate more efficiently.
Such smart thinking will hone the edge private fleets will need to navigate the roiling waters that trucking will be going into and through next year.
As our special edition — “Disaster's Aftermath” — enclosed with this issue makes abundantly clear, 2006 will be a trying time for trucking.
Freight volumes will grow through the year as the pace of recovery and rebuilding efforts in the Gulf States builds. But so will the cost of operating trucks, especially fuel, but also tires and other consumables that contain petroleum products. And qualified drivers — really the only kind most private fleets ever hire — won't be any easier to find nor will they work for any less next year.
Chris Brady, president of Commercial Motor Vehicle Consultants (CMVC), points out that the rebuilding of the Gulf region will benefit trucking in general and thus drive freight volumes up “slightly higher than normal” next year.
But just as freight movements around the country will pick up, it's pretty certain the spikes in diesel fuel prices will too, says Brady. “Private fleets can really be hurt by these jumps in fuel prices because they have difficulty increasing prices for their services to cover the greater outlay for fuel. They are being squeezed more on fuel now than for-hire carriers, which thanks to the capacity crunch can pass this cost along to shippers.”
According to Hal Booth, senior vice-president of First Fleet Corp., which provides asset management and other services to private fleets, the tighter engine emission standards that have hurt fuel economy and the record per-gallon cost of diesel are pummeling private fleets.
Booth says that this summer First Fleet launched an 18-month telematics-driven fuel economy study intended “to help private fleets understand the impact of fuel usage as fully as for-hire” fleets.
“We're studying fuel consumption patterns to help private fleets develop new strategies to improve fuel economy,” says Booth. He points out those may include changing equipment specs, improving driving methods, reducing idling time, increasing driver training or enhancing maintenance practices.
Phase I of the real-world study involves 10 private fleets that have allowed almost 200 telematics devices to be installed in a large cross-section of Class 8 tractors. The operations taking part include grocery, manufacturing, fuel and retail distribution fleets.
According to Kirk Rutherford, First Fleet's vp-fleet services, the monitoring devices will be divided equally among trucks with pre-emission (pre '02) and post-EPA '02 emissions-compliant engines.
Each truck will have to meet certain mileage and usage criteria and not exceed 500,000 miles by the end of the study. The study will also look at the performance of some EPA '07 emissions-compliant engines supplied by Caterpillar.
Rutherford explains that telematics devices will wirelessly deliver data to First Fleet for evaluation, with results made available in online confidential reports to customers involved in the study.
The onboard devices, installed with the knowledge of the drivers, will monitor fuel usage, driver performance, methods of operation, and the effect of truck specs and equipment technology on fuel consumption.
“First Fleet's objective is to help our customers achieve a 3/10th per gallon (0.3 mpg) improvement in overall fuel economy,” says Rutherford, which would translate to a savings of $200,000 a year or $2,000 per year per tractor.
At the end of the fuel study, which will coincide with implementation of EPA '07 emission standards, First Fleet will issue a report, Booth notes, that will include recommendations based on evaluating the data compiled.
But in the meantime there is plenty that a private fleet can do to offset the high cost of fuel. “Cutting consumption involves working with vehicle specs and applications and how they interact,” says Rutherford.
“Also key is how drivers are used,” he continues. “Do you slip-seat or assign them? If some make peddle runs during the day and others run over the road at night, you need different fifth wheel settings. All sorts of things — idling, tire pressures, driver habits road speeds to name a few more — impact fuel use.”
Duff Swain, president of transportation consultant firm Trincon Group, contends that because private fleets usually come into being “due to wanting the control they can't get from for-hire” fleets, their manager may have difficulty truly understanding and acting upon their operational costs.
“Most private fleets use accounting systems fashioned after the one used in the industry they serve,” Swain says. “There's no access to budgeting or activity-based costing.” He defines the latter as measuring costs based on distance and time, with variable expenses measured by the mile and fixed expenses allocated to each truck based on the time absorbed by a trip.
Whether it's a for-hire fleet seeking to boost profitability or a private fleet trying to rein in costs, Swain says proper analysis of a trucking operation can lead to implementing a strategic plan that “uses strengths to correct weaknesses.”
Controlling fuel costs are a weak area for many private fleets but keeping drivers on board generally is not. “A private fleet can enjoy higher driver retention because it provides better pay, benefits and human resource policies,” Swain notes, than what's typically the case with for-hire fleets.
NO SACRED COW
While there are plenty of good reasons to operate a private fleet, Swain does not view them as sacred cows. “Not every firm with a private fleet may have exhausted every avenue to securing dedicated commitments from common carriers,” he offers.
“The key, of course, is to ensure productivity,” he continues. “Many for-hire fleets want to stabilize their businesses and are wiling to operate in niches, which satisfies their drivers as well.”
Swain says to make dedicated carriage work, the relationship “must have a defined level of service” and the carrier must commit to a set number of trucks to provide that service over a period of years. “There must be a joint effort to maximize utilization.”
If the decision is to run a private fleet, Swain recommends it be over 100 trucks “to ensure efficiencies in management [experience] staffing and technology that can be cost-justified.”
There's a “sweet spot” for private fleets, says Swain, and it's found at that “optimum place where the owner wants to be after weighing all the options.”
Enhancing the fleet
Since coming onboard as director of logistics & distribution about a year ago, Glenn Palis has been busy, as he puts it, “revitalizing” the specialized regional private fleet operated by Aeriform Corp.
Houston-based Aeriform is a packager and distributor of specialty, industrial and medical gases as well as welding supplies. Its 100-truck private fleet concentrates on delivering cylinders of industrial and medical gases and also makes deliveries of welding supplies.
The private fleet, which runs in Texas, Louisiana, Oklahoma and Kansas, consists of 10 Class 8 tractors that pull stakebed trailers and some 70 Class 7 & 8 stakebed trucks. All the stakebed equipment is designed to securely transport the cylinders upright, each of which weighs a couple hundred pounds.
When Palis arrived, the fleet was a mishmash of equipment acquired as Aeriform had grown through acquisition. He set about updating the fleet with the help of International Trucks of Houston and Aeriform qualified for a Federal Grant under the Clean Cities/Clean Vehicles Program.
“We applied for the grant through the Houston-Galveston Area Council,” explains Palis. “This grant is available for those operating diesel trucks in the Houston/Galveston ozone non-attainment area. And it's a great example of how a fleet operator, truck dealer and government agency can work together to help clean the air.”
Thanks to the grant program, Palis reports Aeriform was able to replace 25% of the fleet this year alone, “working from the oldest on up.”
He notes that the grant covers about 50% of the vehicle replacement cost and the fleet can recover some more money by selling the old vehicle for scrap. That's because the program has an interesting requirement — each “old” engine must truly be put out of commission lest it pollute again some day somewhere else.
“We hired an outside company to cut a hole through the side of each old engine, rendering them useless. We even had to show proof by submitting before and after photographs of the engines with serial numbers visible.”
The new trucks coming in are International 4300 and 4400 models powered by the OEM's DT 466 diesel. “These trucks are also our first spec'd with Allison automatics to gain more efficiency in city driving.”
The trucks will be fitted with location/tracking systems that will integrate with Aeriform's PC-Miler routing optimization tool. “We are evaluating three onboard GPS vendors and will select one by the top of the year,” he notes.
Palis says Aeriform is considering ordering International's telematics-enabled onboard diagnostic system with email notification capability on the new stakebed trucks “This system would send us a signal via email if a warning light or trouble code appears while the trucks are in the field,” he notes. “At the moment, we're still evaluating this.”
“Along with the new trucks and use of PC-Miler and GPS systems, “ says Palis, “we've implemented a new fuel management program using Fleetcor's Fuelman cards. These cards enable us to get a discount on the price per gallon and records fuel use by vehicle.”
With efficiency the name of the game, Palis says he happy to report that together these changes have already delivered “a reduction in fuel consumption — even as fuel prices have gone up markedly.”
Leveraging the fleet
A specialty chemical producer determined it would make a business opportunity work by leveraging a private fleet-from scratch.
Dennis Beetham, president of Bend, OR-based D.B. Western, explains that his firm set up its own fleet operation just to get a chemical byproduct of agricultural urea that it produces in its LaPorte, TX, plant to an important customer in Baton Rouge, LA., some 400 miles away. And by backhauling dry urea in the same trailers, the fleet's been getting high utilization from the get-go.
By contrast, D.B. Western had found relying on common carriers to accomplish this mission was both costly and inflexible.
“Unfortunately,” says Beetham, “our customer in Baton Rouge would only allow us access during a 12-hour period. They weren't comfortable with the drivers employed by the trucking companies we used.” But then, neither was Beetham.
“If the driver, who used our trailer, failed to hit our payload target of 51,000 lb. when he loaded the product, we'd have to pay for additional trips,” he points out. What's more, two specialized 40-ft. trailers D.B. Western owned had to be handled carefully to prevent contamination.
“We needed to take control of the loading and unloading and build some predictability into the haul,” Beetham elaborates. “When you've structured a trucking lane around one customer, and you're bringing back loads that are important to your own operation, you can't trust the relationship to someone else.”
Beetham determined the specialized operation would require two day cab tractors that would run up to 250,000 miles a year. He settled on a pair of Peterbilt 378s on a full-service lease from PacLease affiliate, Rush Peterbilt.
“The trucks had to be comfortable and attractive,” he remarks. “We knew about the negative effects of turnover from our experience with common carriers.” He also wanted them right away. “We signed with PacLease 30 days after my initial call. They provided two interim trucks that were the same spec as the ones we leased. We didn't have to wait to get our fleet up and running.”
To maximize payload, he worked with PacLease to spec components aimed at low tare weight, such as a lightweight air-ride suspensions, aluminum wheels and wheel-end components, and fuel tanks optimized to the length of haul.
Since the Petes would be D.B. Western's only two trucks in the area, Beetham didn't want to build and staff a shop to maintain them so opted for a full-service lease.
Once D.B. Western began fielding its own fleet, the Baton Rouge customer extended its delivery window to 24/7. So instead of making two to three roundtrips per day with its specialized trailers, the company can run up to four. And that helps D.B. Western increase production at its LaPorte plant.
“Since we use specialized trailers, we can't easily add capacity,” Beetham notes. “But we showed our customer how committed we are to quality service and they responded with more flexibility in the schedule. And that allows us to turn the trucks around faster and move more product.”