Un-"fixing" the Private Fleet

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INTRODUCTION

Grocery is one of the few remaining industries using significant private fleets of non-customized equipment. Why? The most common explanations we hear are: service requirements, reverse logistics needs, long unload times at stores, and “It’s always worked in the past.” What’s more, freight expense is often managed well down the executive ranks and, as a result, doesn’t receive the intense focus that current economic conditions dictate. Especially in grocery, every basis point of improvement matters. And a careful review of transportation costs can make a big difference: we’ve seen between 30 and 80 basis points of operating performance improvement with a rigorous improvement program.

The private fleet deserves another look, especially during times like these, when funding sources for price reduction programs are scarce. Simply put, if you have a private fleet, you need to run the “tightest ship in the shipping business” (to borrow a phrase from UPS).

RISING FREIGHT COSTS

In a recent trucking industry report, R.W. Baird reports continued evidence of upward price pressure on freight costs:

• June 2010: 6.1% year-over-year volume increase in the trucking business
• For the year, diesel fuel prices are up 4%
• 2010 reflects the fourth consecutive year of new truck buying below replacement-demand levels, thus indicating ongoing capacity removal, stretching of aged assets, and less chasing of shippers to fill empty miles at very low rates
• Shippers seeking to lock in capacity, rather than risk spiking prices and capacity scarcity on the spot market

Certainly, given these conditions, private fleets seem more attractive. But the discussion must not stop there.

DRIVING IMPROVEMENTS NOW

Private fleet operations typically present many opportunities for improvement. These fall into three major areas:

To ensure you are running the “tightest ship possible,” start by examining your operations in at least one opportunity in each of the three areas. For example:

* Operating vs. Idle Hours: Obtain a listing of every tractor and its operating hours over the past three months. If you don’t see a very tight range across all equipment, and if that range doesn’t exceed 140 hours per week (20 hours/day, 7 days/wk), then you are probably over sized.

** Route Optimization: Are your stores served using fixed routes and delivery days? How often are loads split to increase delivery frequency? Dynamic route planning improves load factors and reduces costs. Coordination with store labor scheduling is critical, but large savings opportunities exist when routing and scheduling technology is used daily to plan deliveries.

*** Backhaul revenues: Are you licensed to haul general freight or can you only haul freight that is destined for your stores or distribution centers? Obtaining operating authority to haul other freight gives you more opportunities for revenue. How profitable is the revenue you generate through backhauls?

RIGHT-SIZING YOUR FLEET

In addition to this table of opportunities, there is the overriding issue of private fleet sizing. Is your fleet sized for peak demand or do you supplement your peak requirements with outside carrier usage? We find that most fleets are significantly oversized, as day-to-day management compares operating cost per mile versus spot market rates. Instead, you should be looking to drive down idle assets and use some of that savings to purchase outside transportation during peak times. This extra effort to regularly revisit asset levels pays off, but it is often overlooked as it is “easier” to manage when you always have enough equipment.
Finally, if you have a supply arrangement with a wholesale distributor, you should ask them the same questions posed here, and then negotiate your fair share of the resulting savings.

SUMMARY

Although sheltered to some degree from the current environment of rising freight costs, private fleets—and their management—should be reexamined. This area presents several opportunities for improvement that, in a business where every basis point of improvement matters, should not be overlooked.