Estimated at $320 billion, private fleets are the largest sector of the $680 billion trucking market and expected to account for about half of all Class 8 truck sales this year. In addition, private fleets operate three out of every four of the Class 4 through Class 8 trucks on the road today.

“And it continues to get stronger,” says Gary Petty, president and CEO of the National Private Truck Council (NPTC). “Most of our companies are currently adding capacity and adding drivers because they believe that for-hire carrier services are being compromised by capacity constraints and higher costs.”

According to Petty, successful private fleet managers say that there are three basic reasons they operate a fleet rather than utilizing for-hire services: They can ensure consistent quality customer service; they can gain direct control of transportation capacity; and they can control unpredictable cost curves in the for-hire sector.

However, as many private fleet managers will attest, operating a highly-efficient private fleet takes work. Increasingly, private fleet managers are operating a “blended” operation, alternating between their own trucks in some geographic regions and utilizing for-hire options in other lanes. It’s a continually changing matrix that depends on rates, capacity, and service demands, say the best private fleet managers.

Let’s take a deeper look at how the best private fleets are operating in an ever challenging environment of mounting federal regulations, tighter for-hire capacity, and rising driver costs that affect every operation managing a fleet of trucks.

Managing market realities

The business model of an effective private fleet is best understood in the context of a larger matrix of other transportation solutions. In addition to a private fleet, many manufacturers and retailers use for-hire trucks, dedicated trucking operations, intermodal rail, as well as third-party logistics providers (3PL).

Most private fleets use so-called “blended” operations, meaning that their fleets aren’t responsible for all of their inbound and outbound freight movements. Rather, they “blend” the private fleet with other transportation providers to create an optimized transportation operation.
In addition, many private fleets operate their trucks for their own business needs, but also have for-hire operating authority for back-hauls to help offset the higher cost of private fleet operations. In fact, nearly two-thirds of all private fleets have such for-hire authority.

The trick is to utilize that for-hire authority and private fleet capacity in the most efficient way—and fleet managers say that it’s not a constant equation. Private fleet capacity at one company might optimally be 40 percent of one manufacturer’s operation and 70 percent of another’s, depending on available for-hire capacity, geographic lanes, rates, and back-haul opportunities.

One manufacturer might utilize its private fleet mostly in an area where for-hire capacity is tight and then use for-hire options in another area where many low-cost, non-union for-hire carriers have excess capacity. A savvy private fleet operator can sometimes tweak capacity by using its private fleet to add capacity to the marketplace with an idea of eventually replacing for-hire trucks on certain lanes.

Of course, such flexibility usually involves having a savvy private fleet manager at the helm. According to the NPTC, that requires a commitment from upper management, which must be willing to absorb the higher cost of private fleet operations in exchange for the service, guaranteed capacity, safe operations, and other inherent advantages that can be created with a private fleet operation.

“Private fleets really have an opportunity to expand their influence on their parent companies,” says Tom Moore, senior vice president at NPTC. “What separates us is our willingness to pay drivers top dollars.”

Driver survey says…
In fact, private fleet drivers are often referred to as the gold standard for the trucking industry—perhaps because they earn the most gold. According to the most recent NPTC benchmarking survey done in 2014, average pay for a private fleet driver is $62,000, compared to around $43,000 in the for-hire sector. The best and most senior private fleet drivers earn nearly $80,000, a figure that, surprisingly, has remained at the same level for the past seven years.

According to the benchmark survey, years of service with the same company averages 14 years, while average age of a private fleet driver is 50.1 years—the oldest ever recorded by the survey, but still younger than the average 59 years old for a Teamsters-covered driver at a unionized for-hire less-than-truckload (LTL) carrier.

Private fleet drivers work an average 59 hours a week, up from the previous year’s 56 average, but more in line with the all-time peak of 60.5 hours a week recorded three years ago. Of those hours, more than two-thirds (39.4) are spent driving while the rest is spent on non-driver tasks such as loading (7.9 hours) and unloading (12.1 hours a week) the truck.

Union operations account for 30 percent of private fleet operations in the U.S. Interestingly, however, non-union private fleet drivers earn 7 percent higher gross wages ($64,277 vs. $59,599) than their union-covered counterparts, according to the NPTC survey. That could be because non-union drivers were far more likely to receive incentive pay (78 percent) than union-covered drivers (27 percent).

Whether union or non-union, driver turnover remains stunningly low in the private fleet sector, compared to the nearly 100 percent turnover at large, for-hire, non-union TL drivers. Private fleets reported turnover of 12.8 percent in 2014, which is up slightly from 11.3 percent the previous year and 10.9 and 10.3 percent the two earlier years.

The low turnover among private fleets is chalked up to higher pay and better working conditions, private fleet managers say. For instance, 73 percent of fleets with the lowest turnover report that they get their drivers home every night, while only 55 percent of drivers for fleets with the highest turnover say that they were home every night.

Another reason driver retention levels are so high among private fleets are their selective hiring practices. Private fleet operators say that their minimum age for hiring a driver averages 22.4 years with 2.4 years of experience.

Private fleet drivers are also paid differently. Compared with for-hire drivers who nearly universally are paid by the mile, only 42 percent of private fleet drivers are paid by the mileage they drive. Rather, 29 percent are paid by the hour and another 25 percent are paid by activity-based formulas.

Improving private fleet operations
Keys to the long-term viability of a solid private fleet operation start with operational support from upper management. That, in turn, flows through a private fleet manager who’s increasingly using sophisticated technology to increase safety and drive down costs.

That savvy use of technology can be used to manage driver behavior to push even greater safety performances. This is absolutely essential for private fleet operations whose corporate “deep pockets” can be an easy target for attorneys seeking large settlements in cases involving truck accidents and fatalities.

According to Federal Motor Carrier Safety Administration (FMCSA) data, private fleets are safer than the typical for-hire carriers. FMCSA data collected through its five-year-old Compliance, Safety, Accountability (CSA) program show that private fleets are nearly three times as safe as for-hire trucks.

Private fleet managers say that some of that can be chalked up to the greater experience levels of private fleet drivers. Those drivers often drive the same routes every week and become familiar with road conditions. Technology may also be a factor, with about 30 percent of private fleets reporting use of speed governors on their trucks to limit top speeds.

Another metric to assure private fleet success is the “right-sizing” of blended operations between private fleet capacity and for-hire use. “For the most part, the best private fleets have found the proper ratio,” says Petty. “If they see a falloff in service from their for-hire operations, then that likely means that they will increase their private fleet resources in those lanes.”

Viracon’s conversion
However, private fleets don’t always stay private forever. Analysts at investment research firm Stifel estimate that approximately 15 percent to 20 percent of private fleets “turn over” to for-hire carriage every year—with about the same percentage of for-hire operations going private.

Viracon, the nation’s leading single-source architectural glass fabricator, is one of the former. After running a private fleet of 26 trucks since 1985, Viracon made a strategic decision to focus on its core competency and get out of the transportation business two years ago. Troy Hansen, director of material for Viracon, says that it was a combination of issues that lead to the decision, including the growing need for capital to keep its private fleet operating.

“When we made this choice, we were heavily into a downturn in the commercial market,” says Hansen. “We were looking to expand in our manufacturing core competency; however, competing for dollars got really difficult. Liability was another thing, as were the ever changing
compliance issues.”

With aggressive schedules and high volumes of inventory to be shipped, Viracon needed a large carrier to service the network and satisfy shipping requirements. According to Hansen, Schneider took its project implementation plan and personalized it for Viracon’s 12-week transition. Key components included taking ownership of Viracon’s current equipment; qualifying existing drivers and mechanics to meet its business demands; recruiting new drivers and mechanics to replace those who chose not to transition or did not qualify; and assuming responsibility for Viracon’s truck maintenance facility.

According to Hansen, Schneider was able to deliver a solution that transitioned Viracon from its private fleet structure to a dedicated service provider without sacrificing its reputation for safety, outstanding performance, and high customer service standards. This private fleet conversion was completely done in the 12-week period.

Because Viracon had always maintained its own equipment, the company was committed to the lease on its Owatonna, Minn., maintenance facility where five long-term mechanics were domiciled. In undertaking the facility, Schneider hired those mechanics, accepted the monthly fiscal responsibilities of leasing the facility, and continued to service the fleet’s equipment at that facility.

“We just signed a two-year extension, adding 10 more trucks and 15 trailers to the fleet,” says Hansen. “I knew we could expand the service, and the expansion will help us best serve our customers with additional capacity.”

Bob Elkins, senior vice president and general manager of Schneider’s dedicated services, adds that constant communication was critical. Weekly status calls maintained the project’s timeline, action items, and other transition details. Now Schneider provides a dedicated on-site manager and other support personnel.

“The process we’ve set up includes a 100-point inspection checklist that starts well upstream,” says Elkins. “We ensured the knowledge transfer before any execution takes place. As in any transition, there are things that require flexibility and adaptability; but it went extremely well.”

According to Hansen and Elkins, the new solution provided 98 percent on-time deliveries during the transition. The move also helped Viracon to maintain cost-per-mile during the transition before shifting the focus to cost improvement. And at the same time, the company actively worked to find customers with flatbed freight to maintain the company’s backhaul fill rate and backhaul revenue.

“Each and every one of the Viracon associates went through our qualification process and went through our own training,” says Elkins. “Looking at incumbents and taking on as many associates as possible to provide that tribal knowledge to help with that transition was the key to success.”

When the futuristic concept of “fleet management” emerged a few years ago, it promised to leverage the Internet of Things, real-time data, and other buzzwords to bring all the pieces together to cut costs, streamline operations, improve safety and more. The sky was the limit, and the humble warehouse workhorse would finally get the treatment it deserved as such a fundamental component to productivity and profitability.

“We’re done with the hype,” says John Rosenberger, product manager for iWarehouse Gateway and global telematics for The Raymond Corp. “Everyone now accepts that there’s an advantage to fleet management, but it’s like a gym membership. If you don’t go, what value are you getting out of it?”

Like a gym, the umbrella of fleet management includes a lot of options, and few people need them all. Sure, January 1 could be the first day of your quest to become an Olympian, but it’s best to set more modest goals. The industry has spent the last few years learning this lesson—often the hard way—and the approach to forklift telematics and fleet optimization programs has adapted accordingly.

“OEMs and third parties that provide fleet management have all rushed to be able to offer everything,” says Greg Simmons, business development manager for Mitsubishi Caterpillar Forklift America’s national account fleet services team. “As we get a couple years into it and customers have tried some things, they’ve taken a half step back to return to the fundamentals. One size does not fit all, so we see a trend to apply small pieces of the fleet management solution set to one area that helps move the needle for one customer. That’s what matters most.”

Finding the needle in the payback
By some estimates, less than 30% of lift trucks are equipped with telematics, according to Steven LaFevers, director of aftermarket solutions for Yale Materials Handling Corp. The rest haven’t bought into fleet management solutions because they haven’t found one with the right balance between cost and immediate concerns.

Instead of a large initial investment in a base telematics solution followed by the added modules and functionality, LaFevers predicts more focused solutions that handle only battery management, or just operator checklists, or just technologies that target operator behavior. Although they might strike the balance of price and impact, all of these elements will require the same consistency of discipline as any fleet management solution.

Air cargo can help organizations optimize their supply chain in three important ways. It allows the speed needed to deliver time and temperature sensitive products, provides reliable access to remote and developing locations, and can offer the best combination of service and price.
Become familiar with air cargo options: next flight out, consolidation, and deferred services. There is no one-size-fits-all air cargo solution. An experienced provider will help determine which type is best for supply chain efficiency.

Ancillary services such as customs clearance and distribution/delivery sourcing may not be top of mind when considering freight options, but they move in concert with the speed of freight and are key to ensuring on time delivery. An experienced provider keeps these in mind when advising the best options for a business—helping translate an optimized supply chain into lower overall transportation spend.

Quick response to market demands

Market response

With air cargo, shorter lead times for inventory replenishment are realized and a company can quickly respond to holiday or seasonal demands, as well as reduce inventory carrying costs. All of that adds up to a supply chain that offers efficiency coupled with flexibility — providing customers the agility necessary to contract and expand with market needs.

Time and temperature sensitive products

Air cargo also provides the perfect way to extend shelf life for both time sensitive and temperature sensitive products. It gives another way to increase inventory life and decrease potential losses.

These quick response times also come in handy when dealing with unforeseen events, like factory delays or urgent customer demands. Addressed early, these situations can provide an opportunity to position companies as the problem-solver instead of the problem. Working with a provider who can seamlessly shift from one service to another, depending on needs, offers an advantage over the competition.

Value of technology in air cargo services

It is very important to find a provider that offers seamless access to multiple services along with true visibility from a single platform. With the use of Electronic Data Interchange (EDI), a top-notch provider can offer current updates about shipments, 24/7.

Benefits of air cargo in emerging markets

In emerging markets, air cargo can often be the only reliable method to connect customers with goods. As part of a seamlessly connected global supply chain, air cargo can facilitate growth into new markets.

It’s also important to realize that in today’s global marketplace it’s not just about being fast, it’s about being first. Having the flexibility within the supply chain to be first to market offers many advantages. Whether a company is looking for a service that’s fast, first, or simply flexible, air cargo can fill a critical role in making sure that a supply chain is meeting business objectives and serving customers’ needs.

Keeping overall spend in mind

Freight costs are just one factor to consider when evaluating freight service options. Inventory carrying costs, and the sales opportunities associated with being first to market, are important considerations for shippers. The increased use of more fuel-efficient cargo fleets has changed the cost equation.

Finding a provider who offers access to the benefits of mode-neutral routing can widen shipping options. Mode-neutral routing allows a provider to put a company’s needs first by selecting the service that best suits the specific shipping requirements and expectations. This allows for tightening the supply chain — focusing on overall spend rather than specific costs. Saving a few dollars here and there on air cargo does not make sense if delaying time to market increases inventory costs or unnecessarily lengthens the cash-to-cash cycle.

Simply choosing services based on price alone can negatively impact the supply chain. In any economic climate, shippers should remember to calculate the cost, door to door, keeping in mind the right blend of spend to the best benefit to their overall business concerns.

That’s why taking advantage of a mode-neutral relationship with a multimodal shipping provider is a smart business move in today’s ever-changing global market.

4 reasons to rethink air cargo in a supply chain

1. Quick response to market demands
2. Global visibility on a single platform
3. Better access to emerging markets
4. Increased value from a supply chain optimized with the right air service for any specific business needs

However, researchers for the Economist Intelligence Unit (EIU) note in a recent report that logistics managers face a slew of additional complications that will require today’s freight forwarders to come up with new and innovative solutions.

According to EIU analysts, most multinationals are optimistic about future trade activity with the United States. Indeed, the United States accounts for 13% of global imports and 9% of global exports and will continue to remain a key market for companies in Europe and Asia. In fact, two-thirds of respondents in the EIU survey anticipate that their company’s trade with the United States will increase over the next five years, with over 43% expecting an increase of 10% or more. This means that freight forwarders will have yet even more pressure to perform in the future, add analysts.

“Companies face a number of issues in trading with the United States, but none of these are perceived to be insurmountable,” says Andrew Siciliano, practice leader for trade and customs at advisory firm KPMG, U.S. “Exchange-rate volatility presents the largest issue for companies, with 41% of respondents citing this as a concern.”

Siciliano also observes that close to one-third of EIU survey respondents cite transport costs and delays, trade-related infrastructure, and making payments as their top challenges. Other challenges cited by close to 30% of respondents are access to trade finance, unfair competition, communication challenges and cultural hurdles.

“However, many of these are challenges that companies experience in other markets as well,” adds Siciliano, “and the overarching consensus is that these challenges are not viewed as deal-breakers when it comes to trading with the U.S., given the sheer size of the market opportunities there.”

Embracing complexity

In the meantime, freight forwarders will be expected to help shippers identify and navigate premium trade lanes as well, says Cathy Morrow Roberson, president of research firm Logistics Trends and Insights.

“The main takeaway from recent studies and surveys is that forwarders must add much more value to their services by mapping out a sustainable distribution strategy even when the transport infrastructure is less than entirely reliable,” says Roberson.

New forwarders meeting challenge

Meanwhile, the supply-chain consultancy Armstrong & Associates estimates that global freight-forwarding market has grown at an average rate of about 12.3% a year since the 1990s. It amounted to about $238 billion in revenue in 2015, but that surge has slackened by almost 5% in recent years, coinciding with a slowdown in China’s economic expansion.

“Given this reality, the economies of scale still favor the mega forwarders,” says Evan Armstrong, the firm’s president. “They have the economies of scale to leverage ocean and air cargo rates that smaller players simply don’t have.”

But forwarding upstarts like San Francisco-based Flexport takes issue with this, noting that technological breakthroughs are rapidly changing the landscape. According to Ryan Petersen, the startup’s founder and chief executive, shippers have been paying too much for simple services that can done with a lean and responsive staff schooled in the nuances of digital commerce.

“Because no company is big enough to have all the assets required—trucks, container ships, cargo planes, trains, warehouses, and more, in every country on earth—freight forwarders have to use multiple asset owners on any given shipment,” he says. “That’s what we do.”

Andrew Lubin, who currently teaches a variety of logistics management and international business courses at Rosemont College, agrees, contending that small and nimble companies like Flexport “are the new wave” of the forwarding future.

“While the giant forwarders continue to buy and resell container space at a huge profit, new business models are competing by building global databases,” says Lubin. “By doing this, they reduce their overhead and save shippers money.”

Israel’s Freightos is another rising star, Lubin points out, noting that it too offers software that provides Customs clearance while booking ocean and air cargo seamlessly through the internet.

Dr. Zvi Schreiber, CEO of Freightos, maintains that the forwarding industry is moving on two parallel paths, with most major transport carriers continuing to work with the larger established players while striking up relationships with new companies like his. “This is a delicate ecosystem for the time being,” he says, “comprising companies of all sizes and influence.”

Adam Compain, founding CEO of the “predictive logistics” forwarder ClearMetal in San Francisco, says that deep math and cloud technology are transforming the industry. “In today’s world, a lot of forwarding inefficiencies can be addressed without costing the shipper any more money,” he says. “The big ocean and air carriers are moving toward digitization, too. There’s not much more room for bankruptcies or more alliances in the global marketplace.”

Old guard response

While scores of venture capital upstarts threaten the forwarding status quo, the giant freight intermediaries are beginning to work with them while investing in their own technology.

Kuehne + Nagel, for example, recently launched KN FreightNet, a digital product providing instant quotation, online booking as well as track and trace for air and sea shipments. In the scope of its venture platform, the mega forwarder engages with startups and explores new business opportunities broadening its digital offering and customer base.

“Using our core competence and scaling-up our digital mind set, especially in the area of data management and analytics, we develop products designed to bring additional value,” says Dr. Detlef Trefzger, CEO of Kuehne + Nagel Group. “We consider digitalization not as disruption, but as part of our ongoing business evolution.”

Building on its market intelligence, Kuehne + Nagel created “global Kuehne + Nagel indicators” providing estimates for key economic figures, such as trade balance and industrial production, based on the forwarder’s insights into markets and data of global trade flows.

This digital revolution has not been without its mishaps, however. DHL’s freight forwarding division has been struggling for the past two years to recover from a failed IT modernization program—the costly and infamous “New Forwarding Environment” initiative that led to a shakeup in the company’s management structure.

Tim Scharwath, the newly named DHL Global Forwarding CEO, hopes to reverse that fortune. “What is clearly needed here is a unified global technology platform that can help deliver online quotation and booking,” he says. “Everyone is moving in that direction, and logistics managers will come to expect it from all forwarders—regardless of size.”