Before you say Lane is on a campaign, let me say that I realize circumstances sometimes demand a private fleet solution. For example, when you operate odd or specialty equipment that has little or no value outside of your business. However, it is also true that trucking and transportation in general, is a challenging business. Even good operators make what most of us would regard as slim margins. Further, it takes a balance sheet or asset mindset to operate efficiently, effectively and safely. And most of us are trained to think in terms of a P&L.

Recognizing that, I have asked Redbank Advisor Dan Carty to join me this month as guest writer as we look at how to think about your private fleet decisions.

Why Operate a Private Fleet?

With so many professional organizations that do this for a living, why consider owning your own equipment? Note: equipment here can refer to trucks but also to any heavy equipment moving asset like loaders, construction equipment, etc.

Since there are so many professional operations out there, it is unique requirements, other than operating costs, that make a private fleet attractive. Perhaps your business has special needs:

Bulky products like wind turbines that require over-sized equipment not generally available;
Short delivery time frames that make it impossible to wait for commercial service schedules; or
Servicing difficult terrain or inhospitable environs inaccessible by commercial services.

Of course, having experienced the year we have experienced so far, I don’t have to tell you that things change. The business case/needs that drive this decision will not remain constant. An assessment that yielded a negative answer in one year, may yield a different answer under different circumstances. It is important to periodically challenge yourself and your operation and reassess with a clear and unbiased eye. You should review the entire transportation operation within your business annually and whenever outside, uncontrollable factors shift that might affect the value proposition of your operation.

Why Think Twice About A Private Fleet?

Assuming you have a legitimate need, you may still want to look for an answer that doesn’t involve you buying a fleet. Running your own private fleet of trucks and drivers is like running your own trucking company. You have the control and flexibility you need to deliver your products to your customers, but it comes with risks:

Low return on your assets due to lower than anticipated utilization. You still own the assets and have to make lease payments even if your sales and deliveries drop off;
Driver and equipment fluctuations are caused by illness and equipment breakdowns. In a small operation, it is more expensive as a percentage of miles operated to maintain spare driver and equipment capacity;
When contracting with a commercial operator, poor performance is an inefficiency that can be cured by switching carriers/operators. When the operation is yours, you will need to fix these challenges;
Aging equipment can result in unanticipated cost increases in any year;
Driver retention and recruitment has always been a challenge and 2019 was one of the most challenging with respect to filling driver seats; and
Liability, safety and compliance are a major source of exposure for businesses that operate private fleets, and these are areas that are foreign to owners of non-transportation businesses. A single tragic accident could be capable of putting a business out-of-business.

Further, it is a challenge to operate a fleet well, even for the professional operator. All those risks and challenges are what they get trained and paid for. Professional operators have to manage, measure and balance their operations continuously to respond to day-to-day changes in factors affecting efficiency. As a result, any fleet operator will find that as the operation is measured and costs divided over the fleet activity, there is a part of the operation that is not productive. For example, miles traveled with no freight on board, known as “empty miles” are those miles that accumulate costs with no productive result. Even for those private fleets that acquire contract operating authority and attempt to fill empty miles, there are likely regions within their areas of operation that pay little for the activity reducing the efficiency/profitability of operating a private fleet.

Keeping up with the operating ratio, costs, safety incidents, locations of loads, drivers and equipment of course all carries its own overhead. There are systems that manage this information for you like GPS tracking of equipment, but technology requires people to manage it and as you can see the complexity of this portion of your business will be high, like the capital costs.

Call to Action

As you consider whether to operate a private fleet or outsource some or all of your transportation and logistics needs, consider the following questions:

What is the primary objective? Service levels and costs must be balanced against requirements in an overall business plan.
After identifying requirements, does the business have the transportation and logistics knowledge necessary to manage it all?
How will the business’ growth goals be met? Project where the company and the service resources will need to be in five years.
And the big question – Can the business be a profitable operator of the type of transportation fleet necessary to pull this off?