PrivateFleets.com

Two years ago, a 64 year-old driver for Linde Gas received a safety award for 3 million accident-free miles. Soon afterwards, a manager noticed a sudden change in the driver’s behavior.

The driver had two rapid deceleration events in the same month, signifying a behavior problem with vehicle spacing. The concerned manager had an idea: ask the driver when his last eye exam was. After a doctor’s visit, the driver’s depth perception was corrected with a new prescription.

“He is still working for us,” says Joe Gomes, director of safety for Linde Gas, a national supplier of industrial gases. The largest division of Linde’s private fleet, the North America Bulk Distribution, operates 750 power units and 2,000 high-pressure gas trailers.

Identifying and correcting the root causes for a sudden change in driver behavior is not always so easy, however. More recently, a manager noticed a driver had an unusual amount of speeding and rapid speed changes. After noticing this behavior for three to four weeks, an incident occurred before managers could get to the driver and intervene. The driver later acknowledged he was having marital problems. His wife left and he was rushing home each day to take care of kids.

The driver’s behavior returned to normal once he received counseling through Linde’s employee assistance program (EAP), a confidential service.

The transportation industry, including private fleets, has traditionally waited for incidents to happen before disciplining or terminating drivers, Gomes says. “We try to use leading indicators to catch the behavior and modify it before it becomes an incident.”

To closely monitor the leading indicators of driver safety and performance, Linde created a Driver Risk Index. The DRI is a database tool that enables managers to efficiently score driver risk on a 1 to 100 scale and monitor any changes in driver performance. Data for the DRI is downloaded daily from each vehicle through the company’s onboard computing system from Xata.

The DRI has 6 different leading indicators for driver behavior: speed, rapid speed changes (9 mph or more per second), miles per gallon, over-RPMs, idle time and brake applications. Linde evaluates each indicator on a 6-month basis to pinpoint any trends or changes, Gomes says.

At least once a week, management reviews performance with drivers that score in the lower range. Rapid speed changes are considered an aggressive and violent behavior and merit an immediate conversation with the driver, he says.

“The driver is not going to come running to you. You’ll start to see more brake applications and hitting the throttle harder,” says Mike McDonald, Linde’s national distribution maintenance and engineering manager.

“A lot of times, the stress that hits guys is not something that comes from within the job function but from their family,” Gomes says. “The DRI identifies it. You can see really quickly that something is going on and pull the driver in and talk to him.”

All of Linde’s driver managers must complete an internal course called “Transport Leadership.” The course focuses on interpersonal and coaching skills. Driver managers are specifically trained to coach drivers using only documented performance data.

Linde Gas trains all drivers with the Smith System driving techniques. Drivers that follow these techniques are not only safer but more fuel efficient as well. The DRI gives managers a quick way to determine if drivers’ habits and skills are meeting the requirements of the Smith System. Most of the time, a drop in performance requires simple coaching to correct. Other times it is more complicated. Linde’s managers are trained how to be extra sensitive to drivers’ personal problems.

“Personal problems are not something you want to delve into,” Gomes says. When discussing performance, drivers will sometimes voluntarily disclose aspects of their personal lives.

“A lot of times, drivers don’t want to come out, but our managers are pretty good. They’ve worked with these guys for 10 to 15 years. They know who their families are. They will open up about what the issue is,” McDonald says. For any personal issues, such as money, sickness and family, managers suggest using the company’s EAP program called Lifeworks. If the driver is in the office with the manager, the manager will call Lifeworks, hand the phone to the driver, and walk out.

“If you’ve got a guy with 10 to 15 years invested in the company, we know it is going to be very difficult to find a replacement. We go the extra mile,” Gomes says. Since the DRI was created in 2005, managers are putting more emphasis on helping drivers get in touch with Lifeworks, he says, but “you can’t force them.”

Like any private fleet, Linde is focused on improving fuel efficiency as well. Its process for modifying driver behavior to improve mpg is identical to its process for managing safety risk. The company uses the DRI system to monitor drivers’ fuel efficiency. Rather than track mpg, the company has established standards for what each indicator should be to maximize fuel efficiency.

“If drivers meet certain standards, we know their mpg,” Gomes says. “If they are driving efficiently, they are using the Smith System.” The company has piloted its fuel efficiency training at two locations. One location has seen a 3.5 percent increase in fuel economy. The other has improved between 5 and 6 percent.

For Linde Gas, nothing is left to chance in driver performance and safety. It can’t be–their customers, many of which are hospitals–depend on oxygen and other medical and cryogenic gases to be on time, everytime, to save lives. The company is another example of a private fleet leading the way in developing professional drivers with best-in-class management skills.

As a private fleet, everyone understands the risk–whether perceived or real–that an outside carrier can do the job for less. Rather than letting this fear demoralize the company, savvy fleet managers know how to use this to their advantage. Drivers and other employees already know their roles; they just need a little education now and then on what they can do to help save money. 

Stationed in Maine, the private fleet for Poland Spring–a division of Nestle Waters–transports spring water to bottling facilities in the Northeast. The company wants the public to see the fleet as environmentally friendly and save money in the process. Management is always testing different fuel-saving strategies, such as B5 biodiesel, new tractor aerodynamics, synthetic oil, daily tire pressure checks, a “tornado” add-on for the air filters, and recapping tires three and even four times, says Chris McKenna, the Northeast inside manager. 

Using a resevoir of data collected by the fleet’s Cadec Mobius onboard computers, McKenna is able to benchmark any fuel saving initiative–particulary whenever drivers change their driving behaviors.

Two strategies that have made a big difference in improving mpg are posting a list of drivers in the office, ranked by fuel efficiency, and reviewing weekly performance reports with drivers, individually.

“Drivers know we are going to ask. A large portion of them want to do the right thing,” he says.

With its fleet of 40 tractors, from January through May, the company acheived a 41 percent reduction in idle time–a total of 2,300 hours of idle time, or a run-rate of 5,100 hours annually. That’s the equivalent of taking 12 cars off the road in terms of carbon emissions. In addition, Poland Spring saved more than $9,000 in fuel during the 5-month period and is on track to save over $21,000 this year.

The company’s goal for overall fuel efficiency is to reach 7.0 mpg. It is already consistently improved from 6.0 to 6.5 mpg and is well on its way.

“Results have exceeded our expectations, and we were able to affect change much more quickly than we thought possible,” said McKenna.

Having just finished some research and writing for a “white paper” about private fleet metrics that I’m doing for LaneLinks, I wanted to share what I consider to be some of the more interesting topics.

All of the private fleets I interviewed said that customer service (specifically, on-time delivery) is their most important metric. While this came as no surprise, I find it interesting how closely related service is to cost. Service is almost a given, since the private fleet is optimally designed to meet its customers’ service and capacity requirements. However, in this current trucking environment of high fuel prices and generally flat freight volumes, the metrics you use to compare your cost advantage to other carriers is just as important.

As one fleet manager told me, “The day an outside carrier can do the same service for less, I can see the day that the customer says ‘we appreciated your help.’”

In addition to using a consistent model to track the revenue (including backhauls) as well as the variable and fixed costs for each leg of each shipment, fleets need to compare their net cost to the market rate. Problem is, not all trucks cost the same to operate. Some have different lease payments; some get better fuel mileage than others; some are able to bring in more revenue from backhauls.

Generally, the fleets I spoke with will lump the revenue from third-party backhauls for each lane together with the internal revenue they generate from the customer. Likewise, they will use the same value–for example, the same cost-per-mile for variable costs and the same cost-per-day or cost-per-hour for their fixed costs. The metric for net fleet cost, per lane, is therefore actually the average net cost.

One fleet I spoke with uses a weighted average to calculate the fleet’s cost for each lane. He divides the net fleet cost, per lane, by the number of trucks that operate in the lane. This average cost-per-truck for each lane makes for a good comparison with the rates from outside carriers that haul freight in the same lane.

Depending on how often the customer adjusts its rates with outside carriers, the private fleet may see its cost advantage erode for a few months, but most likely this trend will mean that outside carriers will be forced to raise their rates. After all, they are under the same pricing pressures from fuel and other expenses. Still, it may be cause for panic.

Some private fleets are compensated by their customers for every running mile, as any dedicated contract carrier would be, but in order to bid their services at a competitive price depend on revenue from third party backhauls rather than operate at a loss.

I know this brief blog post barely scratches the surface of what it takes to remain competitive in service and cost, and what metrics to use. If you are doing something unique in terms of how you compare your cost structure to outside carriers, I’d like to hear from you. Perhaps we can get a dialogue going. 

Last month, I published a research paper on private fleet backhaul. The research was based on a survey that more than 50 private fleet managers took the time to complete. One of the most interesting findings was that 77 percent of private fleet managers would like to increase the share of company freight that is hauled by their fleet.

The question is, how do you go about increasing your market share? This led me to begin another research project or “white paper,” as I call it. This time the subject will be the metrics that private fleets should use and thus improve in order to succeed in increasing their share of company freight.

To me it seems necessary to grow the size of your fleet in order to give employees a better career path. And the only way to grow the size of a private fleet is to increase the value and competitiveness of the fleet, lane by lane. Therefore, what must these metrics be and what numbers do you need to meet in order to justify expanding the private fleet?

As an obvious example, a fleet’s overall net operating cost and its net operating cost per lane largely determine how competitive it is against outside carriers and 3PLs. Another consideration is whether you operate as a cost center, a cost avoidance center, or a profit center. How you structure the fleet will largely determine what type of accounting methods and metrics you use. And finally, what metrics you choose to focus on will determine what type of backhaul loads and lanes are a good fit for your operations.

The reason I am writing this blog entry is because in the next week or so, I would like to speak with some of you about the metrics you are responsible for and what type(s) of analysis you have done that has proven useful to help your private fleet become more competitive. I am also interested in speaking about third-party backhaul–specifically what type of lane-by-lane analysis you have done to determine what rates to charge for backhauls and in which lanes it makes sense to pursue them for your fleet.

It will only take a few minutes to answer a few questions and, if you would prefer, I won’t use your company name in the white paper. My plan is to distribute the white paper for free to anyone that wants it, so everyone can benefit from sharing knowledge. Please reply and let’s get started.

I know I’m preaching to the choir here, but to understand just how painful fuel prices have become, let’s consider a 500-truck fleet that averages 2,000 miles per truck per week at 5.75 mpg. The fleet consumes 173,913 gallons per week. Using $4.33 for the average retail price of diesel on May 12, at this rate the fleet will spend $753,043 per week for fuel. 

At the same time last year, fuel cost $1.56 less per gallon, and the fleet spent $271,304 less per week. Being generous, we assume a 90 percent recovery through the fuel surcharge and other means. Net fuel costs are still up by $27,130 per week. And if this spread continues the rest of the year, the fleet stands to lose about $760,000 more in fuel on top of what it already lost since January. 

For years, shippers, carriers and private fleets have been using the same basic approach to fuel surcharge –one linked to the weekly national or regional retail price of diesel as recorded by the Department of Energy. In the late 1990s, carriers’ net fuel costs – costs after offsetting surcharges – were 17 to 18 cents a mile, Today, net fuel costs for longhaul carriers are 26 to 30 cents per mile. Meanwhile, carriers also are paying significantly more for new equipment — with no gains in fuel economy. 

In addition, shippers and brokers get interest-free financing of surcharges. The average number of days it takes shippers and brokers to pay freight bills and fuel surcharges is 46 days, causing cash flow problems for carriers who are paying today’s fuel bills with last month’s surcharges. Furthermore, the slow freight market, increased traffic congestion, hours of service and fuel conservation efforts are driving down fleet productivity, leaving fewer miles to spread out fixed costs.

 

 Amid these financial pressures, shippers and some brokers are exploring new formulas for the fuel surcharge — in their favor. Some are using the price of fuel on the day they tender a load to a carrier versus when the carrier actually picked up the load. Even more sophisticated are fuel recovery approaches developed by third-party fuel management services. 

One such service is Breakthrough Fuel, which has convinced several major shippers that a more equitable way to help carriers recover fuel costs is to use technology to determine the “actual” cost of fuel along a route from point A to point B. The shipper believes it is paying for fuel that is closer to what carriers actually are paying in particular lanes for particular freight movements. 

Compared to the conventional surcharge model, the Breakthrough Fuel approach does respond somewhat to the problem of surging prices because it’s tied to current fuel prices, not last week’s average. But the Breakthrough Fuel concept has some drawbacks. For example, many carriers have contracts with their owner-operators based on the conventional fuel surcharge model. Fleets can’t easily change how they reimburse drivers for fuel in one lane and not the other. And many carriers already have fuel-purchasing arrangements that might not integrate well with the Breakthrough Fuel scenario.

 

 But perhaps the greatest concern with Breakthrough Fuel and other alternative concepts is that many shippers and even some brokers have long accepted and encouraged more liberal fuel surcharge mechanisms in lieu of higher freight rates. So any program that in essence lowers this cost recovery could force carriers to grind more costs into linehaul rates – or force them out of business.