PrivateFleets.com

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.