Retailers turn toward private fleets

Supply chains have encountered delivery delays, capacity constraints, and volatile rates since the COVID pandemic began in 2020.  While there has been some easement, retailers are taking control of parts of their supply chains to control costs and strengthen networks.

"Transportation probably has never had a higher visibility and importance within companies," Gary Petty, president of the National Private Truck Council, told the publication FleetOwner. "The shipper community has a collective sense that control has been slipping away.  The old notion that you can buy the capacity as we need it—and turn the tap on or off—is a thing of the past."

Indeed, according to FleetOwner's annual Top Private Fleets of 2022, retailers such as Home Depot, Southern States Cooperative, and O'Reilly Auto Parts advanced by more than 100 spots in the rankings compared to last year.

In their Q1 earnings calls, online pet retailer, Chewy and paint retailer Sherwin Williams announced plans to build out their private fleets, primarily to assist supply chain partners and improve/maintain customer service.

Somewhat similar to what Amazon does – transporting goods from its fulfillment centers to its sortation centers for goods to be sorted by final destination and consolidated onto trucks for faster delivery, Chewy appears to be using its fleet to directly move its packages and freight to its carriers' facilities for last-mile services.

"We're launching what I would call Chewy Freight Services, or CFS, which is starting as a line-haul initiative, where we will operate a portion of our middle mile fleet and network.  We launched this into the Phoenix market in Q1 2022, and we'll look to scale this in 2022.  And what this does is it allows us deeper injection into the carrier network and enables a smoother package flow that helps both cost and customer experience, particularly during the kind of macroeconomic environment that we are live in right now," Chewy CEO Sumit Singh told analysts on March 30.

Meanwhile, Sherwin Williams uses their fleet as a supplement and maintains strong customer service.

"We are…employing our own fleet and tank wagons to supplement suppliers' delivery capabilities," Sherwin Williams CEO John Morikis said during the company's earnings call on April 26. "We do work with our suppliers, mainly to bridge gaps to ensure that we have the product when we need it, where we need it. It's not our intent to do their jobs, but we are in this together with them, trying to work with them…," Morikis said.

An example of a one-off delivery was provided during the company's earnings call.

"One of our largest customers on the Consumer Brand side was very adamant about a South to North recovery approach that was a little less efficient than we would have liked to have seen but important to our customers.  And so, we took that undertaking and served our customers in a way that allowed us to respond to their needs, not what -- not which was most or least expensive to us, and that's our DNA.

And so, if it's to use our fleet of trucks to help in the pinch to get raw materials to a plant, or in some cases, right now, we are producing where we can get the raw materials. We are shipping it in some cases across the country to ensure that we have supply where we need it, and if we were less efficient than what we would like, we have this terrific footprint.  We want to optimize our supply chain to its fullest.  But when it comes down to it, we will choose to serve our customers.

And over time, the efficiency will work its way back in; we are not just waiting for that to happen.  As a leadership team, you should expect that we are very focused on it.  Our teams understand that, but we also understand that servicing our customers is the highest priority we have." said CEO John Morikis

On the other hand, Dollar General is using its private fleet to mitigate costs.  The retailer's COO, Jeff Owen, told analysts on its earnings call on March 17 that it "saw an average of 20% of associated costs every time it replaced a third-party tractor with one from our private fleet.  Moving forward, we believe our private fleet will become an increasingly significant competitive advantage as it gives us greater operational control in our supply chain while further optimizing our cost structure."

As such, Dollar General plans to more than double the number of its tractors to 40% of its outbound transportation fleet from the current 20% by the end of this year.

In-housing logistics services

Other retailers have made similar in-housing moves – most notably AEO, which acquired AirTerra and Quiet Logistics in 2021.

"As delivery and fulfillment costs rose across the industry, our in-market fulfillment model with Quiet Logistics continues to fuel savings for AEO.  We also shipped orders faster with an approximately 35% reduction in delivery times, bringing benefits to our customers and our operations, utilizing client logistics to place inventory on the edge to fuel these efficiencies.  And as we continue to expand the node network, we expect to see even greater savings," AEO COO Michael Rempell told analysts during the company's earnings call on March 2.

Amazon, of course, is also in-housing more of its volumes as it looks to control costs and the customer experience from the first mile to the last mile of its supply chain.  UPS and Deutsche Post DHL noted lower volumes of Amazon each moved during Q1.

Until this year, most shippers were concerned with receiving inventory and other goods at any cost, on time, or as close to on time as possible.  This year, shippers are tightening their belts and focusing on cost mitigations as capacity in the transportation markets loosens up.

-Cathy

While I aim for a weekly story, sometimes life gets in the way, so think about subscribing (free) so that you don’t miss anything.

For daily thoughts and shares, be sure to follow me on Twitter and LinkedIn.

I wear a number of hats these days. Catch my weekly column on air cargo, freight forwarding, and the express markets, as well as a monthly podcast on Air Cargo World, I’m also helping out the Reverse Logistics Association as a research manager and at JOC I help out as a research analyst and write a weekly LinkedIn article, Freight Forward, summarizing JOC articles and providing an outlook for the week ahead.