The study, 2004 Food Industry Transportation and Fleet Maintenance Report, also shows that distribution companies are seeking to reduce the capital expense of fleet ownership through alternatives such as leasing and third-party logistics contractors, and they are increasingly exploring labor costs reductions afforded by outsourcing the driving function.
“This is a very critical period for the food distribution industry,” stated John R. Block, FMI Executive Vice President and President of FMI’s Wholesale Division. “There has been significant change within the industry in the past year. That, combined with growing competition from alternative channels and a more complex customer base, has compelled distribution companies of all sizes to reassess their growth strategies across the board.”
The report attributes the changing climate to major industry trends, particularly industry consolidation. Some food retail/wholesale companies simply ceased business operations in 2004, leaving their competitors dividing up former territories. At the same time, many companies closed divisions and stores, seeking to eliminate unprofitable operations. Finally, the four-month strike in California was costly, and many of the retailers there closed unprofitable stores. The resulting consolidations reduced the number of fleets in the industry as the larger companies absorbed the new business into their existing supply chain infrastructure.
All of these factors have made fleet planning much more complex.
Transportation Costs Increasing
The study identifies several key factors driving up transportation costs and corresponding changes in cost containment strategies:
Fuel: Fuel costs continue to rise and remain a key component of distribution costs. With fleets currently averaging 6.44 miles per gallon, this expense will continue to limit any growth in profits.
Benefits: The costs of employee benefits packages continue to grow, although many companies have introduced programs that limit the growth of insurance and workers’ compensation expenditures.
Labor: Labor contracts are being negotiated for longer periods of time, such as five and six years, with larger salary and benefits packages, thus increasing wage costs.
Activity Based Costing (ABC): Management is recognizing the need to control costs more effectively by having retailers pay the real cost of delivery.
Equipment: Fleet equipment purchased today lasts longer and costs significantly less to operate than equipment purchased five years ago. Most fleets are purchasing longer trailers, at least 53 feet, which can be used to reduce the number of trips per day.
HACCP: Fleet managers are beginning to face the realities of proper temperature control when transporting perishable products. As retailers begin to require merchandise to be received at the correct temperature, more fleets will have to purchase multi-temperature refrigeration equipment that can handle two to four unique temperature zones.
Case Weight: Weight per case should continue to decline as manufacturers focus on ergonomically designed secondary packaging, along with improved pallet pattern fit, which helps to reduce damage.
Technology: The adoption of new technology — such as global positioning systems (GPS), radio frequency identification (RFID), sensors that monitor multiple activities and collaborative forecasting, planning and replenishment (CFPR) — will bring tremendous change to the delivery function of all food distribution centers.
Fleet Maintenance Focuses on Cost Control, Safety and Training
The report finds that managing the fleet maintenance operation is a difficult assignment as business issues grow more complex each year. Cost control is again the primary issue with regards to fleet maintenance operations. Fleet safety is also a top priority as fleet managers seek to minimize accidents and damage. As fleet equipment becomes more sophisticated due to technology innovations, proper and thorough employee training is another key concern.
Fleet workforces are changing as well, driving up labor costs. Most fleet driving teams are made up of full-time, union personnel who work approximately 47 hours per week with an hourly wage of $16.35 and benefits of 40 percent. Less than seven percent of the drivers are leased from an agency, while more than 32 percent of the fleets use some type of casual employees. The average fleet has 91 drivers with a small management team and support staff.
Backhaul Increasingly Becoming Focus of Operations
Backhaul issues are becoming increasingly more significant to fleet operations. For the past several years, report data shows a decrease in backhaul operations with less freight being handled, less income generated and fewer trips made with a backhaul. In many cases, the
reduction in backhauls is directly related to the policies of the manufacturers. This year, however, the results showed a significant upswing in traffic-related activities. These operations focus on collecting merchandise from several vendors for the purpose of delivery on one trailer when enough products are accumulated.
The report outlines a series of recommendations to improve backhaul operations:
- Make the traffic function a profit center.
- Hire professional traffic staff.
- Schedule all deliveries.
- Implement a no-touch receiving policy.
- Concentrate contacts.
- Create bigger docks.
- Implement new technologies.
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