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After the pandemic left them at the mercy of outside carriers, more chains are bringing transportation in-house.

BJ’s is bringing its perishable supply chain in-house with its acquisition of four refrigerated distribution centers and their related transportation fleets from Burris Logistics

BJ’s Wholesale Club announced earlier this year that it will acquire four refrigerated distribution centers and the private transportation fleets that serve them from longtime partner Burris Logistics. According to the company, the move will allow it to bring the perishable supply chain in-house, making BJ’s the latest retailer to “take back control over its own destiny” (as one industry observer put it).

PANDEMIC FAST-TRACKED SHIFT

While the Walmarts of the world have owned their supply chain for decades, many smaller retailers got out of the logistics business years ago in order to focus on core competencies. But in 2017, surging demand combined with a shortage of carriers for hire led some to rethink that decision. In 2019, for example, Ahold Delhaize announced a plan to bring 85% of its U.S. supply chain under company control by 2023 (though it’s poised to meet that goal a year early). But when the pandemic hit in March 2020, leaving many supermarkets scrambling to fill shelves, many other retailers got on board as well.

‘For companies that sell products, taking control over how and when they get to the store — and how much it costs — is really a seismic shift…and a repudiation of outsourcing as best practice.’

In fact, the National Private Truck Council, which serves companies with private fleets whose primary business is not trucking, reports the percentage of outbound and inbound shipments handled by private fleets has grown every year for the past several years. After being burned during the pandemic, “Retailers don’t want to be at the mercy of outside service providers any longer,” explains NPTC president Gary Petty, who expects the trend to intensify.

He adds, “For companies that sell products, taking control over how and when they get to the store — and how much it costs — is really a seismic shift…and a repudiation of outsourcing as ‘best practice.’”

While guaranteed capacity is the primary driver of the change, Petty says cost is an important consideration as well. According to SONAR data from FreightWaves, freight rates are up more than a dollar per mile since 2017, adding hundreds of thousands of dollars in additional transportation costs for larger retailers each year. “Vertical integration helps insulate retailers against some of that,” says Petty.

But there are other benefits as well, including improved customer service. Private fleet drivers are generally better-paid, better-trained and better-equipped than their for-hire counterparts, leading to lower turnover, says Petty. Part of that stems from the fact that 75% of private fleets are not for profit. “They’re there to provide a quality service, not make money, which is a big cultural difference.”

That’s not to say retailers operating their own fleets aren’t looking to maximizing efficiency. For example, says Marc Wulfraat, founder and president of Montreal-based MWPVL, instead of sending empty trucks back to the DC after a delivery, many retailers with private fleets are able to generate backhaul revenue. In addition, even companies with their own fleets often hire outside carriers for deliveries to specific geographic regions when a third party can do it more cost effectively. Same thing on the warehouse side. “It doesn’t have to be an all-or-nothing proposition,” says Wulfraat.

HYBRID APPROACH WORKS FOR SOME

“Each time a third party is introduced, there is the risk that operating expenses may increase because the third party’s profit margin needs to be paid for,” he

Gary Petty

Marc Wulfraat

explains. “But there are plenty of win-win arrangements in the market today where operating expenses are reduced or kept at par with the cost of doing the work in-house.”

So what does it take for a retailer to take control over at least a portion of its supply chain? Perry admits that “success requires major investment.” And on the trucking side at least, “The organization must be committed to transportation as a core priority and competency.”

As to whether it’s better to acquire an existing operation like BJ’s did or build one from the ground up, Petty says he’s seen it done successfully both ways. However, he adds, “Many private fleets today are amalgamations of multiple fleets from other companies absorbed through mergers and acquisitions.”

As a result, smaller chains that rely primarily on outside carriers need to be concerned about those companies getting swallowed up by a bigger company. Given current capacity constraints, “Acquiring an existing partner and bringing it in-house could be a pre-emptive strike against that sort of thing,” says Perry.