Dive Brief:
- Advance Auto Parts is rebidding all of its carrier contracts as the retailer looks to optimize transportation productivity, according to an Aug. 20 earnings call
- The auto parts retailer expects to work with 70% fewer carriers, President and CEO Shane O’Kelly told analysts.
- “This initiative is expected to generate tens of millions of dollars in cost savings, which will support margin expansion in 2027,” O’Kelly said.
Dive Insight:
Several shippers have been rethinking logistics contracts to save costs and improve service reliability. While some have been hesitant to sign long-term ocean shipping contracts, others have been swayed to ink such deals as carriers offer discounts, Xeneta Chief Analyst Peter Sand reported earlier this year.
Bob’s Discount Furniture, for instance, in May emphasized benefits of strong relationships with carrier partners and said it was in the process of completing ocean contract negotiations for the following year. Meanwhile, Dollar Tree is leveraging multiyear inbound and outbound freight contracts to improve costs and service reliability.
Air cargo contracts have also been undergoing a change, with the ripple effects from the Iran war impacting long-term agreements. In turn, many forwarders are securing space or negotiating prices on the spot market, Xeneta reported in July.
Advance Auto Parts did not share any additional details on its rebidding process, including which transport modes are being reevaluated, and did not respond to a request for comment by the time of publication.
The transportation initiative is part of Advance Auto Parts’ larger goal to operate a more efficient supply chain, O’Kelly told analysts. Other initiatives include changes to the retailer’s distribution center processes.
Advance Auto Parts officially completed its distribution center consolidation strategy in Q2 — an initiative that started more than two years ago, O’Kelly said. At the time, the retailer was operating nearly 40 distribution centers across the U.S. which used multiple warehouse management systems. Today, the retailer operates 15 distribution centers and a unified warehouse system.
Within its facilities, the retailer completed 25% of its identified process improvements during Q2, with the remaining changes on track for mid-2027, O’Kelly told analysts.
“Our strategy is focused on minimizing redundant product handling, improving shipment accuracy, reducing inventory lead times and transitioning to a more variable cost structure,” O’Kelly said. “For example, we have now standardized the DC receiving process across our facilities, eliminating a significant number of variations, which is expected to deliver better productivity through higher processing volumes per labor hour.”
In tandem with its distribution center initiative, Advance Auto Parts has been building a network of market hubs that target improved same-day parts availability. The retailer plans to open up to 20 market hubs and operate 60 locations by mid-2027. Advance Auto Parts currently has 38 market hub locations, five of which opened this year.
“Areas equipped with market hub locations consistently outperformed those without market hubs, which reaffirms the strategic value of these locations,” the CEO said.
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