Dive Brief:

• Chewy has begun operating a portion of its linehaul needs through its own middle mile fleet and network in a bid for more reliable and less expensive transportation, CEO Sumit Singh said on the company's most recent earnings call.
• The initiative, called Chewy Freight Services, launched in the Phoenix market in Q1. Chewy will look to scale the program further this year, Singh said.
• Chewy Freight Services provides the online retailer of pet products with "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 live in right now," Singh added.

Dive Insight:

The middle mile of supply chains has garnered heightened attention amid the e-commerce boom benefiting companies like Chewy.

Some goods in linehaul transit have already been sold online before a retailer takes them into inventory. This ups the stakes for companies looking to meet greater customer delivery expectations, Mac Pinkerton, C.H. Robinson's president of North American surface transportation, told sister publication Supply Chain Dive last year.

Chewy's launch of its linehaul initiative comes as the company faces higher out-of-stock levels and expects freight rates to remain elevated in 2022 — its new outbound shipping contract with FedEx took effect in January, Singh said. On the company's December earnings call, he noted that Chewy's rates would increase as a result of the new contract. Chewy already saw a 22% rise in the cost of goods sold during fiscal year 2021, in part due to outbound freight and shipping costs, according to its annual financial report.

Chewy Freight Services is just one way it's tackling these supply chain challenges.

Chewy started a program in January to place inventory closer to customers, and is in the process of launching a "transload overseas shipping initiative" to position international inventory closer to fulfillment centers, Singh said. Additionally, Chewy formed an internal supply chain research and planning team that will enable "geo-located inventory discovery for customers," along with other inventory availability improvements.

These initiatives will scale throughout 2022 and 2023 and will help Chewy mitigate most of the financial impact of its new FedEx contract within two years, according to Singh.

Chewy did not respond to requests for comment about Chewy Freight Services. Bolstering in-house trucking capabilities has become an increasingly popular option among retailers navigating rising transportation costs. Dollar General, for example, plans to double its private fleet size this year.