trucking profitability insights

Trucking Profitability Insights

‘Uberfication of Trucking’ Is More Sizzle Than Substance

Posted 7:11 PM by

Uberfication of Trucking - Trucking Profitability

Note: This article appeared in the Dec. 21 edition of Transport Topics

Will the Uber model for transporting people revolutionize the trucking industry’s methods for transporting freight?

In a word, no.

Recent media coverage of start-up companies that are bringing Uber-style technology to trucking makes it tempting to conclude that big changes are imminent. The new technology promises to automate the work of matching loads with carriers, thus eliminating waste from the supply chain, making freight brokers obsolete and dramatically altering the relationship between shippers and carriers.

Though there may be a place in the freight transportation industry for the Uber approach, this is not the beginning of a major shift in the way shippers, brokers and carriers conduct business. Here is why.

Capacity Rules

Capacity, while currently lackluster, is predicted to be tighter than ever. Trucking analyst and industry pundit John Larkin, managing director of research at Stifel Financial Corp., believes that we are on the precipice of “The Mother of All Capacity Shortages.”

This year, even though demand has softened, there have been as many as eight loads available per truck on the spot market. In this business landscape, shippers need strategic alliances with carriers that can provide them with capacity, not a method that depends on randomly connecting with drivers and carriers.

People Are Not Freight

Hiring a truck is not the same as hiring a cab. It is a different type of transaction. For starters, businesses live and die on their ability to move their products, so there is tremendous risk involved with freight transportation.

If the bananas, the computers, the auto parts or a million other items do not arrive on time and in good condition, the cost incurred can be severe. Shippers need their supply chains to be seamless in order to ensure that they have continued business success. They cannot afford the inherent uncertainty that comes with the Uber model.

Brokers Provide True Value

The companies that tout the new Uber-style technology say that they can help shippers save money by removing brokers from the equation. But if you want technology to replace the role of the broker, what assumptions are you making about the work that brokers do? Who is checking the insurance carried by the driver or trucking company? What about safety ratings? How do shippers get billed and trucks get paid? What happens if there is a freight claim?

All brokers are not created equal, but good, professional brokers are reducing the burden for shippers by taking on some of these headaches. Brokers also serve carriers by acting as sales agents and finding freight. It is not clear that any of these tasks will be managed sufficiently by the new technology.

Adaptation Can Be Slow

The trucking industry has a history of being slow to adopt new technology. Even though large carriers have been technology leaders and enablers for a long time, the trucking industry is incredibly fragmented. No player has more than 1% share, and 95% of trucking companies have fewer than 10 trucks. 

As a younger, more tech-savvy generation moves into management, the industry is embracing technology more readily, yet a resistance to change persists. This means valuable tools that have been available for years are still not being optimally utilized by a significant portion of fleets. New technology will not necessarily be embraced quickly by a large portion of the industry.

Low-hanging Fruit Has Been Picked

It seems that one of the best ways for a start-up to raise investment capital today is to focus on Uberizing something. It turns out, however, that the Uber model cannot simply be transported to any industry. Are we going to see an Uber version of airline transportation soon?

There is an assumption that the $700 billion trucking industry must be a fertile ground for finding easy ways to cut costs; however a lot of very clever people have been dissecting the industry for years, trying to find the low-hanging fruit. Although innovations and advances have occurred – and will continue to occur – it will not be easy for any single technological development to turn things inside out. With an industry this large and complex, these new start-ups can be successful within a small segment and still have only a minimal impact on the overall market.

While finding better ways to match up loads and capacity is a tough nut, it can be done. As a trucking consultant who specializes in freight network optimization, I certainly think technology is a vital part of successful trucking profitability strategies.

Too many carriers take any loads available and send their trucks wherever the next load dictates. Instead of continuing with this load-by-load mind-set and being dazzled by the Uberfication glitz, carriers would be better served by pushing harder to use existing technology to wring more inefficiency out of the system.

The analytical tools in use now make it possible to have the in-depth visibility into customer and lane profitability that facilitates better business decisions. By focusing on margin, velocity and density, many carriers have successfully optimized their freight networks. The payoff is reduced deadhead, increased productivity, higher rates and boosted profits. Carriers who have not yet made use of these tools may find this to be a better option than waiting for Uberfication.

About the Author
David Roush is president of KSM Transport Advisors, LLC, part of the Katz, Sapper & Miller Network. With 30-plus years of experience, David’s focus includes freight networks, financial management, operational metrics and optimization strategies. Connect with him on LinkedIn.

 

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Trucking Uberfication | Capacity Rules | Trucking Profitability

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Comments (2)
Name* wrote
Wonderful and timely post David. As a 3+ decade veteran in the transportation/logistics profession, I too initially scoffed at this "new technology" and the potential impact it could have. I continue to give this thought and theorize the role Uber service may play in the future. Transportation/Commercial Trucks absolutely are NOT like taxis. I have used this comparison before and the list of differences is incredible. But, they both represent "transportation" of different commodities. Definitely, the value of life versus cargo is not the same...but we both get it. Next, Capacity Shortage. If I picked one recurring discussion point in trucking over the last 20 years it would be "there aren't enough trucks/truck drivers". Somehow, we've managed and adapted. We will continue to do so. A couple of high focus strategies to help alleviate some of this "tightness" is: - Allowing 18 year old CDL licensed drivers to cross state lines. - A renewed effort to enlist and train more female drivers; typically, a minority in the driving profession. I too believe brokers provide a valuable service. If the data is correct, after the move to increase the broker bond, which resulted in total broker(s) decline, the number of property brokers slowly ramped up to now be more than 16,000 on record. As with any profession, "how many is too many"? There is a point where too many service providers can dilute the service to viewed as a commodity. Adaption to technology...oh, how true! Our profession is seeing a "changing of the guards" so to speak. There has been an influx of young, energetic and tech savvy people entering the industry. This flood of new professionals eat, drink and sleep technology! While not all bad, they would rather "text, email or twitter" to a truck, a driver or a customer versus voice to voice. Technology adaptation will not be as much an issue in the immediate or long term future with this group. In fact, I believe technology will play a larger and larger role in trucking/transportation/brokering in the future because of this. The million dollar question in our industry when facing Star Wars level of changes is "HOW"? I don't have all the "HOW" answers, but I have witnessed the dramatic changes, modifications and adaptions to the challenges our industry has faced. And I truly believe it will continue to do so...it has to. Until we find a way to telepathically transport freight anyhow.My final point in why I have mixed feelings on the impact of Uber is the fact that brokers/brokerages are becoming less and less "human interactive". Most brokers do not/can not contact the driver directly (most don't want to). Same applies to asset based dispatchers/fleet managers; all done via satellite communication and tele-prompts. With the majority of trucks on the road being MC#'s of less than 25 trucks, every piece of the revenue pie becomes critical. Brokers, while serving a very valuable role, do take a piece of that pie, resulting in less for the truck/driver. As in nature, the strong survive, adapt and find a way to live on "what's left" and left to them. Drivers are the backbone of our industry and trucks are the backbone of our nations economy. The dinosaurs couldn't adapt to the changes...trucking is one tough mudder...it too will navigate a path of survival in this new era of "tech" vs. "people" interaction. Again, many thanks David. Indeed a topic that will go on for some time.Bob
Posted Jan 9 2016 12:19 AM
Rob MacGregor wrote
While I believe there is a great need for brokers in the transport industry, I also believe that the wrong broker service handling the wrong type of client or load, can be a disaster. As a transport company in the flat deck freight and equipment hauling service, I use brokers as a tool, I don't rely on them to keep all my trucks moving the way some companies do. Many times I have been under bid on jobs with my clients, by a broker service. Although brokers will diligently check a carriers insurance and wcb, and even a carrier profile, what they don't often check is the training and ability a carrier has to properly secure a load. I see many carriers on the road that don't realize that pulling open decks of any kind, puts your load securement capabilities on display for everyone to judge. I have a fairly open and honest line of communication with most of my clients. That means they will tell me when they have a tight budget on a haul, or they have extra time to get it there, which are two of the biggest reasons why they will choose a broker over my services. On a few occasions, going "cheaper" has cost the client. Either the load was damaged, it became held up by law enforcement, or in the worst case, it never arrived. As well, brokers may come in with a lower price, but that means the truck driver is running is for considerably less. What then happens is they may detour or delay to grab more freight to squeeze on, just to make the run pay a little profit. This is becoming more prevalent during these hard times. The reality is, for what is often only a few hundred extra dollars, a client can have a truck dedicated to their delivery, with a highly trained and skilled operator for their application. My challenge is to show my clients the difference. Sadly, they don't often understand until they suffer an incident or a loss. In some cases the load is going to a sensitive location that requires the operator to have tickets such as H2S, or first aid, or even an operators ticket to unload the machine they are hauling. On sites like those, safety is huge. Brokers are a necessity in the transport industry, and there are a few that specialize in deck freight, but not enough is done to ensure that the carriers they use are trained and qualified. This, I believe is something that helps brokers offer such lower rates, with an underlying attitude of "lets just get the job, and we'll sort it out as we go". This might work out most of the time, but when (not if) it does backfire, then the client, the trucker, and the end user are the ones who suffer. The broker simply moves on having the lowest overhead and least amount of risk.Rob MacGregor Operations manager MacGregor & Sons
Posted Jan 9 2016 8:27 PM
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