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, 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