Uberization Of Trucking

A white paper outlining the prospects for and challenges to the introduction of Uber-like tools into the truck market.  The paper delineates the limited market for such devices and presents the likely competitive response of incumbent market making participants in the field, namely the brokers.

Who needs it? Most of the market does not, governed by long-term contracts, private ownership of trucks, or simply tight relationships based on long-standing relationships.  This is not to say electronic tools will not appear in most aspects of the business.   They will most commonly be used to enhance existing structures rather than to create new market mechanisms.  UBA's as envisioned by the new entrants will be limited to the third of the market moving under spot rates.

The matching process has to handle lots of information.   It is a poorly understood fact of the trucking market that all loads, trucks and their matches are different.  Two, seemingly identical rigs will have drivers with different hours left, with different preference for a particular destination, with different disciplines about on-time delivery.    As a result, successful digital tools will have to collect many bits of data regarding each match and have the artificial intelligence to process them.   To date, no entry has shown even the recognition of this need, let alone the capability to meet it.  Yes, eventually the digital revolution will approach this lofty standard, but in the near-future, the adoption will be more the introduction of incremental capability rather than a full market-clearing tool.

What’s the competition?  The popularity of UBA’s is fueled by the success of ‘similar’ startups in two consumer markets, Uber in taxis and Airbnb in lodging.  Such examples make poor analogs for trucking UBA’s because the trucking market is short of capacity and populated by ferociously competitive incumbents.  Trucking is in sharp contrast to the tight regulation, high cost and regulatory restriction in capacity in the taxi and lodging markets.  There is no low-hanging fruit in trucking. Entry in this market is  hard.

Disintermediate what margins?  UBA’s financial projections and competitive economic are based on the disintermediation of broker margins thought to be gushing springs of excess cash.  How a mature market with little or no barriers to entry could support such riches defies the rules of economics.  There are no excess profits be distributed to prospective, shippers, carriers or the investors in the UBA’s.</li>

Who is really at risk?:  Nonetheless, the power of digital tools will revolutionize human productivity in the labor-intense broker function.   These tools will be in use by whoever survives the turbulence of the next twenty year, eliminating much of that manual work.  The brokers may survive, but their staffs will either be doing a whole class of new brokerage work or will be working somewhere else.

Who will win the race up the learning curves?: The longer-term battle will be a race up two related learning curves.  On the one hand is the relatively steep learning curve of digital automation.     On the other is the flat learning curve regarding mastery of the economics of the industry.  Both new tech entrants and incumbent brokers must move up both learning curves, despite their different characteristics.  The higher difficulty of moving across the second curve gives a major advantage to the incumbents.

What is the big opportunity?: The big winners will be the players who vertically integrate the industry rather than the horizontal integration envisioned by today’s new entrants.   Because the current system already has harvested the surprisingly limited economies of scale within trucking, this view has limited application – hence my limited view of its prospects.  The far more valuable approach is to integrate deeper into the vertical aspects of supply-chain design, into the lives of drivers, into the economics of manufacturing, distribution and retailing, to determine the best match of truck capacity and demand.   The big winners will be those actors, 4PL’s if you will, who master those economics and the technology that enables it.