Why Trucking Can't Be "Uberized"
In recent months, much has been written about the so-called “Uberization” of trucking, but the concept remains poorly understood. That’s because when people refer to “Uberization,” they’re really talking about two separate phenomena, each with distinct possibilities for the trucking and brokerage industries. The first phenomenon is the development of Uber-like technology (frequently smartphone apps) to maximize carrier efficiency and improve tracking. The second is the glut of new startups attempting to use those apps to eliminate brokerages altogether. And while the arrival of new technology always triggers some alarmist tendencies, the market is proving that these innovations are only as effective as the people using them.
Like every industry that Silicon Valley promises to “disrupt,” trucking has problems. In this case, the problems are the perennial frustrations of truckers driving around at half capacity, and the often inefficient workings of 3PL firms in connecting carriers to shippers. This “excess capacity” issue—the same one that allowed for Uber, Lyft, and Airbnb--coupled with the multibillion dollar prize that is the freight industry, caused several new startups to rush into the freight game, touting themselves as “Uber for trucking.” These new players—among them Cargomatic, Traansmission and Uber itself—promised to eliminate the middlemen. But as many of them are discovering, long-distance hauling poses significantly more challenges than ride-hailing from across town.
Most new startups have offered an idealized version of how their services would work. In theory, a trucker operating at less than full capacity would log on to their app, search for available loads posted by shippers, and maximize their capabilities. Shippers, meanwhile, would have the advantage of real-time tracking and fewer time-consuming communications. The companies themselves would profit by taking a cut at either end of the transaction. The theory is simple, but the practice is more complex.
Supply-chain consultancy firm Armstrong & Associates issued a report arguing that “uberization” itself is a misnomer, and the phenomenon would be better described as “Digital Freight Matching”. Armstrong went on to express skepticism regarding the recent hype, saying “the principle behind Digital Freight Matching may be simple, but the trucking industry is not. Domestic transportation is not a simple commodity. Complexities arise in the form of specialized equipment types, shipments transported via multiple modes, and exception handling for service issues such as equipment breakdowns and hours of service. Placing an Uber-like app atop a complex industry doesn’t truly address the problem. Shippers and Carriers alike will be disappointed if this is the extent of the ‘solution.’”
Several startups have learned this hard way. Cargomatic raised 15 million dollars in startup funds and seduced customers with its promise of a cargo-tracking app that would allow them to locate their shipments at any time. But in September, Business Insider reported that the company was in free-fall, and far from being fully-automated, Cargomatic employees were in the embarrassing position of manually inputting data in a “glorified spreadsheet.” The company failed to account for issues such as inclement weather, capacity variability both of which are familiar to seasoned logistics professionals, but challenging to the uninitiated.
Traansmission, another startup that has since been acquired by ShipLync, got off to a strong start but suffered from unreliable drivers who lacked a personal commitment to the company. The opt-in, opt-out model for drivers that has worked so well for Uber and Lyft proved to be less suitable in the high-stakes freight business, when a botched delivery can sour an important relationship. Traansmission was able to course-correct by marketing its technology to logistics firms, serving existing brokerages rather than trying to replace them. Similarly, Cargo Chief, another early entry to the “Uberization” race, recently sold off the brokerage side of its business to focus on selling its tech to other brokerage firms.
And then there’s Uber itself, which is preparing to launch Uber Freight. The company recently made headlines when it successfully delivered the first-ever driverless load, but this controversial technology is years away from a widespread implementation. Though somewhat late to its own “uberization” party, Uber has promised to introduce surge pricing and capitalize on its name recognition to carve out a niche for itself. Yet Uber is in crisis mode now, with an ever-growing mountain of legal and PR disasters, and is beginning to look like another cautionary tale of a startup whose ambitions got ahead of its capabilities.
The difficulties faced by startups should not deter established brokers from investing in new technology. Uber was originally able to wreak havoc on the taxi industry because of the failure of cab companies to invest in apps of their own. Brokerage firms are learning from that mistake by streamlining their booking processes, improving data collection, and providing customers with real-time tracking on their loads. For the moment, app-based transactions account for only $1oo million in revenue, out of the $120 billion North American trucking market. But this number is poised to grow $26.4 billion by 2025, and Wallace Lau, of market research firm Frost and Sullivan, promises that “mobile-based freight brokering signifies a tectonic change in freight efficiency and asset utilization.” As the number of electronic connections between carriers and customers skyrockets, leading logistics firms are investing heavily to facilitate, rather than buck the trend. While this automation may eliminate certain brokerage jobs, established firms understand that an experienced human touch will always be necessary for the troubleshooting that is an inevitable part of logistics.