Trucking is a highly fragmented industry and mostly considered a commodity by customers. A trucking company looks at 3 main areas to optimise their costs and increase revenues:
- Optimize the “box”: the right size of the truck and maximize the load carried per trip in the truck
- Optimize the route density: increase possibilities of milk run, optimize the scheduling, consolidate loads in same area/ cluster
- Maximize return load: avoid/ reduce chances of an empty return leg by scheduling pick-ups in the return journey.
Challenges with the traditional trucking model
While larger trucking companies or third party logistics players have the advantage of having a broader customer base and being able to optimize their loads in the above 3 areas… it is the smaller truckers who struggle to stay afloat.
On the other hand, larger customers and MNCs have the need to transport large loads on an average and hence can afford an entire truck (FTL i.e. full truck load). However, in peak seasons and situations of surges in volumes, these MNCs need to pay higher price for truck space as they might not need a full truck load. Also smaller customers struggle to get the right price and size of truck for their needs as they do not necessarily need a full truck but an LTL (less than truck load).
These are the challenges which a shared economy or ‘collaborative consumption’ model of trucking intend to solve. There are various start-ups already on this journey e.g. UberCargo, Truckerline, Cargomatic, Coyote logistics (acquired by UPS), Freightos, Convey, Transfix and many more. The funding to companies in this domain has seen a surge in last few years.
How does the shared trucking model work?
A shared trucking platform replaces the ‘broker’ with the ‘algorithm’ and enables to connect the truckers (small or large) with the companies who need space/ trips. The algorithm allows consolidation of loads with the same areas/ routes/ trips and also return legs, thus ensuring all the above 3 areas of optimization are being targeted. These companies are looking at local haulage within cities, intra-cities as well as clearing containers from congested ports / port drayage. Besides finding the best price for the load to be carried, the platform would provide pricing tool / rate comparison, integrated billing and payment options as well as freight analytics. And, more importantly, the transaction fee that the platform charges for this service is much lower than what the broker charges. Which makes the whole business case even more economical.
In my experience, as trucking is treated as a commodity, what customers expect is a reliable service at the cheapest price and value adds like data analytics to optimize the cost/ load is expected as a given with no extra charge. Here’s where the value proposition of the large 3PLs falls apart. The large 3PLs sell the tracking capabilities, data analytics to optimize loads, etc. as additional value adds – which frankly no one is willing to pay for. And this is why shared trucking models are set to work. The consolidation of load allows the trucking company to decrease cost per trip and thereby reduce the price per trip. As long as the platform can ensure reliability and covers basic liability, insurance, regulatory conditions, it ensures to the customer that they can get the best possible truck for the lowest available price.
So how is the overall industry possibly going to be impacted with shared trucking?
- Supplement, not eliminate large players – filling gaps in capacity or extending capacity to smaller customers
- Demand: Right-priced, on-demand service available
- Large companies can manage exception freight, volume surges and just-in-time needs must more efficiently
- Boon for smaller companies to get reliable service at the right price
- Supply: “Asset-right” models will emerge
- Large truckers can increase their load efficiency and make sure their asset base is right sized
- Small truckers can stay in the game as they unlock capacity that otherwise would be difficult to find
- Overtime, the industry can move from smallish / fragmented players to few large players as the platforms allow the small companies to grow
- Specialized trucking segment can growg. cold chain, high value goods transport companies might find additional demand
- Bring the control tower to the user instead of the broker: with real-time GPS monitoring possible on the platform, the user would be able to get the visibility of the movement much better and faster
- Extension into multimodal transport– i.e. ships, rail, bikes and other modes of transport depending on the terrain and infrastructure can be added. Even self driving trucks?!
- Societal / environmental benefits – fewer trucks on the road implies lower congestion, pollution and accidents possibilities
In summary, the shared trucking model will see a positive uptake in the next few years and could change the industry from being dominated by asset-heavy players to those that are asset-right and include newer competitors that are tech-based. But what this means for the customer is better service on-demand and at lower cost.