There’s been a flood of “Uber for Trucking” startups or more accurately “freight platforms” since 2012. Some have raised millions in venture capital from some of the top names in the tech industry. With Uber becoming the de facto taxi choice for millennials and AirBnb reshaping the hotel experience, supply chain workers and executives are now wondering if their days are numbered. Despite all of the hype surrounding new technology in supply chain, many of these same startups have blown through their funding, ending up out of business or as regular brokerages with a nicer, more expensive toolset. Clearly, making an app and calling yourself the “Uber for [INSERT INDUSTRY HERE]” is just the tip of the iceberg when it comes to actually creating something truly “disruptive”.
In this article, we'll explore what platforms are, why some of the newest startups in the trucking industry got it wrong, and how the competitive landscape is going to change in trucking (especially now that Uber and Amazon have officially entered the freight business).
Platforms match supply and demand for a very low transaction cost, often providing a better customer experience. Take Amazon’s marketplace for example, which is an online platform for connecting merchants and shoppers. Merchants can sell their goods and attract new customers, while shoppers are able to easily find and purchase goods. Amazon generates profit by charging merchants a small fee for each transaction. Platforms have been around in the trucking industry for years too, we just call them load boards! Internet Truck Stop and Freight Quote have been connecting supply and demand in the trucking industry for over a decade.
New technology brings new platform models. The platforms mentioned earlier succeeded because of widespread personal computer and the internet adoption, while the platforms succeeding today are those taking advantage of the widespread adoption of smartphones and other hardware devices (like Uber). In the trucking space, startup platforms like Cargomatic, Convoy, and Transfix are trying to recreate the Uber model by leveraging driver smartphones to handle check calls, paperwork, and tracking. These startups hope to automate operations, dramatically reducing the cost of running a traditional brokerage while delivering better service to their shippers.
Sounds foolproof right? So why's it taking so long?
1) No new supply
In order for a new brokerage platform to succeed, it must create substantially more value than its existing alternatives. Most platforms do this by competing on price but startup freight platforms have had a difficult time bringing down costs for their customers. The secret sauce behind Uber’s success was the pipeline they created to introduce a fresh supply of drivers and cars to the market. People could now turn their own cars into taxis without obtaining an expensive taxi medallion or city permit. By lowering the barrier of entry for people to start driving, the supply of “taxis” increased in cities, creating a larger supply to meet the demand for rides. This surplus in supply drove down the average cost of rides for passengers and encouraged repeat usage. Introducing new supply plays the biggest role in creating competitive pricing and a viable substitute for the demand side of the market, and it’s the strongest reason why new brokerage platforms are failing to “disrupt” industry incumbents. Brokerage startup's have created "nice to have" software, but have not changed the way business is done.
Since hauling freight is subject to more government regulations, it requires a specialized driver’s license and vehicle. You also don’t see too many big rigs sitting around collecting dust, because unlike a spare Prius, each truck you see is usually someone’s livelihood, which they need to continually keep running to put food on the table. In short, Uber's method for generating new supply that transformed the taxi industry is simply not feasible for freight marketplaces.
The first platform to successfully introduce a new, high-quality supply of driver options will create a more competitive market, driving down prices for shippers. Without this pipeline of new supply, “Uber for Trucking” startups are left with the impossible task of trying to change pre-existing relationships.
2) Pre-Existing Relationships
The trucking industry may seem archaic, but it’s surprisingly efficient because of the network of relationships that have developed over time. Traditional brokers that foster a reliable carrier base through decades-long relationships can leverage their volume to provide lower costs for their customers, even if it means taking a loss in the short term. As a result, these traditional brokerages receive repeat business and loyal drivers that existing freight startups can’t pull away with just a shiny, new app. Without volume, startup brokerages can not provide shippers with the same level of service at the price they’ve come to expect. Technology can be bought, but service and a reliable supply of drivers can’t.
“Uber for Trucking” ideas have been entertained because shippers lacked reliable tracking on most of their shipments, but now that specialized, track & trace technologies are flooding the market, “Uber for Trucking” companies are nothing more than brokerages with nice tools and no volume. Brokers and drivers have already begun to brush off “Uber for Trucking” startups since then, adding yet another hurdle for the fledgling companies to overcome.
Enterprise customers are risk-averse, especially large companies who have lengthy contracts or outsource the entire supply chain to a third party. They will not pay premiums for technology unless it enhances their pre-existing network of relationships. As long as startups continue to play brokerage, they will not provide enough added value for shippers to adopt their technology. Put simply, “Uber for Trucking” startups just can't compete with the multi-billion dollar brokerages when it's nearly impossible to create a service that is faster and cheaper.
A new challenger approaches.
Funny enough, one of the most recent “Uber for Trucking” startups to enter the transportation industry was actually Uber when it decided to buy the self-driving truck company Otto. With Otto, Uber can use its brand and world-class operations team in conjunction with a new supply of automated vehicles, and they're already moving at a rapid pace. Uber's bought and opened their own brokerage office in Chicago to test out new business models. While it's hard to know what Uber Freight's next move is going to be if you're not an employee, what is for certain is that all of Uber's potential game plans will revolve around data collection and automation.
Uber is laying the foundation to create a transportation business model that improves itself. Externally, moving loads with a network of self-driving trucks means Uber can apply their routing technology towards discovering untapped business intelligence. Since no brokerage today can offer trucks that never tire, the data self-driving trucks yield will give Uber insight unavailable to anyone else. Internally, routine day-to-day operations will be automated. Uber has one of the most skilled technology teams in the world capable of rapidly building new tools for their brokerage that outclass anything that's been available on the market for the past 30 years. Uber Freight's proprietary tools will allow them to book more volume in less time with less employees, drastically reducing their training, staffing, and operational costs.
Despite the amount of startups that have lived and died trying to break into the transportation industry, mass disruption is coming. The supply and technology Uber is introducing to the market will be competitive enough to start swaying new customers (they've already done a load with Budweiser). The traditional brokerages that survive the industry's impending change will be the forward thinkers investing in data collection and automation technology on both the driver and brokerage front. The philosophy of "if it ain't broke, don't fix it" won't cut it for much longer, and stubborn brokerages will soon witness the market-share they fought long and hard to acquire begin to diminish. Traditional brokerages must ask themselves where they sit on the spectrum between these two poles. They must ask themselves: Are we investing in our company's technology? Are we collecting data? Are we using that data to improve our business model? Will our business still be competitive next year?
Trucking startups may have gotten it wrong in the beginning, but a lot of them are still out there...learning from past mistakes.