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Digital Transformation for the Trucking Industry with Platforms

The trucking industry has moved the world’s goods for nearly a hundred years, with relatively little innovation of the business since the introduction of the modern highway system. Other than enhanced engines and adjustments made to increase the average freight load, not much has truly changed.

The world of trucking and logistics is highly fragmented and long overdue for modernization. As the first platform innovation company, Applico advises enterprise corporations facing similar situations as the trucking industry on how to manage disruption and adopt the business model of the future: the platform.

Trucking Today

As of 2011, there were more than 3 million professional truck drivers in the US, moving 9.2 billion tons of freight and generating $603.9 billion in revenues in primary shipments alone.

Out of that number, there are about 350,000 independent owner-operators (drivers who own and drive their own trucks). Surprisingly, most actually lease on to or contract with larger carriers and use the carrier’s’ identification numbers, which suggests a consistent struggle for independent truckers to find sustainable business.

The market is so disconnected that a veritable army of brokers have carved out the middle of the market to connect these independent drivers to the gigs they need to stay alive. A quick Google search of “trucking brokers” brings up several brokerages, such as Direct Freight Services, who offer the opportunity to book a truck or a load.

As well, the trucking industry is lurching into the 21st century over a huge hurdle: digitization. Late last year, the Federal Motor Carrier Safety Administration issued a rule to benefit public safety that requires truck drivers to log their driving times electronically. This new change squeezes drivers in two directions: they won’t be able to fudge the logs and drive late to ensure shipments are delivered on time and they could face pressure from their clients when they opt for a break.

A 2012 report from the American Trucking Association (ATA) reveals the incredibly deep level of fragmentation amongst trucking companies:

  • Less than 6 trucks: 90.2%
  • Between 7-20 trucks: 6.9%
  • More than 20 trucks: 2.8%

A scant minority of trucking companies actually possess a fleet of trucks, likely due to the high amount of capital required upfront to acquire and maintain a score or more of trucks.

The trucking company is facing some pains from modernization and features no guiding unity from a few substantial players. Instead, it has the appearance of the California Gold Rush, wherein the vast majority hit the road as solo operators or in very small teams.

Finally, there is a persistent shortage of drivers, according to a 2015 report from the ATA. The average age of truckers is 49 and a huge chunk reach retirement age each year, in droves much larger than the cohorts of fresh recruits that the industry is able to glean. In addition to this hurdle, trucking is expected to grow as an industry, also at a pace larger than the industry has historically been able to fill.

Recruiting doesn’t go as well as hoped due to a number of factors: gender imbalances (just 6% of drivers are women), age restrictions (interstate drivers must be 21), a lifestyle unappealing to many, and competition with other growing industries that were stagnant or in decline just a few years ago.

Disruption!

Despite the lack of forward progress in the industry, it’s ripe for extreme disruption. Fragmentation, a reluctance to digitize, and the struggle to find business leave wide openings for enterprising operators to transform and take over the industry. As it stands, trucking lacks significant visibility and operates a capital-heavy operation, which platforms can address and are actively tackling.

Like sharks to blood, some startups are angling in on trucking to clean house and make millions, if not billions.

Flexport, a San Francisco-based startup, is building a platform business that’s transforming the way freight moves around the world. Focused on transparency and optimizing the transit of goods, it’s concentrating its efforts on international shipping, but trucking is not far behind for Flexport’s coordination work.

Not only how and when the trucks move, but the question of who drives them is getting a disruptive answer. Take a look at Otto, the self-driving startup acquired by Uber a few months ago, which has made automating trucking its mission. In fact, the first autonomous delivery

Operating out of Cleveland, Ohio, is Macropoint, a cloud-based software-as-a-service company that provides its customers with the ability to track their shipments in real time, even from a “dumb” phone. Using integrated monitoring systems, Macropoint eliminates the need for truck drivers to check in continually with dispatchers and brokers along the journey.

As if these ancillary disruptors weren’t enough, Transfix is aiming to haul the logistics industry into the digital age kicking and screaming. What’s standout about the New York startup is that it approaches the problem with a platform model that connects freight loads with transporters, which should terrify large carriers once Transfix finds traction and hits critical mass.

These startups are bringing a lot of disruptive energy to logistics, but the industry is still largely carrying on with business as usual. In order to truly turn the market on its head, one should consider a platform business model that connects trucks and drivers with their customers who need to move things from points A to B. The industry will eventually be overtaken by a platform; the questions are when and by whom.

What Can the Trucking Industry Do?

Obviously, most truck drivers likely lack the resources necessary to abate any negative side effects of the disruption heading their way. Instead, large trucking companies such as Schneider National or YRC Worldwide should invest in building a transparent services marketplace, akin to Flexport.

Here’s how the platform would work:

A furniture manufacturer needs to deliver finished couches and chairs to the warehouse for inspection, before being passed to the storefronts for sale. The clerk/manager responsible for ordering the delivery would open an app, view a list of trucks available to make the run in a given time window, and then selects and books the ideal truck’s time.

Payment could be collected upfront from the furniture factory and issued to the driver’s operation upon confirmation of delivery, which would ideally performed by a receiving agent using the same app. On top of that, the platform could provide more information on the drivers to the customers, as Airbnb does with its rentals, or it could automate and optimize the process, as Uber does with its taxi service.

Corralling a healthy amount of the disparate owner-operators onto the platform would be a cinch since so many of them catch their business by leasing to larger operations. The smaller trucking firms might be willing to take a minor fee cut in favor of reliable and repeat business, which will peel off customers from the platform owner’s competitors.

Over time, other large trucking companies will be forced to join the network, lest they spiral downward with a shrinking market share. That golden moment is when the platform has achieved critical mass, when it costs the platform owner’s original competitors more to operate independently than to give in and join the platform’s network.

If a prospective platform wanted to obtain an existing network, it would need to look no further than acquiring Transfix, or one or two companies from the bevy of freight brokerages that exist today.

How Can Applico Help?

If you’re a digital or innovation leader at a logistics or trucking company, we’d love to chat! Our advisory Platform Design approach will help chemical distributors build a strategic roadmap for building the product marketplace monopoly of chemicals before Amazon dominates. Please contact us to get a free copy of our book on platforms, Modern Monopolies, and schedule a free consultation with our leadership.

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