I started teaching a course on operations management at the Tandon School of Engineering at New York University on Monday, January 27. On Wednesday, January 29 we discussed Operations and Economic Productivity.
That got me thinking very consciously about the topic of economic productivity in trucking. In fact, we touched on it very briefly in class. My students have very little exposure to trucking, so they were unable to engage on that topic, and we moved on to talking about other industries – airlines, restaurants, cruise ships, ecommerce, fashion and apparel.
In this commentary I will explore the topic of software-driven or software-enabled economic productivity in trucking.
Defining the problem – what is economic productivity?
Simply put, economic productivity is the ratio of operating outputs to operating inputs. Operating productivity comes in two flavors. In single factor productivity, one considers a single input variable. In multifactor productivity, one considers multiple input variables. A more technical discussion of economic productivity is beyond the intended scope of this article, but readers who are curious can refer to this article from the Bureau of Transportation Statistics – Transportation Productivity.
If you followed news about the trucking industry in 2019, you know that quite a few trucking companies filed for bankruptcy.
I took some heat from readers of my Commentary: Trucking industry observations heading into 2020, which ran on FreightWaves on Thursday, December 26, 2019. That prompted me to respond with Commentary: Responding to readers’ reactions, which ran on FreightWaves on Friday, January 10.
Trucking companies face challenges from many different directions, and the challenges related to the application of new technology in daily operations is only one of these. However, that raises a related and interesting question – To what extent can technology be applied to the full scope of a trucking company’s operations in order to make the company more economically productive?
Owner-operators are in a particularly vulnerable position.
Insights from the field
To get a sense of what other people think, I posed that question to a few people. Here are their responses.
Sandeep Kar, Chief Strategy Officer at global fleet IoT firm, Fleet Complete (Toronto, Canada): “Digitization is driving most growth opportunities for all stakeholders in trucking, delivering value to truck original equipment manufacturers, tier-1 suppliers, fleets, shippers, etc.
Connected vehicle technologies are enabling the trucking industry to change the profile of trucks from products to solutions. Telematics technologies are not only enabling vehicle tracking, but increasingly enhancing vehicle safety, utilization and uptime while reducing total cost of ownership (TCO) and downtime. Digital freight platforms combined with telematics are now enabling fleets in not only saving money but making money. Advanced power train technologies such as electric drivetrains and natural gas engines, are not only reducing the carbon footprint of trucks but also fuel cost.
Driver cost, which now represents the largest contributor to a truck’s TCO is being reduced by freight matching apps and advanced transmission technologies such as automated manual transmissions and automatic transmissions, enabling pay increase and keeping more aging drivers in truck cabins while attracting new drivers – thereby solving driver shortage challenge.
Moreover, advanced predictive maintenance solutions such as prognostics are poised to reduce unscheduled downtime by accurately predicting impending downtime, thereby saving fleets – and ultimately their customers – millions of dollars annually. Trucks are getting greener, safer, more connected, and hence smarter. The ultimate benefit is to the transportation and logistics industry that benefits from more effective and efficient freight transportation enabled by advanced truck technologies.”
Alex Hoffman, Co-Founder of TNX Logistics (Berlin, Germany): “Trucking is a very transaction-heavy business. It features a company doing thousands of transactions each at a price of around $1,000 on average. Thus, the economic success of a company depends on improving the outcomes of each of these transactions and making them less costly to do. Technology can be a good tool in achieving this.
For example, with TNX Logistics we are helping brokerages improve their buy rates on each of those transactions by 7% to 12% on average. There is a plethora of solutions in the market that do anything from improving the quality and speed of delivering quotations to customers, to providing robotic process automation for invoice creation and processing.
My advice to executives in trucking companies would be to look at everything affecting the economic performance of their transactions and identify areas for improvement: Where are decisions made? Where are parts of the transaction fixed? Where is there a stark difference between profitable and unprofitable outcomes?
I’d then talk to the people that spend a lot of time developing solutions in those areas, whether they are large legacy technology companies or young startups. They can get you a perspective of what is possible to achieve and what it takes to get there.”
As readers of FreightWaves already know, FreightTech is an area that has attracted a lot of interest from venture capitalists in recent years. Coincidentally, as I was thinking about this topic, Techcrunch published: CloudTrucks raises $6.1 million to help truckers run their business on Thursday, January 30.
Tobenna Arodiogbu, CEO of CloudTrucks (San Francisco, California): In a blog post about the round, and to announce the CloudTrucks to the world, he wrote, “We are providing a complete ‘business in a box’ solution for owner-operators and small trucking carriers at a much lower cost using software engineering, data science and world-class operations processes. Our mission is simple – to put more money in the hands of truck drivers and reduce their headaches. CloudTrucks will improve the three core metrics that every truck driver cares about – revenue, cash flow and costs. We focus on the owner-operator and small trucking companies because they are the lifeblood of the industry and face the largest pressures with fast- rising insurance rates, predatory factoring options and a quickly changing landscape. It’s more important than ever to have someone in their corner whose incentives are 100% aligned with theirs.”
I spoke with Tobenna in August 2019. I was struck by the fact that before CloudTrucks he was the CEO and co-founder of Scotty Labs, an autonomous trucking startup focused on augmenting the truck driver rather than replacing truck drivers completely.
Understandably, having just closed a seed round, Tobenna and the team at CloudTrucks are busier than usual at the moment. He was unable to send me other comments for this commentary before I had to submit it to my editor at FreightWaves. However, I hope to be able to dig deeper into this topic with him once things slow down a bit.
A trend I have observed as one that has worked for trucking software startups in the Middle East and other parts of the world, as well as one that I have seen implemented by software startups in other industries too, is that of using a wholly owned company in the target industry and using it as an R&D lab where software is tested and perfected before it is sold to potential customers in the industry. This is not the only way to do it, but it seems to be one that increases the probability of success.
What do you think? Leave a comment in the comments section. What you say may make it into a follow up article on this topic. At a minimum it will give me ideas for future articles. I expect that this will be a theme I return to a few times over the course of 2020.
If you are a team working on an innovation to improve the economic productivity of the trucking industry, we’d love to tell your story in FreightWaves. I am easy to reach on LinkedIn and Twitter. Alternatively, you can reach out to any member of the editorial team at FreightWaves at firstname.lastname@example.org.
The reference archive – dig deeper into this topic with FreightWaves
- Industry Study: Freight Trucking (#Startups)
- Updates – Industry Study: Freight Trucking (#Startups)
- Commentary: Trucking industry observations heading into 2020 and Commentary: Responding to readers’ reactions
- 2019 was a winless season for trucking…2020 will feel like winning the Sugar Bowl
- Commentary: Why are digital freight brokers struggling to solve their Uber-scale problems?
- Why Freight Derivatives Are Here To Stay in the Trucking Industry
- Why digital freight brokers might fail to disrupt the freight brokerage industry
- Commentary: How can machine learning be applied to improve transportation?
- Why you should be rooting for startups like Uber
- Is disruption finally underway in the freight brokerage industry?
- Logistics network optimization – why this time is different