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BusinessNewsTechnologyTrucking

Commentary: Can software meaningfully increase economic productivity In trucking?

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.

(Photo credit: Jim Allen/FreightWaves)

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.

At one point in time, a fuel card was for paying for fuel, but integration with TMS systems are adding new opportunities for fleets and drivers. (Photo: Shutterstock)

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. 

(Photo credit: Volvo Trucks North America)

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?

DAF Trucks is a European subsidiary of U.S. truck manufacturer PACCAR. (Photo credit: DAF Trucks)

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.”

CloudTrucks VC raise
(Photo credit: Jim Allen/FreightWaves)

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.

(Photo credit: Toyota Global)

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 media@freightwaves.com. 

The reference archive – dig deeper into this topic with FreightWaves

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Brian Aoaeh

Brian Laung Aoaeh writes about the reinvention of global supply chains, from the perspective of an early-stage technology venture capitalist. He is the co-founder of REFASHIOND Ventures, an early stage venture capital fund that is being built to invest in startups creating innovations to refashion global supply chain networks. He is also the co-founder of The Worldwide Supply Chain Federation (The New York Supply Chain Meetup). His background covers the gamut from scientific research, data and statistical analysis, corporate development and investing for a single-family office, and then building an early stage venture fund from scratch - immediately prior to REFASHIOND. Brian holds an MBA in General Management, with a specialization in Financial Instruments and Markets, from NYU’s Stern School of Business. He also holds a Bachelor’s Degree in Mathematics & Physics from Connecticut College. Brian is a charter holding member of the CFA Institute. He is also an adjunct professor of operations management in the Department of Technology Management and Innovation at the New York University School of Engineering.

4 Comments

  1. Quote:
    “Can software meaningfully increase economic productivity In trucking?”

    Of course it can and it is . Just like in many other sectors and industries . It’s the same as asking if a calculator has an advantage over using a pencil and paper . LOL !

    IMHO

    1. Noble1 suggests SMART truck drivers should UNITE & collectively cut out the middlemen from picking truck driver pockets ! UNITE , CONQUER , & PROSPER ! IMHO says:

      I’d like to elaborate a little on my answer . My analogy given was specific . However , the “question” was not .

      Therefore in regards to the question ,
      quote: “Can software meaningfully increase economic productivity In trucking?”

      Answer : All depending on the software’s “program/applications” .

      The question was generic . My original answer should have pointed that out and answered as I just did through this answer .

      IMHO

  2. YES…but it is a 10 year journey. In fact, we’ve already come a long way in the last 5 years with everything from Convoy to AscendTMS revolutionizing the overall trucking process and changing how carriers view technology and their willingness to embrace it.

    The KEY thing to remember though is that 96% of all carriers and brokers are very very small. I recall that the ATA states 96% of carriers are less than 100 trucks and 92% of carriers are under 25 trucks and the AVERAGE fleet size is between 3 and 4 trucks. So, any technology or tech solution MUST gain massive traction in that smaller fleet carrier space to have ANY meaningful effect on actual productivity.

  3. To answer this question, absolutely. It’s important to understand how software and technology as a whole impact different industries. Marketing, for example, has benefited tremendously from search engines and social media, just to name a few facets. This isn’t to say that the trucking industry will be affected in the same way, but I believe that a greater emphasis on software implementation will go a long way.

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