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It Takes More Than an “Uber” Prefix to Reinvent a Business

A new generation of apps is changing the trucking industry.

Yossi Sheffi | MIT

Yossi Sheffi

The success of the taxi-like Uber service has spawned many start-up attempts in related (and other) areas.

In fact, it seems that any time a new app puts service providers in direct contact with customers, the service involved becomes an “Uber” activity.

But the Uber moniker does not necessarily mean that a new business model has been created. And the service innovations bestowed by the classification might not be as disruptive as is assumed.

A notable example is trucking, where an Uber-like revolution is apparently underway with the arrival of new mobile communications technology. But the changes are not as radical as is suggested by the Uber label.

In the truckload market — and “truckload” refers to vehicles that carry freight from a single origin to a single destination — there are companies that operate multiple trucks and employ either company drivers or independent owner/operator drivers (O/O) under contract.

In addition, there are truly independent O/Os who contract directly with shippers.

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Any time a new app connects service providers with customers, the service becomes an “Uber” activity.

The trucking companies, as such, are responsible for obtaining the loads for their drivers to haul and then control the movement of the drivers following the initial dispatch.

Thus, they can re-assign loads and drivers as necessary in response to operational changes. O/O drivers, on the other hand, once assigned a load, operate independently.

The Middleman

Due to the difficulties of obtaining loads in a timely fashion, most independent O/Os work through brokers who aggregate the loads from shippers and make it easier for these small operators to find appropriate loads. Naturally, the broker takes a cut of the price paid by the shipper.

In theory, eliminating the middlemen brokers and their fees would enable independent truck drivers to lower their rates and make more money at the same time. It’s a tempting proposition — and, perhaps not surprisingly, apps are now available that claim to offer such an alternative.

The apps not only provide a low-cost, searchable platform for loads, they also enable drivers to complete the booking process via their smartphones.

The apps supposedly disintermediate freight brokers, empower owner/operator truck drivers to operate more profitably, and give shippers a cheaper and more effective way to hire the truck capacity they need.

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When carriers reject loads at short notice, shippers often turn to brokers to find replacement capacity.

And the apps do this by putting buyers and sellers in direct contact with each other – the classic Uber value proposition.

Except, of course, that the concept is by no means new, and there is much more to freight transportation than matching loads with trucks.

The Way It Used to Be

Years ago truck drivers found loads by consulting bulletin boards at truck stops. Handwritten notes gave details of the available cargo.

These notes went online with the arrival of the Internet, but the system of electronic notes was relatively unwieldy. In the ’90s, a number of online exchanges emerged for this purpose.

Cargo owners would input details of the goods they wanted to ship, and independent drivers searched the exchange for loads. Prices could be either set by the cargo owner, or carriers would bid for the business using an auction-like format.

The basic concept was sound, but the exchanges did not survive for a number of reasons.

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Years ago, truck drivers found loads by consulting bulletin boards at truck stops.

For example, unlike taxi operators, shippers need to vet who is carrying their freight in order to monitor service quality and avoid liability issues. Truckers were not able to vet the shippers they did business with, and experienced late payment problems.

The new generation of apps represents the latest iteration of these services. It is argued — with some merit — that with today’s highly efficient mobile communications, many of the problems that beset previous load matching systems are no longer a challenge.

However, the idea that we are entering the age of Uber trucking where intermediaries are dinosaurs is overstated. Don’t expect the middlemen to disappear anytime soon.

Freight brokers, particularly the large firms with a global reach, are not just cargo matchmakers. They perform many other services for shippers. Many enter into contracts with shippers for fixed transportation rates, thus taking on the arbitrage risks.

They operate transportation management systems and help shippers to optimize their transportation expenditure and networks. Timely payments for independents are guaranteed by the brokers, thereby removing the non-payment risk for these small businesspeople.

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The Uber concept in trucking – as a business process – is relatively old news.

Trucking is subject to fluctuations in freight rates, and intermediaries help to buffer these risks. The brokers also respond to emergency situations. For example, when carriers reject loads at very short notice, shippers often turn to brokers to find replacement capacity.

Another argument in support of the apps is that they deliver real-time updates on the whereabouts of loads courtesy of drivers’ smartphone GPS systems – tracking data that adds value for shippers.

Yet an app that blindly supplies this information automatically can do more harm than good, especially where carrier company drivers are involved.

Downside to Apps?

Consider a situation where the app’s tracking data indicates that 50 loads out of 200 being shipped by carrier Trucking-is-Us are at risk of late delivery. The shipper panics and floods the carrier with calls, causing further disarray and disrupting the carrier’s dispatch center.

In reality, the trucking company is often well aware of the situation and is working to alleviate it. At the end of the day, maybe only 3 or 4 loads will be late —  but flooding the carrier’s dispatch center with panicky calls actually disrupts the recovery process.

The advent of trucking apps will no doubt put some freight brokers at a competitive disadvantage, and many might disappear.

However, it is more likely that a good number of them will develop their own mobile-based systems and use the technology to tie a set of drivers even closer to them.

The Uber concept in trucking – as a business process – is relatively old news. The new technologies offer many exciting possibilities, but are not likely to substitute for strong, well-capitalized, full-service freight brokerage firms. goldbrown2

This article first appeared on LinkedIn and was republished with permission of the author.

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Yossi Sheffi is the Elisha Gray II Prof. of Engineering Systems at MIT, where he serves as Director of the Center for Transportation and Logistics.

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