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BurakCendek, Partner at Autotech Ventures
With the Port of Los Angeles announcing a 24/7 schedule to relieve congestion, President Biden’s meeting with corporations, port officials and labor leaders discussing steps to alleviate bottlenecks and the fast-approaching retail holiday season, all eyes are on the U.S. supply chain and logistics system.
Trucking is an important industry
As consumers, we forget just how much we rely on commercial trucking and tend to take it for granted. Look around your room, your house…everything you see was once on a truck. Within the U.S. logistics system, truck logistics plays a major role as the largest segment of the market – and it’s truly huge.According to the Bureau of Transportation Statistics, the North American freight market was $1.2T in 2019, and trucks accounted for $772B of it. Putting it in perspective, that’s almost 4 percent of the 2019 USA Gross Domestic Product!
According to Armstrong & Associates, the trucking market consists of three major segments that have different needs: Full-Truckload-For-Hire ($365B), Private Fleets ($368B) and Less-Than-Truckload for-hire ($65B). About 35 percent of the Ful Truck Load (FTL) market is “spot”.
No matter how you cut it, trucking logistics isbig - yet has limitations.
To start, the industry is highly fragmented.According to the American Trucking Associations, 91.3 percent of 890,000 for-hire carriers operate 6 or fewer trucks. There are close to 18,000 brokers in the USA, and the number one broker has less than 3 percent market share.The market is also fragmented in terms of technology platforms such as Transportation Management Systems.
Additionally, truck logistics is a very archaic business that has been playing catch-up in terms of digitalization, which also increases the pressure to innovate. Hence, there are multiple massive opportunities to digitize, automate and consolidate the various components of the value-chain.
We at Autotech Ventures (www.autotechvc.com) are an early-stage Silicon Valley venture capital firmfocused on tech start-ups in the global ground transportation industry. As the connective tissue between corporate partners and start-ups, weare uniquely positioned to observe the industry trends through the challenges of our corporate partners,and the solutions founders are working on. Broadly speaking, there are three main themes that we observe in truck logistics: increasing demands, operationalchallenges, and future enablers.
Increasing Demands on Commercial Trucking
First the evolution of retail is applying pressure. The share of online retail within total retail sales continues to increase, putting demands on e-commerce companies for free and flexible shipping ultimately creating cost pressure for transportation companies. Further, COVID-19 has accelerated e-commerce penetration - which jumped from ~14 percent to >20 in less than 6 months. There has been an increase in demand for higher and real-time visibility, also known as the “Amazon Effect.” Enterprise-level visibility is the top initiative for supply chain executives in almost every industry survey.
Next, in terms of challenges, logistics continues to be behind in digitalization, with operations that still revolve around phone calls, paper forms and manual data entry. Similarly, high driver turn-over is an issue that persists. According to American Trucking Associations’ Quarterly Employment Report, the annual turnover rate at large truckload fleets with more than $30 million in annual revenue is 96percent.
Lastly, andon the plus side, we expect the increasing adoption of Robotic Process Automation (RPA) to have a positive impact on the industry. Autotech Ventures’ portfolio company, KlearNow, is a good example for process automation in the industry. An AI-based customs clearance and documentation management platform that dramatically reduces customs clearance time and cost for importers, brokers and freight, is working to resolve the “customs crunch". KlearNow not only provides tracking and visibility throughout the entire shipping process, but it will also move goods from a ship to final destination and with the detailed tracking, fewer trucks will be waiting.
Another future enabler is the unprecedented amounts of data generated as a result of the Electronic Logging Device (ELD) mandate and other telematics and mobile solutions. Also in Autotech’s portfolio, HDVI, is the first commercial trucking insurance provider to build risk models based on real-time telematics data, reducing costs for small and medium sized fleets. Their suite of tools for improving safety and increasing fleet productivity keeps fleets in business by keeping both drivers and trucks on the road.This data comes with opportunities as well as challenges.
Currently, most of the data is siloed within different parties (14 ELD providers serve 80 percent of the market), hence data integration layers are becoming a necessity for complete visibility. At an aggregated level, this data is very valuable for visibility, insurance andfor load matching/efficiency purposes. Given that only 25 percent of the truck trips in the USA are 80 percent full, load matching optimization has been the ultimate goal or holy grail of the industry, presenting a multi-billion dollar opportunity by maximizing capacity utilization and margins in a competitive market.
To that extent, we see that the aggregation of demand across different channels (i.e. load boards and marketplaces) is rapidly being commoditized, but demand has not yet been effectively matched with supply. Some companies are tackling this challenge directly with their own supply-side tools such as back-office automation,orautomated dispatching oreven building virtual carriers, while others are using visibility as a beachhead. One such company we are really excited about is our portfolio company,Newtrul. It provides carriers a search engine to easily find and digitally book their customers’ freight that it aggregates through TMS integrations. Newtrul is not a broker itself and does not compete with brokers, thus it is “neutral.” This reminds us of the Global Distribution System (GDS) platforms (Amadeus, Saber etc) and meta-search companies (Tripadvisor, Kayak, etc.) in the travel industry.
These supply chain issues are exacerbated by the imbalance between supply and demand. Today there is not only a driver shortage but also a truck shortage. The right formula is twofold: 1- get more trucks on the road, and 2- keep more trucks on the road longer.BasicBlock helps owner-operators and small fleets run more effectively with the financial services, like factoring, it provides.
Insummary, new opportunities for start-ups are being created by changing and even volatile market conditions.COVID-19 accelerated consumer adoption of e-commerce while underscoring how fragile supply chains can be and highlighting the need for solutions to handle not just the volatility in freight demand, but stable daily operations.Founders are answering that call with innovations that advance archaic and fragmented truck logistics. COVID-19 has created additional urgency for innovation to address key opportunities that are yet to be unlocked.
If you are a founder working in logistics or an industry insider who wants to share notes, please feel free to get in touch with me! I host weekly office hours, and you can find the link on my Linkedin profile. (www.linkedin.com/in/cendek) Also, follow me on Twitter: (https://twitter.com/BurakCendek)