Uber-ization of US trucking industry is just ramping up
U.S. trucking is entering a tumultuous period that will likely reshape the $875 billion industry.
Shipping rates that spiked during disruptions caused by the pandemic have plummeted — some are now calling it a “freight recession” — as inventory gluts across the U.S. lowered demand. That has placed the sector at a disadvantage during annual contract negotiations now in full swing, but means retailers and other customers will benefit from lower transportation costs.
There’s also a shakeout among the brokers who match trucking companies with loads that need to be shipped.
Silicon Valley entered the fray a few years ago and digitized what had been a transaction done with phone calls and paper. Large and established brokers have also bolstered their technology, leaving the 17,000 smaller firms that haven’t evolved vulnerable.
“There’s going to be consolidation,” said Brett Suma, CEO of Loadsmith, a startup founded in 2019 that’s projected to generate sales of $130 million this year and turn a profit.
When Suma started his career in the truck industry a couple of decades ago, his job was to open up packets of paperwork delivered by courier to log the deliveries made by drivers for KnightSwift Transportation Holdings. Now the company he runs is trying to eliminate all that paper.
“The haves of the technology are going to grow,” Suma said. “The have-nots of the technology will be consumed.”
Meanwhile, uncertainty reigns. Retailers still have too much inventory, a result of consumers pulling back from apparel and other
goods after splurging last year. The U.S. might also be heading into a recession, which would put more pressure on spot market truckload rates that are down 40% from a year ago, according to KeyBanc Capital Markets.
Contracted freight tonnage that’s seasonally adjusted fell 2.3% in October from September, the largest decline since the beginning of the pandemic, according to the American Trucking Associations. Contract freight rose 2.8% in October when compared with a year ago, the lowest gain since April, the trade group said.
The brokerage battlefield is pitting legacy brokers, such as C.H. Robinson Worldwide and RXO, that are expanding automated systems, against digitally native newcomers, such as Uber Technologies’ freight unit and Convoy. Large trucking companies, including J.B. Hunt Transport Services and Werner Enterprises, are adding more competition by building out their own digital brokerages.
Most brokers are assetlight, which means they don’t own trucks. Instead, they shepherd freight from origin to destination by playing matchmaker
between shippers and truckers. Brokers build capacity in this fragmented industry by signing up as many of the 2 million U.S. freighters as they can. These carriers are mostly small, with half of them being just one-truck operations. Fewer than 6,000 carriers own more than 100 trucks.
The automation technology removes labor by providing a computer application for truckers to find freight and accept the price for hauling it.
Uber Freight and Convoy have gobbled up market share, but struggled to make a profit. Convoy, which raised $260 million in April led by Baillie Gifford is still investing in its technology and capturing market share, CEO Dan Lewis said in an interview.
Bob Biesterfeld, CEO of C.H. Robinson, has been through several dips in the freight market and is responding by planning to cut costs by $175 million — mostly through personnel reductions — to preserve profit while also boosting spending on automation. C.H. Robinson projects the freight downturn will pressure its operating margins, but expects to come out stronger when the cycle turns positive, he said.