What Does the Future Hold for Trucking?Posted April 26, 2017
It’s hard for transport professionals to accept how inefficient the sector is today. Transport companies average narrow margins, an aging staff, and concentrated asset risks. Everyone works hard, long hours.
Even to suggest that the industry can dramatically cut costs while improving service may come across as unrealistic or even insulting. Nevertheless, I believe there are three significant trends that will lead to substantial improvements in costs and service for the industry.
A good rule of thumb is to look backward twice as far as one estimates forward. Twenty years ago a shipment would take days and cost a lot. Today, consumers can get one-hour delivery in 29 metro areas in the USA. Costs plummeted yet service improved.
Did the transport professionals of 1997 expect that? No! They had roughly the same expectation of today’s sector. They saw their industry as running close to an optimum, with little potential for improvement. Still, they were proven wrong.
Intensify Asset Use
Transport assets are expensive yet underutilised. In New Zealand, the majority of trucks have a single, dedicated driver.
As a comparison, major airlines count the minutes per day that their planes are not moving. On a tour of Worldport, UPS’s freight hub in Louisville, UPS once explained to me that the average plane spends less than thirty minutes standing still per day.
Trucks, just as planes, are expensive assets which are built to move. Their overhead costs are about 25% of total costs. Thus, running trucks on two shifts, i.e. 18 hours a day instead of 9, could reduce trucking costs by up to 12.5%.
Improve Asset Utilisation
Trucks are also often under-loaded. World Economic Forum figures suggest only about 50% of load factor is utilised in moving trucks. New Zealand is outperforming this statistic at 60%, but only by a bit.
I believe realistic upper limits might be around 80% in New Zealand given regional imbalances. New Zealand could handle 20-30% more freight using the same trucks if it solved the load-to-truck matching problem. That’s another 7.5% cost reduction.
Lastly, there is labour. Carriers cannot staff enough drivers, as is the case in just about any developed markets. Truck manufacturers start to propose their solution to the labour shortage by accelerating the development of self-driving trucks.
Improving labour utilization is important, with it representing 50% of costs in LTL and 35% of FTL trucking. Self-driving trucks have tremendous potential to reduce costs.
Putting It Together
These three trends alone suggest the same service can be achieved with 30% to 50% less cost. Further, these trends are self-reinforcing. They are more likely to come about simultaneously or in quick succession.
Self-driving trucks are more likely to be owned by companies who more aggressively manage the asset. That, combined with less reliance on drivers, increases the likelihood the trucks will run constantly. Likewise, optimal matching of load-to-truck is easier when the overall industry is digitised.
Fish are the last to hear about water, so the saying goes. We sometimes lose perspective when something is so ubiquitous and accepted. The world is full of trucks running half empty, idling while the driver isn’t working, and carrying loads at an economic loss.