Uber opens a window into a possible future for logistics

There were two major announcements from everybody’s favourite ‘disrupter’ last Thursday.

Uber announced that it would not only be offering members of the public a free ride to try out self-driving cars in Pittsburgh, but that it had also acquired a leading company in the field of autonomous vehicles; Otto.

Otto has some serious pedigree, with its founders including the senior engineers behind Google’s autonomous vehicles. The most conspicuous difference to their previous work is that this time, they are focussing on driverless trucks, an area of significant opportunity that will dramatically improve the efficiency of supply chains.

The fact that it is new companies such as Uber that are leading the charge in this area is a testament to the undying law of unintended consequences, an inevitability of technological endeavours. Uber itself is the very epitome of the ‘technology push’; a business that had not been considered before the relevant technology emerged to make it viable. Prior to smartphone technology and the adoption of cloud computing, Uber was not a realistic prospect.

Thus, whilst the ‘market pull’ is arguably more critical in guiding the specific pursuit of autonomous vehicles, its antithesis, the technology push, is demonstrably shaping the manner in which the race for market leadership is being played out.

The incentives fuelling the market pull towards autonomous road freight are well known within the industry. Firstly, road freight is a race to the bottom, with none of the major companies profiled in last year’s European Road Freight report posting a profit margin above 4% (most were substantially less).

A major reason for this is that the service offered is highly commoditised. Anyone with a truck can start business, and the vast majority of road freight worldwide, even in developed countries, is handled by companies consisting of less than five vehicles. The only way for small businesses to grow out of this is by expanding networks or through M&A. Both of these are expensive, because as with many asset-heavy industries, there are high fixed costs involved in road freight.

In addition, an endemic issue within the industry is that long-haul truck driving is unappealing work; as such, there is a driver shortage. This has raised wages in the USA for example, where unions have worked to prevent an influx of Mexican drivers from pushing wages down. European countries have been able to stave this problem off for some time, as a result of EU freedom of movement, though regardless, this is not a long-term fix.

We therefore have a high cost, commoditised activity, which is facing a labour crisis. Enter the technological solution.

As illustrated by CB Insights, many companies are investing substantial sums in the pursuit of autonomous vehicles. This includes manufacturers like Ford, parts suppliers like Delphi, software firms like Microsoft, and even Apple.

Though autonomous vehicles will not emerge overnight, it is highly likely that we will see an increasing practical application of the technology over the next decade. Deployment of such vehicles as part of a viable business model is a tantalising prospect, and it is clear that there are competing ideas of how this may come to pass.

Some automotive manufacturers, like Ford and Tesla, aim to manufacture both the vehicle and its ‘brain’ (for want of a better word), whilst software companies are clearly best placed to specialise on the latter. For its part, Uber is augmenting its existing premise (transportation on demand), which may represent the end for fleet outsourcing companies such as Ryder, which appear to stand directly in the way of such a model.

Though some in the automotive industry have posited that consumers are likely to continue to want the experience of driving a car themselves, the same is demonstrably not true for commercial vehicles, as the worker shortage shows. Ultimately though, it is vital to underscore the point that the Uber future is only one possibility.

At this stage it would be disingenuous to assume we can accurately discern which autonomous road freight business model will become triumphant. As the trials and tribulations of so many ‘Uber for X’ start-ups show, specific business models do not necessarily transfer well to new industries, and Uber may well discover that a march into autonomous road freight is a step too far.

To conclude, it is worth once more considering the law of unintended consequences; nobody knows what future supply chains will look like. Nonetheless, Uber has presented an interesting suggestion.

More Insight?

Source: Transport Intelligence, August 23, 2016

Author: Alex Le Roy