Convoy: ‘Uberization’ of Trucks
How Truck Tech will change a highly fragmented, aged, $700 billion industry?
The problem
Traffic congestion is already severe in several metropolitan areas and will become more extreme: by 2040, 30,000 miles of US busiest highways will be clogged on a daily basis, with trucks as major contributors due to expected increase of freight demand 1.
Trucks are the most important mode of transportation in the U.S.: 80% of all cargo is transported by trucks 2. Most shipping companies do not own trucks, and renting trucks requires hours of work because trucking is a highly fragmented industry: 1.3M companies across the country, 97% of which operating with less than twenty trucks 2, 3. Matching local carriers with clients is typically done by brokers (15,000+ in the U.S.15), who usually operate over the phone, on paper, in a non-transparent, time-consuming system that takes up to 60 days to pay drivers 4, 5.
Conceptually, the optimal scenario could be a network of fully-loaded trucks that maximizes loads while eliminating the need of travelling empty on returning trips. In reality, however, imbalances in origin-destination demands as well as poor information sharing and scheduling among truck fleets limit the ability to run an optimal system, impacting negatively traffic congestion as well as freight/delivery costs.
How could technology help lower transportation costs and ease the task of moving goods around?
Truck Tech
Looking for opportunities to grab a slice of this billionaire industry, trucking startups have raised $478M across 21 deals in 2017 and are expected to top $1B by the end of the year 6. Several companies have been working on solutions to substitute brokers by connecting shippers and carriers directly, including Uber with Uber Freight.
Like Uber, the idea is to have an app for agile load matching based on location and equipment, providing real-time tracking, instant pricing, proof of delivery and seamless billing and payment 7. Besides reducing the 40% of trucks currently driving empty, those startups have a great potential to impact millions of lives – truck driver is the most common job in 29 states 8.
The challenge is to excel on both sides of the equation – shippers and drivers – mainly in partnerships with large-scale shippers and a strong network of individual trucking companies.
Convoy
Convoy, a Seattle-based startup founded in 2015, is among the key players in the race, raised $62M Series B in July 5, and is backed up by strong investors, such as Bill Gates and Jeff Bezos 9.
With a team of over 160 employees from prominent tech companies, Convoy is ramping up with thousands of weekly truck shipments completed through the app 10.
The additional funding will help drive adoption and retention of truck drivers, a process that involves overcoming significant trust barriers, personal connections between drivers and brokers, as well as seasonality (several drivers do agricultural or retail work for part of the year 8).
While Convoy initially worked with small shippers in short routes in the West Coast, it has been successful in partnering with large shippers, like Unilever, fulfilling loads on longer routes with 300+ shippers. Convoy recently scored a multi-year partnership with Anheuser-Busch, in which both companies will work together to find innovative solutions for a large-scale chain that supplies 500M cans per year 10, 11.
With such flagship shipping partners and 10,000 trucking companies using the app 10, Convoy seems to be tackling successfully the key success factors and stay ahead in the race.
Path forward
Convoy’s biggest challenge is to remain competitive in a race that already is named under one of its key competitors – the race to be “the Uber of Trucks”. In the next years, Convoy should:
- Acquire strategic large-scale partnerships with shippers: understanding existing flows to help prioritizing complementary partnerships that will help capturing potential early on the road and support the expansion to new routes and regions.
- Refine its pricing model to ensure a sustainability for drivers and competitive price and service for shippers. Convoy must scale its reach under a lean and agile infrastructure.
- Double down on massive expansion and retention of truck network: increasing efficiency and speed in getting new adopters is as important as working on retention mechanisms, such as incentives proportional to “loads transported”.
- Protect the reputation of the business, working with regulatory agencies and complying with safety and security standards already in place.
- Have a team dedicated to assessing new trends, particularly autonomous vehicles.
Open question:
Is Convoy’s business model sustainable? How can Convoy be best positioned to compete or partner with large players that are dominant in either of the sides of the demand (shippers or carriers), such as Amazon? (Amazon gets to the last-mile – or to the customer, while Convoy focus upstream in the supply chain)
(780 words)
Sources:
- Smart City Challenge: Urban Freight Delivery and Logistics, U.S. Department of Transportation, January 6, 2016. Available at https://www.transportation.gov/smartcity/infosessions/freight-logistics (Accessed November 13, 2017)
- Jonathan Garber, The staggering statistics behind America’s trucking industry, Business Insider, December 12, 2016. Available at http://www.businessinsider.com/the-staggering-statistics-behind-americas-trucking-industry-2016-12 (Accessed November 13, 2017)
- American Trucking Associations, Trucking Industry Revenues Were $676.2 Billion in 2016, PR News Wire, August 14, 2017. Available at https://www.prnewswire.com/news-releases/trucking-industry-revenues-were-6762-billion-in-2016-300503843.html (Accessed November 13, 2017)
- Alexis C. Madrigal, How Uber is Building Uber for Trucking, The Atlantic, August 8, 2017. Available at https://www.theatlantic.com/technology/archive/2017/08/how-uber-is-building-uber-for-trucking/536157/ (Accessed November 14, 2017)
- Alex Konrad, Called the ‘Uber for Trucks’, Convoy Raises $62M to Fend Off Uber Itself, Forbes, July 25, 2017. Available at https://www.forbes.com/sites/alexkonrad/2017/07/25/uber-for-trucks-convoy-raises-62m-to-fend-off-uber-itself/#604219fe1f8d (Accessed November 14, 2017)
- CB Insights, Trucking Tech Deal Pace Slows, While Dollars Tick Up, June 16, 2017. Available at https://www.cbinsights.com/research/trucking-tech-startup-funding-trends/ (Accessed November 14, 2017)
- Birgit Andersen, Make Way for Uber-Trucking With Smart Trucking Apps, Forbes, July 13, 2017. Available at https://www.forbes.com/sites/oliverwyman/2016/07/13/make-way-for-uber-trucking-with-smart-trucking-apps/#6561bd541a2a (Accessed November 14, 2017)
- Monica Nickelsburg, Q&A: Convoy CEO Dan Lewis on lessons learned from Amazon, and disrupting the trucking industry, GeekWire, June 2, 2016. Available at https://www.geekwire.com/2016/qa-convoy-ceo-dan-lewis-lessons-learned-amazon-disrupting-trucking-industry/ (Accessed November 14, 2017)
- Chris O’Brien, Convoy Co-Founder Discusses Challenges of Raising VC for Truck Tech, Trucks.com, August 2, 2017. Available at https://www.trucks.com/2017/08/02/convoy-raising-vc-truck-tech/ (Accessed November 14, 2017)
- Alex Konrad, Convoy Scores A Win In The Trucking Startup Race With Anheuser-Busch Alliance, Forbes, October 17, 2017. Available at https://www.forbes.com/sites/alexkonrad/2017/10/17/convoy-allies-with-anheuser-busch/#679d666d2502 (Accessed November 15, 2017)
- Taylor Soper, Convoy raises $62M from Bill Gates and other luminaries to transform trucking industry with technology, GeekWire, July 25, 2017. Available at https://www.geekwire.com/2017/convoy-raises-62m-bill-gates-luminaries-transform-trucking-industry-technology/ (Accessed November 15, 2017)
Further reading:
- Sean O’Kane, Uber launches Uber Freight, its app for long-haul trucking jobs, The Verge, May 18, 2017. Available at https://www.theverge.com/2017/5/18/15657798/uber-freight-truck-app-ios-android (Accessed November 14, 2017)
- Eugene Kim, Amazon is secretly building an ‘Uber for trucking’ app, setting its sights on a massive $800 billion market, Business Insider, December 15, 2016. Available at http://www.businessinsider.com/amazon-building-uber-for-trucking-app-2016-12 (Accessed November 14, 2017)
My (relatively uninformed) opinion of their choices for showing the sustainability of their business model are: 1) continue with smaller players but expand geographically, 2) move to a larger player but remain the same geographically, or 3) go big or go home. While it’s unclear what all the details are of their partnership with Anheuser, it seems like they have opted for option 3, so I’d be really curious to understand from Convoy why they chose to sign on so quickly with a larger player.
Given all that, I think the second suggestion mentioned in this article about refining the pricing model is incredibly important. In order to properly scale to handle larger customers, it’s vital that they have the proper supply.
To the point about Amazon, it seems unlikely that in the long term Amazon will want to partner with anyone as they continue to innovate and vertically integrate across their entire chain, but the plus for Convoy (and their competitors) is that everyone trying to compete with Amazon will be incentivized to use Convoy’s service (assuming it works).
Convoy and other “Uber of trucking” services have great potential to streamline and erase inefficiencies in the supply chain management. However, improvements in efficiency may come at the expense of job losses for truck drivers, a major employers for the lower to middle class. This is a delicate balance companies and regulators need to think about. But “Uber of trucking” may be another classical case of technology disrupting society as we know it, and people need to be retrained on higher skilled jobs.
For convoy specifically, it will not face as much an uphill battle as Uber’s competitors did in the ride-sharing space. This is because branding should be less relevant in back end supply chain. Functionality and quality of the service will determine success. Therefore, the Convoy team needs to double down on perfecting its service and reliability, especially as it ventures into contracting larger scale clients.
In terms of the long-term sustainability of the business model, the author mentions the need for dedicated teams to assess future trends and specifically autonomous vehicles as part of Convoy’s way forward. The previous comment introduced the potential for job losses throughout the trucking industry as Convoy and other players reduce inefficiencies in the supply chain with these digitized platforms. This potential trend would become greatly exacerbated through the introduction of autonomous vehicles into the space. The improvement in inefficiencies with better matching and scheduling of freight, combined with the decrease in truck driver labor needed as autonomous vehicles become more widespread, together could result in massive disruption of the more than 1 million Americans currently employed as truck drivers, according to U.S. Bureau of Labor Statistics. In turn, this could result in popular will for regulatory action against digitization and autonomous vehicles in the trucking industry, exposing Convoy and other entrants to future regulatory risks aimed at protecting American workers’ jobs. To remain sustainable in the long term, Convoy must take appropriate steps to understand the potential benefits, but also potential costs, of wide-scale adoption of autonomous vehicles in its model.
I continue to scratch my head why a company with $62mm of start-up capital, should “win” in the long-run trucking industry. Or even Uber frankly, with some $10Bn of capital raised. Sign me up for the Google’s Waymo if they ever decide to move into the trucking fleets. The trucking industry feels ripe to be disrupted either way, but the author does a great job at highlighting the many complexities to doing so. What about the food and chemical shippers — what role do the Qualawash’s play in the world and how do trucking fleets coordinate the end route turnover of their vehicles (cleaning, re-routing to pick-up, etc.)? In this way, it feels prudent for these start-ups to find a big time partner like a JB Hunt — perhaps this could be Uber, Cogent or another’s answer to forcing disruption at a faster pace in an industry that is surely ready for it.