01/26/2016

Uber of The Transportation Industry May Fall Short On a Large Scale

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Uber is one of today’s most popular companies. Growing at a rate of 40% each consecutive quarter, it continues to expand to new markets all over the globe1. With Uber, customers are able to locate a ride instantly using an app. The app provides its riders with transparency of who their driver is, what they’ll be driving, how much it’ll cost, and a map of their driver’s location. As Uber grows, so does its instantaneous model. From hotels to healthcare, industries are looking to save their customers time and money through Uber-like models, and the logistics industry is no different.

Uberization of Transportation (UOT)

Stifel Research Director, John Larkin, named “digitalization” as a top factor to affect the logistics industry in the coming years2. Digitalization is a growing trend to improve customer service and to look for new and faster ways to deliver goods. As the year begins, the term “Uberization of Transportation (UOT)” has made transportation companies begin to look at their current technology and move toward digitizing the process. So far, those that are testing Uber-like models, both nationally and internationally, are on a relatively small scale and only when handling certain types of shipments.

Uberization Delivers… For Some Shipping Situations

Many start-ups have emerged attempting to apply the Uber-model towards logistics. However, these companies have only tackled local delivery, small parcels, and LTL shipments. It is still up for debate if UOT will ever exceed these types of shipments. After evaluating larger shipments that travel across greater miles, the UOT model seems less viable. Managing supply chains and shipping freight are very complex. Transportation companies plan optimal routes for their shippers and manage the entire process from handling paperwork to ensuring load and unload times and circumstances are ideal. Aside from the management around the actual haul, there is more documentation and processes in place with government agencies, like the Department of Transportation (DOT), to ensure that drivers and equipment are suitable to national and international standards to conduct these shipments. This is something that certain start-ups haven’t addressed. Armstrong & Associates recently stated that although this model may continue to work for the small parcel and LTL deliveries there are much more resources needed to work well on a larger scale3.

Existing Models Provide Capabilities That Shippers Need

The Uber model is popular because of its ability to provide instantaneous service, control, and transparency. What many mazationy not realize is that these models already exist for many third party logistics providers. Brokerage providers can facilitate services for shippers looking for immediate or urgent capacity. Whether it is a non-asset logistics provider or an asset-based dedicated fleet provider, many carriers already have technology in place to provide transparency and keep customers up to date on the location of their inventory throughout the entire process.

One noted area that UOT may excel is for backhauling. Many argue that the UOT can help carriers and shippers identify and fill backhaul loads, allowing them to improve profitability. Shippers who partner with 3PLs and dedicated fleet providers may be already reaping the benefits of backhaul opportunities. Aside from providing companies with these services, carriers also have the relationships in place to leverage more opportunities to meet capacity and share those benefits with their customers.

Uberization May Further Strain the Driver Shortage

Today, nearly anyone can apply to be an Uber driver. This would not work for the trucking industry. Again, small parcel or van deliveries wouldn’t have an issue, but challenges arise when it comes to qualifying individuals to become truck drivers. There are stringent criteria in place to ensure drivers can safely operate trucks and safety is something that should never be sacrificed. Truck driver retention has also been one of the most troubling problems in the transportation industry. With the UOT, more drivers would be needed and readily available to make these types of hauls, most likely leading to increased demand for drivers and growing costs.

As testing continues and models like UOT are created, the transportation industry will continue to evolve. Carriers will continue to push to provide customers with transparency and ideal service. For the small parcel and LTL services, Uberization may be the solution for some. However, for larger scale operations the UOT model still needs to mature.

Sources

  1. http://www.forbes.com/sites/briansolomon/2016/01/12/leaked-ubers-financials-show-huge-growth-even-bigger-losses/#2715e4857a0b5ac2bac5c995
  2. http://www.overdriveonline.com/uberization-of-trucking-reality-more-complicated-than-the-hype/
  3. http://www.scmr.com/article/global_3pl_mergers_acquisitions_examined_by_armstrong_associates