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Commentary: Trucking industry observations heading into 2020

Commentary: Trucking industry observations heading into 2020

The news we pay attention to every day is a harbinger of how events will unfold in the near future. As we enter 2020 and the beginning of a new decade, here are three news items that may be indicators of phenomena worth watching in the trucking industry between now and 2023.

Celadon’s Chapter 11 bankruptcy filing – industry structure

News about Celadon’s Chapter 11 Filing on December 8 has consumed the trucking industry. That news has been very well covered by FreightWaves and other news outlets. As reported in FreightWaves, Celadon’s bankruptcy is significant because it’s the largest for a truckload carrier. Celadon’s bankruptcy is also interesting because it followed on the heels of the SEC charging the company with accounting fraud in April, and on December 3, the SEC indicted William Eric Meek – Celadon’s former President and Chief Operating Officer, and Bobby Lee Peavler, Celadon’s former Chief Financial Officer on charges of corporate fraud and accounting malpractice. Basically, they hid Celadon’s financial losses through accounting shenanigans.

Celadon is only the most recent and the most visible in a spate of trucking company bankruptcies in 2019. By certain counts nearly 800 trucking companies have already declared bankruptcy in 2019, more than doubling the count in 2018.

 

On December 18, Convoy announced that it had reached 100% automatic freight brokering in top freight markets. The image below illustrates what this means.

This follows on the heels of the startup having raised a $400 million round of venture capital financing just last month. Convoy and several other startups like Uber Freight and Transfix have been working on refashioning the business of freight brokerage, and venture capitalists have shown an appetite for financing these startups.

The theme of automation goes beyond business process automation, such as that reported by Convoy. Other technology startups are working on automated trucks. For example, over the course of 2018 and 2019, Embark andPlus.ai reported milestone accomplishments in developing technology for autonomous trucks, with each reporting successful tests of that technology in cross-country trips.

Also, TuSimple announced a pilot with the U.S. Postal Service in which TuSimple’s autonomous trucking technology would be used in a pilot to transport mail.

Fully automated trucks may take a while yet to become a reality that significantly affects incumbents. However, Convoy’s announcement suggests that business process automation in the trucking industry is closer than we realize.

 

The Amazon effect – pricing and technology

Profit margins in the general freight trucking industry are thin. The trend of ecommerce growth coupled with the practice of offering free next-day delivery to consumers has already compressed, and will continue to compress, the profit margins that general freight trucking companies earn.

Trucking companies that operate in the spot-market are in a position of weakness relative to shippers, and the volume of ecommerce shipments does not matter if every extra shipment is a loss-creating shipment for the trucking company that transports it.

Further, Amazon is investing a great deal of talent and capital into building its logistics capabilities. Charley Dehoney, my #MarketVoices counterpart, wrote an article which ran on FreightWaves on October 29, Logistics as a lambda function. His article describes what is happening in detail. As Amazon Logistics’ capabilities have increased, it has started competing more directly and robustly with UPS and FedEx.

What questions do these events raise?

Broadly speaking, here are the questions these events raise:

 

First, given New England Motor Freight’s bankruptcy filing on February 11, and how the rest of 2019 unfolded for the trucking industry, does this year mark the beginning of a shift in the structure of the general trucking industry?

Second, given the amount of venture capital available to startups seeking to automate the trucking value chain, is 2020 the year when digital freight brokers will start to have a meaningful impact?

Third, what effect will Amazon’s investments in building its logistics network have on the trucking industry?

 

[from Brian Aoaeh at Freightwaves.com]

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