Tuesday, September 22, 2020
Business

Schumpeter – The trucking industry is in the midst of upheaval—and hype | Business

Schumpeter - The trucking industry is in the midst of upheaval—and hype | Business
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LIFE ON THE road has become a lot tougher since the 1980s, when Schumpeter spent a year driving a battered old lorry with several tonnes of four-hooved cargo around the western United States. The cab was too cramped to sleep in. The radio only played AM. And sweat would drench his shirt as he swerved down roads like the “Grapevine”, north of Los Angeles, with the smell of burning brake pads in his nose. Yet it was as close to the idyllic, free-wheelin’ life as a young Brit could hope for.

Not so for the genuine American trucker. Until that decade of deregulatory zeal, truckers were the best-paid members of America’s working class. Their union, the International Brotherhood of Teamsters, was revered and feared. And the romance of the road was celebrated in 1970s films like “Convoy”. Then came the Motor Carrier Act of 1980, which swept away restrictions on the number of haulage firms, as well as price controls. Union membership plunged and truckers’ livelihoods took a turn for the worse. Their sacrifice benefited the American consumer, though. As Steve Viscelli, a sociologist and author of “The Big Rig”, says, cheaper haulage on the back of lower wages for drivers supported a boom in big-box retailing that has transformed commerce ever since.

Today trucking is once again caught in an epochal upheaval that is also reshaping the retail industry. The main cause is online shopping, which is reducing long-haul delivery of containers from port to Main Street, and speeding up that of smaller packages from warehouses operated by retailers like Amazon and Walmart in America to consumers’ doorsteps. In addition, the experience of covid-19 is leading to a rethink of supply chains, which McKinsey, a consultancy, says may bring manufacturing closer to home and increase demand for road haulage. And as one of the world’s most fragmented industries, trucking is under pressure to become leaner, cleaner and more automated. The tech world is abuzz with efforts to disrupt it. Truckers, enjoying a rare moment of acclaim for their front-line work in the pandemic, are also on the front line of forces such as electrification and autonomous driving which, though overloaded with hype, could reshape their business.

This upheaval has only just begun to attract attention, despite the industry’s size and the fact almost every product travels by lorry. It often gets short shrift. Few would guess, for instance, that in America road-freight revenues are almost $800bn, about the same size as the world’s airline industry. In America and Europe there are 3.5m and about 3m lorry drivers, respectively, making trucking a jobs juggernaut. Yet it is so splintered that it is easy to overlook. China, for instance, has an estimated 8m trucking firms, most of which are one-man shops. America has almost 900,000, 96% of which own fewer than 20 lorries, according to the American Trucking Associations (ATA). In long-haul especially, this fragmentation comes at a high economic cost. The biggest 25 full-trailer (or “truckload”) freight firms in America, led by companies such as J.B. Hunt, account for less than a tenth of industry revenue. They are the most efficient, pay decent wages and are trundling through the pandemic with tolerable results. But the small fry producing the remaining 90% of revenues are in the slow lane. For about a third of the time they are on the road cargo-less—and drivers make no money. The pandemic is making their fortunes even worse.

Change is clearest in the short-haul segment, most recognisable in the fleets of delivery vehicles operated by logistics giants such as UPS, which have benefited from surging demand from locked-down shoppers, and increased profits despite the extra cost of door-to-door deliveries. Digitisation is helping improve efficiency, too. Uber Freight, the ride-hailing giant’s shipping arm, is developing a brokerage app to match carriers with shippers. In China, Full Truck Alliance, a startup backed by SoftBank, a Japanese technology group, is said to have a similar business model. E-trucks are on the horizon, albeit bedecked with bubblelike hoopla. The wild stockmarket debut of Nikola, a startup that plans to lease vehicles powered by hydrogen fuel cells, makes Tesla (which wants to start making a massive “semi” e-truck in Texas) look like a boring investment. At some times recently Nikola, which has yet to produce, let alone sell, a single vehicle, has been worth more than Fiat Chrysler. At least the histrionics have drawn attention to plans by more sober American truck- and engine-makers like PACCAR and Cummins to manufacture e-vehicles. Amazon has a $5bn order with Rivian, a startup, for 100,000 electric vans.

The biggest force of disruption is autonomous driving, which some fear could hit trucking like a neutron bomb, killing jobs that account for as much as 40% of freight costs. “Driver-assist” technology such as adaptive cruise control, which adjusts a lorry’s speed to keep a safe distance from vehicles in front, is already a reality. Bob Costello of the ATA says that the use of autopilot with a driver on board could be common within five years. TuSimple, a startup based in California and China, last month announced a partnership with Navistar, a truckmaker, to build semi-articulated robot trucks by 2024.

Right lane exits

The spectre of platoons of driverless lorries barrelling down highways is probably some way off. Regulation for self-driving trucks is non-existent. The powerful rail industry will fight tooth and nail against a technology that imperils its future. Truckers, too, will raise a stink if they feel they have no prospects. Driverless cabs will not be here for decades, says Mr Costello.

One day they will come, though. The benefits of autonomous and electric trucking may be too powerful to resist, says John Murnane of McKinsey. In the meantime expect a further split in the trucking industry, with the best-capitalised firms in the fast lane and the also-rans headed for the off-ramp. For truckers, even less of the romance of the open road will remain. But as journeys shorten, at least they will sleep in the cab less often.

This article appeared in the Business section of the print edition under the headline “Dangerous curves ahead”

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