Driving the future: Trucking Industry Evolution
“People are talking more about supply chain now. Suddenly they’re realizing this is important to our day-to-day lives and how we get our toilet paper, food and groceries.” — Victoria Sun, principal at VC Playground Global.
Overland freight forwarding is a process that from the outside may seem simple, transporting cargo from point A to point B. However, the world is no longer as it was in the 18th century when Thomas Meadows and Company Limited offered the first freight forwarding journeys. Supply chains were thought of regionally and nationally, suppliers, distributors and consumers being near each other. Later, however, as the world became global, supply chains expanded, and internationalization gave way to massive trade from one country to another. Thus, for example, containers from China, Brazil and Germany began to travel more frequently by sea to the United States, Europe, and the Middle East.
The world gave way to global supply chains and this effect can be seen in the dislocations that have occurred in the wake of the Covid-19 pandemic. One example is the automotive sector which manufactures and assembles globally using a just-in-time (JIT) supply chain. Its fragility became evident in the face of shortages of several critical components such as microprocessors, whose production and supply chain cannot keep up with the needs of this sector, telephony, computing, and many other sectors that use them.
In addition to these supply challenges, there are other challenges such as the change in people’s consumption habits and lifestyles, where one of the catalysts has been hyper-convenience. The fact that shoppers have shifted their consumption habits from shopping in a supermarket to shopping on digital platforms such as Doordash, GrubHub and Jokr, among others, has triggered a huge need to produce and store close to the customer’s doorstep.
In addition, e-commerce has proven to be a major catalyst for global supply chains. The global e-commerce sector experienced a significant increase in its share of retail sales from 16% to 19% by 2020. Any product can now be purchased globally and not just locally. This is reflected in the Courier, Express and Parcel (CEP) service whose valuation in 2020 was USD$368bn and is expected to grow at a compound annual growth rate (CAGR) of 5.2% from 2021 to 2026. Traditional freight movement continues with friction in high volume cargoes, but with alternatives for movement in global trade of individuals.
This has impacted on the activities of the road freight industry, as the need to regionalize and micro-segment supply chain routes has arisen. Companies are rethinking their supply chain towards local or regional suppliers that allow them to streamline their logistics and complement their international strategy. For this reason, in recent years, companies such as Flexport and Nowports have emerged that not only serve maritime trade, but also offer overland solutions. As well as the strengthening and professionalization of land transport routes with Convoy in the United States, CargoX in Brazil, Eazyhaul in Southeast Asia and uShip in Germany.
The changes are not only focused on how supply and demand converge. The supply chain has been affected considerably in its administrative processes, not only in terms of having them well documented but also in terms of having the traceability of cargo compliance and routing at every stage of the journey. This also entails a professionalization of logistics staff so that they can use technology to the benefit of the end consumer and the parties involved in the process. For example, companies such as Smart Hop are working hard with small and medium-sized freight forwarders to digitize them. This requires standardization of processes with strict quality controls, not only for the delivery of a package or a container, but also for the tracking of its movement, performance, and travel conditions.
Sensor companies such as Sensefinity or Telemetrack have contributed significantly to the improvement of logistics processes and cargo visibility, not only in land transport, but also from the moment it is loaded at the ports. Other companies such as Solvando support the optimisation of supply chain working capital by giving carriers advance payment for the journey.
These technological evolutions have been consolidating over the last few years and the pandemic has made them even more evident. Today it is difficult to think of companies that are not thinking about optimizing their supply chain using technology. The adoption of innovative solutions has generated intelligence that allows the monitoring of travel performance even at the product level. In addition, it has enabled improved management of transport assets through timely information on their performance on each journey and potentially predictions of wear and tear and maintenance. As well as clearer information on the behavior of drivers on the road, preventing accidents and allowing parameters for evaluation, training, and improvement of human capital.
These technological innovations are far from stopping, as companies continue to work towards automating the supply chain from the warehouse to autonomous vehicles that can deliver on their own, either direct to a consumer or from a distribution center to a shop. This need has been accentuated in recent years given the increasing demand for travel and the high turnover of drivers, who are not always able to cover the long hours. That is why companies such as PhantomAuto, Locomation and Ike, among others, are working hard to build technology that requires less effort from drivers and more efficiency in the transport process.
Another important point is the use of renewable energy sources in the supply chain. For example, large stores such as Walmart have self-supply contracts for electricity from renewable sources. Likewise, vehicle fleets are in the process of electrification, improving the carbon footprint, improving the chassis with companies such as Ree, or rethinking the structure with companies such as SixWheel. Beyond green advertising, having supply chains with minimal carbon footprints can represent a common benefit in the long run that will represent the continuity of supply chains.
However, none of these technological advances will achieve their impact on roads and land travel if the infrastructure to support it is not in place. The supply chain is like a large network that requires the right infrastructure in order to have effective connectivity and reach not just regionally but globally. Technology has laid the foundation for this interconnected network, making the need for an infrastructure and level of connectivity to support the data and information on every journey more evident. Improving road conditions and establishing greater points of connectivity are necessary in the evolution of the use and adaptation of these innovations. So the adoption of the 5G network and the decreasing cost of Internet of Things (IoT) components will allow for much more timely visibility over time, at affordable costs, and a much more connected and collaborative network.
With this also comes the challenge of building communities in this industry to support operations, the integration of supply and demand, and to make the supply chain a more flexible and adaptable process. This is where new technologies such as the Blockchain can have opportunities to shine, as Leaf Logistics has demonstrated. In addition, there are initiatives such as the DAO, the results of which could undoubtedly have a major impact on the sector.
Changes in the supply chain have been accelerating in recent months. The expectation is that they will continue to develop rapidly and steadily, whether by volume in hundreds of containers or by individual consumption in hundreds of parcels, this demand is expected to exceed 25 tonnes of land transport by 2045 in the US alone.
As such, it requires all players to be innovative and embrace technologies for the benefit of this sector and the end consumer. As much as the world has shifted towards a global movement, there will always be a need for local or regional transport to complete the supply chain process.
“Leader win through logistics. Vision, sure. Strategy, yes. But when you go to war, you need to have both toilet paper and bullets at the right place at the right time. In other words, you must win through superior logistics.” Tom Peters — American writer on business management practices
Hector Shibata Salazar, adjunct Professor at EGADE Business School and Director of Investments and Portfolio at AC Ventures Fund
Ana Maury Aguilar, VC Investor at AC Ventures
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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