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?
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, 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.
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.
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)
- 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)
- 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)