Roland Berger’s Walter Rentzsch, Wilfried Aulbur, Frank Pietras and Thomas Fang explore some of the key issues and challenges surrounding the long-haul trucking sector.
The long-haul trucking sector is facing a period of profound change, difficulty and opportunity, with several key trends on the table. One example is the driver shortage which has been a consistent area of concern. In periods of booming freight rates and an overall shortage of fleet capacity, comments about acute driver shortages abound. COVID has done its part to exacerbate these problems. In the US, 2020 CDL driver licenses were down about 150,000 compared to 2019, a result of the unavailability of testing capacity as well as the fact that many baby boomers took the health induced disruption as a reason to opt for early retirement. In addition, the Drug and Alcohol Clearinghouse as well as the legalisation of marijuana resulted in about 50,000 drivers that did not return to the driving pool.
This reduced driver pool hit freight demand that has picked up significantly and an overall global supply chain that is in disarray. Yet, in the US things are potentially not as bleak as they may seem. Given healthy freight rates, many drivers have returned to the pool as owner-operators and according to some industry players, driver availability is fair.
Organisations across the board need to adapt to this new reality, many via a fundamental rework of the basic operating models
The situation is different in the UK where Brexit dried up the pool of truck drivers coming out of the EU. Combined with COVID, Britain faces a severe shortage of drivers with some sources seeing a shortfall of up to 100,000 drivers. While the government has moved to enable emergency visas, by and large, this shortage has wreaked havoc with the British economy and created significant goods shortages.
How does the industry deal with these extreme imbalances in supply and demand? For one, there is significant efficiency improvement potential left in the transport ecosystem. As highlighted recently by Greer Woodruff, Senior Vice President Corporate Safety, Security and Driver Personnel, JB Hunt, US drivers currently only drive on average 6.5 hours out of a shift of 11 hours. Efficiency improvement can be driven by several factors such as deploying expedited loading and unloading times; allowing drop-and-hook; adding flexible appointment times and times that allow for efficient transit and rest; working with shippers to accommodate onsite parking; and providing consistency in loads and lanes. In short, this sector has not yet exhausted all opportunities to do more with less and these efficiencies go beyond the truck, requiring a rethink of how logistics processes and in particular warehouse operations are organised.
Automation has also taken a central stage in several industries as a result of COVID. Take agriculture as a case in point. COVID led to travel restrictions, meaning migratory labour from South America and North Africa could not reach farmers desperately in need of harvesting personnel in the US or Europe, severely impacting harvest yields. This was a wake-up call for many farmers, small and large. In the vine industry, for example, key automation and mechanisation players could not serve rapidly increasing demand. Farmers invested in automation, even if amortisation times of equipment were long, to avoid labour shortages and prevent crops from rotting in the field.
Automation in the commercial vehicle industry is also a key focus of numerous players. OEMs, fleets, suppliers, start-ups and investors are trying to solve the challenge of Level 4 autonomous trucking and the first demonstration vehicles are available today. Players are driven by the hope of alleviating driver shortages, dramatically increasing asset utilisation and decreasing logistics costs. Like the agricultural sector, where back-breaking harvest work is taken over by machines, here autonomous trucks avoid drivers staying away from their families for extended periods. Yet the pathway to full autonomy in a dock-to-dock or hub-to-hub setting is still a mid-term prospect.
A key challenge for the introduction of autonomous trucks is safety. Not only does the technology have to perform, but it must also perform at such a level to be accepted by both the public and regulatory authorities. Demonstrating that autonomous trucks convincingly reduce accident frequencies and severities is a challenge with which the industry is grappling. Can developers use safety frameworks and simulation to prove the roadworthiness of applications or will the only valid proof lie in driving millions of test miles that allow statistical analysis and comparison with human drivers? Which logic will resonate with regulators? How big will the cost of regulatory compliance be both from a financial as well as timing perspective should regulators err on the side of caution?
Supply chain changes
The readiness of the supply chain for Level 4 trucks may also be a question. According to JP Morgan’s Brian Ossenbeck’s recent report on autonomous trucking, redundant steering and braking systems for Level 4 trucks may not be available before 2025. This would impact certification and launch dates accordingly and it would be difficult to imagine a production-ready ‘driver out’ truck before that timeline.
The overall logistics supply chain will also have to be redesigned for autonomous trucks. Loading and unloading need to be optimised and times adjusted to an environment in which freight can and will come in 24/7. Many of the ideas to improve the efficiency of human drivers will be a helpful starting point.
Truckmakers and start-ups that supply autonomous trucks will have to find ways to help their clients transition processes in such an environment. This will require a much deeper understanding of logistics processes than what is available today at OEMs and could be done in close collaboration with key fleet clients. As OEM value addition in terms of cabin is reduced, such services are potential opportunities to compensate losses with service revenue and margins.
Supporting autonomous trucks on the road will require the operation of fleet control centres that support stranded autonomous trucks. This is again an activity that could be done by truckmakers, start-ups or fleet operators themselves. As truckmakers increase their service and support capabilities, some may want to enter truck-as-a-service business models to complement and in some cases potentially compete with the business of fleets.
This sector has not yet exhausted all opportunities to do more with less and these efficiencies go beyond the truck, requiring a rethink of how logistics processes and in particular warehouse operations are organised
While autonomous trucks have the potential to revolutionise and fundamentally change the rules of the game in the logistics industry, driving this transition is anything but cheap. As a result, truckmakers that drive autonomous efforts in-house will have to think about smart financial structures that enable easier access to outside funds. For those who are developing their autonomous capabilities via partnerships, the successful operation of partnerships will be key, a capability that not all truckmakers have developed in the past.
In addition, as winning technologies and choices are still unclear, flexibility and agility will be necessary and a certain amount of redundancy via extended ecosystems.
In short, while electrification and hydrogen are an evolution of propulsion systems, autonomous trucks will drive a revolution of business systems in the transport and logistics industry. Organisations across the board need to adapt to this new reality, many via a fundamental rework of the basic operating models.
About the authors: Walter Rentzsch is a Principal in Roland Berger’s Detroit office while Wilfried Aulbur, Frank Pietras and Thomas Fang are Partners in Roland Berger’s Chicago, Berlin and Shanghai offices respectively