The Trucking Industry is Ready for a Long-Overdue Digital Revolution

Trucking startups received over $9.2 billion in investment over the past 5 years, with year over year increases in funding ranging from 80% to 165% since 2016. Despite this influx of funding, large swaths of the industry remain untouched by technology. So far, much of the invested capital has gone towards creating digitized versions of existing logistics models. We believe that’s poised to change. And that there’s an opportunity to fundamentally transform how the industry operates with new business models, new data sets, and new markets. These changes will flow across the Commerce Continuum — showing up as new models for shippers and creating new payment, financing and insurance opportunities.

Trucking is the Backbone of the Global Supply Chain

The global supply chain is a complex organism that includes trucking, warehousing and holding, and logistics management, as well as freight forwarding by water, air, and rail. Combined, global logistics is a $9.6 trillion market, with trucking accounting for 43% of the sector’s total annual revenue.

With its vast Interstate Highway System, the U.S. supply chain is particularly dependent on trucks to move freight around the country. In the U.S. alone there are more than 3.5 million truck drivers employed by 1.1 million trucking companies, responsible for moving 72% of the nation’s freight by weight.

Venture Investment into Logistics has Been Supporting the Status Quo

Despite the inflow of venture funds into trucking startups, a large percentage of loads are still booked via brokerage firm call centers. Players such as Convoy and Uber Freight have begun to automate these connections (and raised impressive sums to do so), but haven’t fundamentally transformed the industry.

Being able to more effectively connect carriers with loads is a good thing, but it only scratches the surface when it comes to mitigating the industry’s most persistent headaches. Truckers and carriers are still dealing with challenges like hidden costs and fees, lost productivity due to roadway congestion, underutilized space, and precipitous spikes in insurance premiums. Not to mention the ongoing labor shortage, inefficient manual billing processes, and lengthy payment turnaround times.

New players and models are rapidly emerging to address these and other logistics challenges, and a seismic shift is underway as demand for their offerings by the underserved trucking industry reaches a critical mass.

New Approaches Will Transform (Not Just Optimize) the Trucking Market

We believe the most exciting innovations coming out of trucking will leverage new data or fundamentally new approaches. We see these players fitting into one of three categories.

New Data

The U.S. Department of Transportation (USDOT) mandated electronic logging devices (ELD) starting in 2017, requiring all commercial truck drivers subject to Hours of Service regulations to start digitally recording their hours on the road. Once installed in a vehicle, any information the ELDs record can be remotely accessed by a dispatcher, a compliance manager, or a DOT inspection officer.

This requirement effectively created the first mandatory, always-on source of trucking data, and we’re only just beginning to understand how to leverage the information. Real-time data from ELDs and mobile devices are enabling new capabilities and creating opportunities for startups. FleetOps, one of our portfolio companies, struck agreements with ELD companies for exclusive access to the data they log. This lets them automate digital brokerage services based on actual, on-the-ground data; a significant departure from the legacy call center model.

At the same time, companies like Tank, OutGo, Nirvana, Koffie Financial, and Cover Whale are using this data to provide trucking companies with more accurate financing solutions and insurance quotes. NextMv.io specializes in connecting warehouses and other endpoints, promising to reduce the endless waiting for loading and unloading by improving coordination between facilities and truckers.

New Model

The three traditional models for shipper/trucking relationships have gone largely unchanged for decades. These include:

Shipper-Owned — Many large shippers own, control, and maintain their own vehicle fleets. While this approach ensures access to trucking supply, these shippers have very little flexibility if shipping needs change.

Negotiated (but not contractual) — The equivalent of a handshake agreement, shippers and truckers negotiate rates and terms for certain routes. However, the shippers are not obligated to ship with these truckers, nor are the truckers required to accept loads from those shippers.

Spot Market — Shippers bid for available capacity on trucks at the time of shipment. Market dynamics play a major role here, often driving wild price fluctuations in the cost per load.

We believe there’s a need for a new model. One that provides shippers with more price certainty but without requiring them to purchase fleets outright. Companies such as Leaf Logistics are working to create new models that create contractual frameworks between shippers and truckers. Their aim is to split the difference between the rigidity of the shipper-owned model and the spot market’s uncertainty.

New Market (The Long-Tail)

The long-tail of trucking has been largely underserved by the industry, and harder to access due to its historical mistreatment of independent truckers. However, improved access to technologies once limited to large fleets has given small- and mid-size fleets the ability to punch above their weight classes.

Historically these players have either been unserved by large incumbent players or had tenuous relationships with vendors in this category. Many financial and retail incumbents like FleetCor, Pilot FlyingJay and others were purpose built to serve the largest fleets in the U.S. Consequently, their applications, functionality and pricing are often at odds with the needs and preferences of small fleets and independent owner operators. This incongruence manifests in long tail drivers still operating their businesses in a largely analog fashion.

Several venture backed start-ups have recognized the delta between the massive spend / revenue opportunity in the long tail and the quality of tech & services tailored towards these drivers. These companies (e.g. Coast, Mudflap, AtoB, Relay etc.) are providing a suite of financial products purpose built for independent truckers & small fleet owners ranging from expense tracking to fuel discounts.

Notably one of the key themes that remains true across most of these new players is a commitment to transparency and incentive alignment with drivers. Emerging players are building trust and relationships with smaller carriers, and courting their business in a way large platforms never prioritized. In particular, many are launching with take rate-based models tailored for smaller players’ modest budgets (vs high monthly minimums). This presents an opportunity for value-aligned players to earn commission-based revenue. One such company in our portfolio is Mudflap, a driver-centric platform aggregating independent driver demand to drive merchant-funded discounts at truck stop points of sale. Rather than charging a monthly fee to be part of their network, Mudflap earns a take rate on their spend — more or less “winning” alongside their customers..

Conclusion

The trucking industry is at a crossroads. While there’s been an enormous uptick in the amount of venture dollars being invested, much of that money has gone to companies upholding the status quo. This may be great for their bottom lines, but doesn’t do much for the industry as a whole.

We believe over the next 3–4 years that new models and methods will emerge that truly shake up the trucking market, instead of merely giving outdated processes the equivalent of a digital coat of paint. The lack of action by the most dominant players to address the industry’s biggest challenges has given rise to a growing number of startups ready and waiting to disrupt trucking as we know it.

If you’re building in the space, please reach out to Rima at rima@commerce.vc for trucking technology relevant in e-commerce or retail settings and to Vivek at vivek@commerce.vc for trucking FinTech related solutions.