Greentech Capital: The Logistics and Freight Industry is Ripe for Disruption

Annual Report - 2018


DUNCAN WILLIAMS

The Journey of a Package: The Logistics and Freight Industry is Ripe for Disruption

DUNCAN WILLIAMS

With the rise of Amazon Prime, many of us have grown accustomed to ordering packages and expecting them to arrive in as little as two hours. However, we are largely unaware of the effort, steps and intricacies that go into moving packages from the shipper to our door.

Amazon, among others, has already automated much of the effort required to get its goods from shelf to truck – but where the true cost-optimization opportunity lies is once that package is loaded onto the truck. This stems from the fact that from 2015 to 2040, U.S. ton-miles of freight is expected to grow 27% from 6.56tn ton-miles to 8.39tn ton-miles (Dossier, Logistics Industry in the U.S., Statista). The three segments of a package’s journey – Collection & Sorting (shipper), Freight and Last-mile Delivery – are undergoing significant disruption to keep up with the proliferation of e-commerce.

These three segments – shipper, freight and last-mile delivery – are undergoing significant disruption to keep up with the proliferation of e-commerce.

The initial leg of a package’s journey, the shipper side, has been slow to adopt new technologies. The key opportunity for cost savings and efficiency improvements is in getting the loaded trucks to the highway or staging area. The process of loading trucks at distribution centers and manufacturing facilities has already begun transitioning to become autonomous. However, improvement of this stage will rely on the availability of autonomous or partially autonomous trucks to enable “truck platooning”, a process whereby a number of trucks equipped with driving support systems closely follow one another. While this stage of the journey will become more important with the expansion of autonomous trucks, it is also the one garnering the least amount of attention today.

After being moved to the staging area, packages must be transported between ports, factories and distribution centers through long-haul freight transport. This process has also remained largely unchanged, and solutions currently under development focus more on improving the existing system than replacing it with a new one. Two aspects are targeted for improvement: logistics and technology.

On the logistics side, routing and load optimization services from startups like Convoy and Uber Freight focus on improving the routing and optimization of the existing fleet of trucks already servicing the shipping industry. In parallel, companies like Peloton and Embark are working to improve the efficiency of shipments while decreasing operating costs by developing autonomous L4 technologies. The trucking industry spends $60bn on crashes, $100bn on fuel, and $300bn on labor every year, while generating $700bn+ of revenue – together this represents a massive opportunity for both top-line growth and cost savings (Congressional Budget Office – Pricing Freight Transport to Account for External Costs: Working Paper 2015-03; American Trucking Association (ATA); Equity Research).

Although the mail delivery system has been around for 150 years, recent macro trends are causing new problems for last-mile delivery. Even at the beginning of e-commerce, package delivery was a fairly limited occurrence, generally reserved for nonperishable items. Thus, time and placement of packages has never been a consideration. Now, with consumers receiving daily packages of everything from steaks to clothing, there is both an opportunity and a need for alternative solutions.

Individualized solutions are trying to replace an antiquated system, ranging from Walmart’s utilization of store associates to deliver packages on their way home, to Nuro’s autonomous delivery vehicle, to Amazon’s PrimeAir delivery drones. E-commerce logistics costs rose to $117bn in the U.S. in 2017, and e-commerce sales are expected to grow at approximately 15% per year over the near term, putting even more pressure on an already outdated system. The complication and opportunity in this space also stems from the fact that there will be no single solution. The needs of a suburban community for last-mile delivery differ greatly from that of a dense urban environment. Ensuring that each package is paired with the appropriate final delivery solution will become an important piece of the logistics puzzle.

Much of the media’s focus and Silicon Valley’s effort has been around disrupting the passenger mobility ecosystem, as companies like GM Cruise, Zoox and Waymo race to launch a commercial self-driving service in the next 12 to 18 months. Over 35 companies are pursuing autonomous vehicles for passenger transport, with fewer than 10 (but growing) focused primarily on the freight ecosystem. However, with freight tonnage expected to increase 36% by 2029, coupled with the lack of interconnectedness between the three major participants in the life cycle of a package, the logistics and freight industry is ripe for disruption and presents a tangible near-term opportunity.

The Journey of a Package: The Logistics and Freight Industry is Ripe for Disruption

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