Electrification, autonomous trucks, and connectivity are transforming the trucking industry. said Martin Lundstedt, President and CEO of the Volvo Group. He explored these topics addressing a crowd of trucking industry suppliers at the Heavy Duty Manufacturers Association’s lunch briefing during the North American Commercial Vehicle Show in Atlanta Oct. 29.
With 8 billion people projected to be living in an increasingly digital world by 2030, he said, “With that population that means that transportation needs will continue to grow and increase, both goods and people – but it needs to be considerably more sustainable,” in order to leave the world in good shape for future generations.
Vehicles are only used about 25 percent of the time over their life cycle, sitting idle and unproductive the rest of the time
Only about 40-50% of available load capacity is actually used, meaning more of a vehicle’s length is theoretically available for cargo
5-10% of total fuel consumed is used to move goods
Roads reach their peak throughput only 5% of the time, and even then, it is only 10% covered with vehicles
Nearly 7% of all U.S. accidents involve a large truck – and about 12% of fatal crashes.
“In Volvo, what we are going for is safety, that should continue to be the main priority,” he said – but at the same time, obviously new technologies offer great potential for more efficiency and productivity.
Lundstedt said the new technologies transforming the transportation system are electrification, autonomous technologies, and connectivity.
“They are interesting, but they must be put in context,” he said. “How do we get out the benefits?”
As a project that covers all three technologies, he highlighted Vera, an electric, connected and autonomous tractor, designed for repetitive assignments in logistics centers, factories and ports, Vera doesn’t even have a cab for a driver. Vera now is being used in its first real-world job – providing autonomous transport between a logistics center and the port terminal in Volvo’s hometown of Gothenburg, Sweden.
Moving to e-mobility, Lundstedt pointed to the Volvo Lights project (Volvo Low Impact Green Heavy Transport Solutions) where it’s conducting real-world tests of battery electric Volvo VNRs at the southern California ports, working with California’s South Coast Air Quality Management District and over a dozen industry partners. Volvo has said it plans to have the EVNRs available for sale by the end of 2020.
Also under the Volvo Group, Mack offers the LR electric for waste/refuse applications.
Autonomous trucks, he said, have a great deal of potential in areas such as safety, energy efficiency, and productivity, and predicted they “will come quickly into our business.” There are many applications the Volvo Group is involved with where autonomous trucks make sense, such as port drayage, mines, and cross dock operations. “This is an area where we are putting a lot of effort.”
Volvo recently announced it is establishing a new business division that will focus the company’s engineering, design and financial efforts to accelerate the development, commercialization and sales of self-driving vehicles. And earlier this year, Volvo Group announced a partnership with Nnvidia to develop advanced AI platform for autonomous trucks.
The third area where there is huge potential, he said, is “growing digitization.”
Today there are 1 million connected Volvo group vehicles. “We are collecting enormous amounts of data. The capability of collection, analysis and action have improved tremendously.”
This connectivity is enabling new levels of customer service and uptime, he said, allowing for more informed and specific advice.
Lundstedt emphasized that a large proportion of its investment in developing new technologies focuses on what he called “well-known technology,” such as powertrains, aerodynamics, and safety systems.
“Yes, we are investing heavily in new technologies, but equality heavily into what was call well known; there’s a lot that can be done in those areas as well.”
SALT LAKE CITY, Oct. 29, 2019 /PRNewswire/ — EKA Solutions, Inc., provider of a cloud-based freight integration ecosystem platform, announced today that it has launched its Enterprise Broker Omni-TMS® solution. This transformational new software solution completes the EKA suite of Broker TMS offerings – Core, Professional and Enterprise – to help broker customers of any size digitize their business and thrive in the new supply chain world.
EKA provides a transformational digital freight integration ecosystem platform to manage all the customer’s freight businesses. EKA serves as the system of record across multiple applications and seamlessly ties into other freight solutions (TMS, driver apps, etc.). A single digital end-to-end hub delivers a seamlessly unified, consistent, efficient and effective experience across all freight management systems for customer’s entire business with trusted entities.
“The end-to-end cloud-based Enterprise Broker TMS software solution is focused on large customers to transform their logistics and private marketplace business for rapid growth,” said JJ Singh, Founder, Investor and CEO of EKA Solutions, Inc. “With increased pressure to provide superior customer service and the shipper’s need for freight visibility, EKA’s innovative software tools enable large broker customers to make better decisions and faster, at affordable cost and with increased flexibility to manage all their freight businesses including 4PL”.
“EKA created the next-gen Enterprise Broker TMS solution to enable customers to create strategic operational leverage in the new freight economy,” said Mark Walker, Investor, President and Chief Digital Officer for EKA Solutions, Inc. “It’s exciting to see customers agreeing with us by signing-up to run their logistics business on the EKA Enterprise Broker Omni-TMS® platform”.
EKA Solutions, Inc., provides the Smart, Unified Platform EKA Omni- TMS® for – Virtually – Everyone. EKA Omni-TMS ® is the cloud-based SaaS freight Eco-System designed to transform the transportation and logistics industry. It empowers small, medium and large size broker, carrier and shipper businesses to operate from quote-to-cash with affordable and best-in-class digital tools, enabling the higher performance demanded in tomorrow’s supply chain. With real-time information, EKA Omni-TMS® enables brokers, carriers and shippers to provide visibility and transparency as they fluidly trade across an expanding and verified network with key, trusted partners. For more information about EKA, visit: https://www.go-eka.com.
A few short years ago, I used to give a presentation on the wave of disruptive technology that was just beginning to stir up the trucking industry. My Big Finish slide was a shot of the then-new-and-mind-blowing Amazon delivery drone– to make the point that while many fleets were struggling to find drivers, tech companies like Amazon were testing flying robots to see if they could one day deliver packages.
Well, it looks like that one day is here.
A slew of news stories over the past few weeks have made it clear that drones are getting very close to operational deployment in introductory areas. UPS and FedEx have been particularly aggressive in getting their respective drone programs up to speed – which makes sense. They are the two companies that would benefit immediately from drone deliveries.
And while we haven’t heard much from Amazon lately on the drone front, ZF is working on a delivery system of its own, and a company called Alphabet’s Wing claims to have beat everyone else to the punch, launching the first commercial drone delivery service in the U.S. on Oct. 19th.
In the short term, these developments aren’t going to change much for most of us. In fact, I’d guess most of us are still several years away from seeing our first drone delivery in person.
As crazy as flying robots dropping packages off on your doorstep sounds, the real take-away here is much more profound: The fact that we’ve gone from delivery drones being a far-fetched concept used in presentations about technology five or six years ago to reality is a stark confirmation that change is coming with stunning swiftness. And the only thing you can do in the face of these technological onslaught is to accept it and make it work for you.
Even more important than that, I think, is the reality that the pace of change has accelerated far beyond what most of us think of as normal. I’m often asked when I think autonomous trucks will become a common sight. And people are shocked when I tell them it could happen in as soon as five years – with 10 years being a more reasonable assumption. Most people I know who cover this industry tend to say 25 to 50 years – if it ever happens at all.
But my personal conviction is that the rate of technological advancement has accelerated to such a point that the trucking industry – perhaps society as a whole – may be significantly transformed in ways we are only just beginning to envision in as little as a decade. And I’m hardly alone in making that assumption. The stark reality now is that things are happening fast. And they’re getting faster at an exponential rate every 12 to 18 months.
Maybe you find this to be depressing. We are, after all, quickly moving into areas with many unknowns. Just this morning, Google announced that its engineers have unlocked the secrets to quantum computing. Moreover, Google believes these unfathomably fast and powerful supercomputers could be in common usage in as little as five years. And that means that the already-frenetic fast pace of disruption and change we’re dealing with will basically jump into hyperspace.
So, on the one hand, I’m feeling pretty good about my five-to-ten-year prediction for autonomous trucks. But, on the other hand, some experts are saying that quantum computers could pose the single greatest existential threat to mankind in history – worse than nuclear weapons, even. And that is, you know, kind of a buzz kill.
But one thing is for certain – we’re not going to put the technological toothpaste back into the proverbial tube any time soon. A whole new world is coming at us fast. And opting out of it is simply not going to be an option
Container volume growth on the East Coast of North America continues to outpace growth on the West Coast, despite longer ocean transit times and higher prices from Asia.
But the eastern railroads are not necessarily the beneficiaries here. CSX (NASDAQ: CSX) has cut many intermodal lanes, reducing intermodal volumes by 8% year-to-date, which followed a similar drop the prior year – the largest drop of any Class 1 railroad. Norfolk Southern (NYSE: NSC), on the other hand, moves the most intermodal freight as a percentage of total carloadings (55%), but has struggled to deliver operating ratio improvements as average intermodal rates fell from $1.78/mile to $1.47/mile this year (INTRM.USA).
First, price action in the spot markets for 40-foot containers from Asia to North America has responded to volume growth on the East Coast. Over the course of September, rates to West Coast ports (FBXD.CNAW) fell while they were flat or up to the East Coast ports (FBXD.CNAE), widening the ‘Panama spread’ (FBXD.PANA), or the difference between the rates.
A widening Panama spread has the effect of making West Coast ports relatively more attractive. U.S. Customs imported shipments to Savannah (CSTM.SAV) are at one of the highest levels they’ve been at in two years, while the same data for Los Angeles (CSTM.LAX) was higher for most of that period than it is today.
But the railroads that have pursued intermodal the most aggressively have underperformed against their main competitors, especially in the case of the eastern rails, CSX and Norfolk Southern. After CSX chief executive officer Hunter Harrison’s death in December 2017, Jim Foote took over, and described in earnings calls how the railroad’s intermodal network was almost a separate franchise that had been left nearly untouched by Harrison’s reorganization of the rest of CSX’s operations.
Foote removed about 7% of CSX’s intermodal volumes as he ‘rationalized’ the network to focus on high-density lanes where he saw an opportunity to improve service and yield by reducing the number of touches involved in CSX’s handling of the freight. The railroad was able to gets its operating ratio (OR), or the percentage of revenue consumed by operating expenses, down to 57.4% in the second quarter of 2019.
Norfolk Southern, on the other hand, is more committed to its intermodal business. NSC’s intermodal volumes are down only 2.4% year-to-date, compared to CSX’s 8%, the smallest drop of any U.S. railroad. But weak trucking spot prices (DATVF.VNU), down 16.4% year-to-date, have pulled intermodal rates down with them. Norfolk Southern was one of the last railroads to embrace the cost-cutting and efficiency initiatives of precision scheduled railroading (PSR), but so far has not seen the dramatic early-stage benefits that typically come with it.
“While the recent network changeover occurred without major incident, we are nonetheless puzzled by the seeming divergence in how the margin improvement story is unfolding at NSC versus prior PSR iterations (including what we have seen so far from UNP),” wrote Credit Suisse equities analyst Allison Landry in a July note on Norfolk Southern. “Typically, the step-function change in the OR occurs swiftly and in the magnitude of several hundred basis points of improvement within the first 12-18 months of implementation.”
Norfolk Southern’s large intermodal business, generally understood to be lower-margin than other commodity types, may be part of the problem. The other issue is that many railroad analysts think that intermodal is less competitive on the East Coast, that it doesn’t make as much economic sense to shippers, because average lengths of haul are shorter. If a shipper is moving freight from Los Angeles to Chicago, a distance of 2,000 miles, the shipper can save far more money by using intermodal instead of truck that it can on a lane like Savannah to Chicago, which is only about 970 miles.
Shippers who choose intermodal over truck are normally trading service for price, but for some customers, the trade-off is only worth it on long-haul lanes that produce bigger cost savings. The chart below shows relative year-to-date growth in long-haul trucking tender volumes for Savannah, Los Angeles, Elizabeth, New Jersey, and Houston.
Savannah’s long-haul trucking volumes have grown the fastest by far, nearly twice as fast as those of Los Angeles.
Part of the railroads’ struggle with intermodal this year – across the Class 1s, intermodal volumes are down 4.1% year-to-date – is caused by relatively soft freight demand and relatively loose trucking capacity. The rails have taken advantage of thinner volumes to reduce dwell times and run their trains faster, but those service metrics could deteriorate if volumes came back in a big way, for example if a resolution to trade disputes came earlier than expected, and re-accelerating economic growth sparked a surge in consumption.
In that scenario, railroad terminals could become snarled, trains might be delayed, and healthy margins might prove to be elusive as time-sensitive shippers prefer to pay premium prices to trucking carriers instead of the rails.
“Rails remain hotly debated,” observed Deutsche Bank equities analyst Amit Mehrotra in an October 3 investor note. “Investor bias is positive, but the magnitude of the volume decline is concerning, and as a result, third quarter results will be critical to the near/midterm outlook for Rail shares. In this sense, near-term conviction is significantly shaken, but long-term thesis still holds.”
Efficiency differences between port operators, the environmental regulation of drayage providers in Southern California, persistent labor disputes, and competitive container rates are all driving intermodal volumes to the East Coast. At present, it appears that CSX is largely uninterested in capturing that freight, Norfolk Southern may have more of it than it actually wants – NSC guided for flat intermodal volume growth for the full year – and that trucking carriers could stand to benefit the most.
When Harold Sumerford’s phone rang at 2:30 a.m. on April 2, he knew the news couldn’t be good. But he figured it was probably the safety department – not the CFO telling him the company’s entire computer system was down from a ransomware attack.
The CEO of J&M Tank Lines, Sumerford shared the headaches and lessons learned from that experience as part of a panel discussion on cybersecurity on Oct. 6 during the American Trucking Associations’ Management Conference and Exhibition in San Diego.
Although the company was able to get the email and phone systems back up in a few hours, it took four days to get functional again. Although they had backups, he said, in layman’s terms, the computer system “could see the data but didn’t know what it meant.” It was a painstaking process to go through all the lines of code and make it interpretable by the computer system. And during those four days, they weren’t able to bill any customers or enter anything into the system. Drivers got their paychecks only because J&M simply paid them the exact same amount they received the previous week.J&M was just one example of a rapidly growing problem with cybersecurity in the trucking industry. Transportation and logistics companies are now among the top-targeted industries by computer hackers, according to the panel. In fact, a recent article on ZDNet reported that “hackers are deploying previously unknown tools in a cyberattack campaign targeting shipping and transport organizations with custom trojan malware.”
Trucking’s Cybersecurity Vulnerabilities
Sharon Reynolds, chief information security officer for Omnitracs, explained that the “attack surface” vulnerable to hackers in the trucking industry is ever-expanding and includes:
CAN bus exploits on vehicles
Connectivity via satellite, wireless, cellular and Bluetooth
Internet-facing networks and platforms
Trucks, laptops, mobile phones, etc., connect to web services. Then there are web-based platforms we use such as GoToMeeting or SalesForce that are also points of connection. “So when you talk about the attack surface, think about the whole ecosystem,” she said. “These are all points of ingress and egress.”
Sometimes the point of vulnerability isn’t technology-based at all, but human-based. Moderator Ken Craig, vice president of special projects for McLeod Software, later shared with HDT a story of a “white-hat” test probing a company’s defenses where the “hacker,” unable to find a weakness via computer, called the company’s main phone line and went down the company directory until he found someone whose outgoing voice mail said they were on vacation for the next two weeks – then mimicked that employee’s voice to call the company’s IT help desk, saying she was having trouble logging in remotely, and got the access information needed.
“A high number of people do not survive these attacks financially,” Sumerford said. “This has to be a strategic priority.”
6 Things to do to Protect Your Company from Hackers
The panel offered a number of strategies to help prevent cyberattacks and mitigate their consequences:
1. Conduct an assessment.
Joseph Saunders, CEO of RunSafe Security, said there are many assessments available that you can use as a framework to evaluate the vulnerabilities in your organization. Generally, he said, there are about 100 questions to ask yourself. You can do it internally or hire an outside party to help (but don’t pay more than $15,000, he said.) It’s a good idea to do a new assessment once a year.
2. Conduct a penetration test
In a penetration test, an outside party, a “white hat hacker,” tests and probes your systems looking for vulnerabilities. Don’t tell your team you’re doing it, or they will become more vigilant and skew the results. This is a separate assessment from the self-assessment, and the results may be similar, or the white hat may find something that you did not uncover previously. Like the assessment, don’t just do it once. Repeat every year or two.As an example of a penetration test, Reynolds cited the Cyber Truck Challenge held in Detroit annually. “We bring our equpment, and college students and professional white-hat hackers hack our devices in an NDA (non-disclosure agreement) environment, and we get that feedback and can go back and say you to developers, you missed this.”
3. Prioritize the risks
You can apply a simple risk management framework, Saunders said. On one axis, plot the weaknesses you uncover based on the likelihood of an attack. On the other axis, plot them based on the significance of their impact. The items in the upper-right-hand quadrant that are both most likely and can do the most damage are the ones you want to address first.
“You only have a finite number of resources you can throw at this,” Reynolds added. “So identify the most critical things — but have your containment and mitigation plan in place for those critical systems.”
4. Apply software patches
Saunders compared software patches to washing your hands – it’s something that can prevent viruses, but only if you do it consistently. Yes, it’s a pain, but make it a regular part of operations and maintenance. Talk to your suppliers – they’re regularly coming up with fixes for weaknesses they find in their offerings, and you need to come up with operations that install them consistently.
5. Consider insurance
One of the things J&M Tank Lines did after its attack was purchase a cyber insurance plan. “Cyber insurance is becoming really critical,” said Omnitracs’ Reynolds. “Like any other business risk we insure for, it’s important to view it as a business risk.” However, companies will generally require you to put a robust cyber security program in place as part of the deal. “You have to have good cyber hygiene or they won’t pay.” Sumerford said J&M just renewed its insurance; “We have a pretty in-depth cyber security plan of action.” Which leads us to…
6. Create an incident response plan
Don’t wait until you get that phone call at 2:30 a.m. to figure out what you’re going to do if and when your company is the victim of a cyber-attack, Saunders said. “Knowing what to do when you get that phone call in the middle of the night is key.” Questions to ask yourself include:
Who is in charge?
Who gets notified?
Who is the response team?
Who is your forensics team? The panel emphasized that it’s important to build the relationship with that forensics company before you have the attack. It’s not exactly a good time to be trying to set up a purchase order with your computers down. Set up a retainer arrangement, Reynolds suggested. “This way, you can call and say, ‘It’s happened, boots on the ground.’”
Who is your FBI or DHS contact? Again, the time to meet your FBI or Department of Homeland Security contact is not when you’re in the middle of a cyber attack situation. “You don’t want to cold-call the FBI,” Craig said.
Will you pay the ransom?
Saunders said while these are good things to do in the short term, in the long term, the industry needs to find better ways to “disrupt hacker economics.”
“Often times if they can find a vulnerability in one place, they’re going to do it again and again,” he said. In fact, automated exploits are used in nearly 70 percent of cyber-attacks. “This is an underground business as sophisticated as the ones you operate. The idea is to disrupt hacker economics.”
The military has learned this lesson with drones. “If you think about a fleet of drones… each one is functionally identical, they have the same software, so if there’s a vulnerability on one, it exists in all. The military figured out if you could make it functionally identical but logically unique, so each one is different from an attacker’s perspective, then they have to spend a lot of time to work on each drone. This disrupts the hacker economy.”
Transflo has introduced Transflo Engage, giving fleets the ability to measure driver satisfaction from within the Transflo Mobile+ app using the People Element employee engagement platform.
People Element’s platform allows fleet managers and HR professionals to create, automate and delivery custom surveys to drivers through their mobile devices. It can be used to measure driver engagement, commitment to the organization and intent to stay, while helping employers take a proactive approach to turnover.
“When you combine our world-class survey platform and data coaches with the ability to reach drivers directly and easily through the Transflo Mobile+ app, you maximize your opportunity to increase driver engagement and retention like never before,” said Chris Coberly, president and CEO of People Element.
Traditional survey methods such as email or phone calls can be more easily ignored. Transflo Engage leverages the People Element platform and Transflo Mobile+ to provide a simple and convenient survey experience since the driver is responding to questions within the mobile app he or she uses as part of an everyday workflow.
With custom surveys and instant feedback, managers and HR professionals can make fast, strategic, data-driven decisions about how to manage driver satisfaction while maintaining a high level of engagement.
“Imagine if you could reach out to any one of your drivers at any time and ask how happy they are, or for their opinion about company policies or procedures,” said Doug Schrier, vice president of product and innovation at Transflo. “Now you can, with Transflo Engage on the Transflo Mobile+ platform. Drivers will feel more engaged and respected, which leads to improved morale, lower turnover, and a better bottom line.”
According to the Federal Motor Carrier Association (FMCSA) data, carriers who operate smaller fleet sizes of one to six trucks continue to add power to their operation, with tractor counts growing 5% since last September. Over the same time, fleets who operate more than 1,000 units have decreased tractor count size by almost 3.5%. A byproduct of the sell-off has been continued increase in used truck prices for 3-year-old class 8 trucks, even as the freight market has softened from a year-over-year perspective.
The trend is somewhat unexpected as this year has been marred with increasing instances of trucking company failures due to lower volumes and an oversupplied market. Only recently in August, was there a sustained level of increased volumes, but the increasing tractor counts for smaller fleets have been steadily rising all year. Some of this is explainable in the way the smaller carrier has the least amount of visibility to the broader market due to dealing with only a few shippers at a time, but that is not the entire story.
FreightWaves Chief Insight Officer Dean Croke says, “Digitization and e-commerce has made it easier for smaller carriers to penetrate the market by giving them visibility via technology like mobile load board apps and increasing volumes of regional freight movements compared to longer haul over-the-road freight that is more difficult to manage and maintain utilization levels.”
Along with load boards like DAT and Truckstop.com, many larger brokers like CH Robinson and XPO offer apps that make it very simple for drivers to identify freight demand on their phone without having an existing relationship with a shipper. Freight that travels less than 250 miles is easier to manage in a small fleet as round trips can be completed in a day, reducing the need for large networks. Many larger companies outside of Amazon such as The Home Depot have invested millions of dollars in their supply chain to make travel time from warehouse to end user shorter for faster online order completion. The demand for faster order fulfillment on just about all consumer goods has been expanding rapidly, which is changing the way freight is hauled.
The Shrinking Mid-haul
An upcoming release of a version of FreightWaves’ Outbound Tender Volume Index (OTVI) that divides the index into length of haul buckets, illustrates that volumes of loads travelling less than 100 miles (COTVI) are increasing much faster than other mileage bands over the past year. Interestingly, long-haul freight that travels over 800 miles is fighting for second place with loads travelling between 100 and 250 miles, leaving the 250 to 800-mile loads behind.
The result of a booming 2018 freight market has left an impression on many operators on the revenue potential of trucking. Owner operators and small fleet owners are taking advantage of last year’s profits by expanding their fleets by purchasing some of the more recent model year equipment while the large carriers are selling.
Record numbers of class 8 orders in 2018 lead to a slew of new truck deliveries in 2019. With large carriers replacing older equipment as well as contracting their fleets, it would seem to be a good time to purchase as the market turns bearish. This is truer for the four and five-year-old models whose prices have moderated since peaking in May, growing 3.8% and 2.7% respectively YoY. Three-year model prices have grown a much more robust 14.2% over the past twelve months.
It will be interesting to see if the trend of small fleet growth continues into 2020. Freight volumes have picked up, but more locally than long distance. Less-than-truckload (LTL) carriers specialize in local freight movements due to having a large portion of their fleet dedicated to local pickup and delivery runs. They will also benefit greatly from the shrinking load distances as they are more price competitive in that range
A new California law, going into effect in January, designed to address worker misclassification could seriously affect the trucking industry, but there is so much up in the air that there’s no clear path for trucking companies using independent contractor owner-operator drivers in the state.
AB5 does away with most of the traditional methods of determining whether someone is truly an independent contractor or an employee, such as the worker’s amount of risk and investment in his or her business, in favor of an ABC test.
The big problem with the ABC test is the “B” prong, which states that to be considered an independent contractor rather than an employee, the worker must perform “work that is outside the usual course of the hiring entity’s business.”
In other words, if you’re in the business of hauling freight, you could contract with someone to paint your building or do your taxes, but you can’t use an independent contractor to haul freight.
Or at least that’s what you would think. But AB5, like any bill, includes pages and pages of additional legalese, carve-outs for specific industries and other bits and pieces that have led to a variety of opinions on how it’s going to affect trucking companies.
“Is the sky falling?” asked Greg Feary, president and managing partner of the Scopelitis law firm, in a webinar. “It’s falling in certain areas, but we don’t predict it is falling in trucking for independent contractors.”
That doesn’t mean there aren’t some serious challenges ahead, and in the meantime, trucking companies in California are still trying to figure out what to do next.
“We have more questions than answers,” said Weston LaBar, executive director of the Harbor Trucking Association in California, in an interview, pointing out that the law as passed had no language in it specifically about trucking, for good or for bad.
Converting owner-operators to employee drivers
The bill’s supporters seem to expect that companies will simply convert their independent contractors to employees.
But Feary told HDT that he doesn’t see that as a “comprehensive solution.
“I would be surprised that under normal circumstances, a motor carrier approaching the independent contractor workforce and saying, ‘Give me a show of hands, who wants to become an employee,’ I doubt there would be many hands that would go up in the air.”
“A significant number of owner-operators, more than a simple majority, see themselves as independent businesses and entrepreneurs – and they did that intentionally. If they wanted to be an employee, they already would have been an employee for a motor carrier.”
LaBar said the association has members that already have been in the process of converting their independent contractors to employees. But he notes that the law is being challenged, and if ultimately the courts find that it is preempted by federal law governing motor carriers, “and you already reclassified them as employees, it’ll be impossible to convert them back. You would be compliant with state law but may be giving up a competitive advantage.”
In addition, like Feary, LaBar pointed out that a lot of independent contractor truckers don’t want to be employees, and rather than be converted, will likely take their truck to another motor carrier that is still signing on owner-operators. “If they have a large number of contractors they will lose capacity, and that is a concern, especially for our large motor carrier members who rely on hundreds of owner-operators,” he said. “Over the last couple of years, a lot of motor carriers who have gone to all employee fleets have lost a significant amount of drivers. In some cases we’ve seen two-thirds or more of the fleet leave and go elsewhere, because they want to remain ICs.”
Another knotty part of that conversion: Who’s going to buy the owner-operator’s truck? With all of California’s air quality regulations, “I don’t see trucking companies buying older used trucks from owner-operators.” We may see the used-truck market in California become flooded with equipment, meaning owner-operators won’t be able to sell the truck for nearly what it’s worth.
Are they truly in the same business?
The author of AB5 has targeted the “gig” economy and companies such as Uber and Lyft in her comments. Yet Uber has said it has no plans to make Uber drivers company employees.
“Contrary to some of the rhetoric we’ve heard, AB5 does not automatically reclassify any rideshare drivers from independent contractors to employees,” said Tony West, Uber’s chief legal officer, in comments after the bill’s passage. “AB5 does not provide drivers with benefits, nor does it give drivers the right to organize. In fact, the bill currently says nothing about rideshare drivers.”
Referring to the three-part ABC test, West said, “arguably the highest bar is that a company must prove that contractors are doing work ‘outside the usual course’ of its business. But just because the test is hard does not mean we will not be able to pass it. In fact, severalpreviousrulings have found that drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.”
Asked about Uber’s position, Feary explained, “Uber’s position has been for a long time that they’re a technology marketing company.” The drivers are doing business with people that who to move from point A to point B; Uber’s business is simply to put a platform together so those two can talk to each other.
Trucking companies could theoretically make similar arguments. You can argue (and companies have argued in court, with varying degrees of success) that the business of a motor carrier, engaging the shipping public and dealing with all the things associated with being a motor carrier, is not the same type of business than the independent contractor driver, whose business is freight delivery.
“The court recognized that QDA’s normal course of business was arranging for the delivery of those RVs, where the driver’s normal course of business was delivering them,” he said. “The court did note that if the company also had W2 drivers, they may have reached a different decision.”
However, said Scopelitis Partner Chris McNatt, “From what we’ve seen so far it’s highly doubtful a California judge would look at the driver-motor carrier relationship and not find they are engaged in the same business.”
A possible model: The business-to-business exemption
There is a business-to-business exemption in AB5 that may be of value, said Shannon Cohen, a Scopelitis partner, “meant to capture bona fide business-to-business relationships.”
To potentially meet this exemption, the independent contractor would have to have a business entity (such as an LLC, a corporation, etc.) that is registered by the state, she explained in a webinar. The business must have a separate business location and be “customarily engaged in an independently established business as the area of work performed,” advertise those services to the public, provide its own equipment be able to negotiate its own rates and set its own hours, and has to enter into contracts with other businesses performing the same work.
“That’s a series of fairly stringent factors,” Cohen said. “We do feel the model can be used to create a viable, workable model, but there are going to be a few factors you need to pay attention to,” such as the requirement to enter into actual contracts with other businesses – not just having the right to enter into such contracts as has previously been one of the factors often used to determine the independent contractor relationship.
Some companies, Feary said, might decide that they really are a third-party logistics provider or broker, not a motor carrier, and broker freight to motor carriers. Some of the company’s independent contractors might be willing to become independent motor carriers and accept brokered freight from the same company they used to run under contract to.
“You’ll find today any number of motor carriers that have a brokerage subsidiary because they can’t handle all the freight their customers want them to handle. Or they don’t prefer some of the freight their customers want them to move, it’s the wrong route, the wrong price, and they broker it out to small motor carriers. It may be they look at that and say, my brokerage affiliate or subsidiary is going to do more business now because that’ the way they’re going to do business in California. That’s going to depend on your position in the industry and who your customers are, if that’s the way they want to do business with you.”
The Harbor Trucking Association offers a Trucker Advantage program that helps drivers become motor carriers, offering help with permits, authority, insurance, etc. “That’s not easy for a lot of folks to do,” LaBar said.
Will the law even stand as is?
“Certainly one option is to stand pat,” Feary said. There are legal challenges and the possibility of “trailer” legislation, and even a potential ballot initiative, all of which mean “you have to think about, will this law even look the same a year from now?”
Scopelitis’ McNatt said the ripple effects of AB5 could be significant. “California is in many cases the bellwether of what’s going to happen across the rest of the country.” Democratic presidential candidate Elizabeth Warren earlier this month released a sweeping labor proposal, including adapting California’s ABC law as the federal standard.
“There have been extensive lobbying efforts; the California Trucking Association engaged in a valiant effort to obtain an exemption for trucking,” McNatt said. “Those will continue beyond the legislative session,” he added, and could lead to so-called trailer legislation, follow-up legislation that could change the law.
“Stay tuned also for what you will see from the gig companies potentially pushing their own trailer legislation and/or pushing for a ballot measure, which could bleed over into trucking,” he said.
However, said HTA’s LaBar of a trailer bill that addresses trucking companies, “We don’t know if that will be beneficial for the trucking industry or will be even more onerous on the trucking industry.”
The law is also being challenged by suits alleging that for trucking, it is preempted by federal law through the Federal Aviation Administration Authorization Act, part of which prohibits states from enacting laws that affected a motor carrier’s prices, routes and services.
If the dispute makes it to the Supreme Court, Feary said, “you might find out this law is federally preempted in trucking. But you can appreciate that’s not going to be a quick solution.”
Meanwhile, Cohen noted, “the legislation was subject of a hard-fought battle, and I think those efforts will continue through the 2020 session.”
Although Uber has said its drivers are not affected by the law because they’re not in the same business, it nevertheless is taking action to try to change the law. “We will continue advocating for a compromise agreement,” West said. “But we are also pursuing several legal and political options, including working with Lyft and other Internet platform companies to lay the groundwork for a statewide ballot initiative in 2020.”
Scopelitis’ attorneys said one possibility is a “dependent contractor” model. “Uber and Lyft have suggested that’s a direction they may go,” said Feary. “That has a genesis in Canada where we see the idea that they are independent contractors,” but there are still benefits and the ability to collectively bargain.
“A dependent contractor bill was launched in June in New York and it got no favor on the business side or the labor side; both were opposed to it. But with Uber and Lyft pushing it we might see some movement.” In fact, Bloomberg Law reported on Oct. 10 that lawmakers in New York are working on legislation to create a new dependent contractor category.
Another possibility is a ballot initiative. When AB5 passed, Uber and Lyft together had already transferred $60 million into a campaign committee account for a ballot initiative.
What’s your appetite for risk?
HTA’s LaBar said the association has spoken with many top legal experts and attorneys in the state. “Most of them have very differing opinions on what you can or can’t do,” he told HDT. “Mostly the question you get asked is, what is your risk exposure appetite – how afraid are you of getting sued? If you’re completely risk averse, classify them as employees and try to build a business that way. If you’re medium risk, there are ways such as co employers and brokerage models. And if you have a big risk appetite, don’t do anything; at the end of the day you may be federally preempted and end up in a great position.”
Articles extolling the disruptive potential of digital freight brokers (DFBs) tend to draw impassioned comments from individual freight brokers who argue that DFBs are merely competing on price using the enormous amounts of capital ignorant VCs have showered on them. In this article I will highlight some of the arguments about why DFBs may find it harder to succeed to the extent that the venture capitalists who have invested in them might expect.
It is important to differentiate between DFBs and digital freight marketplaces (DFMs). The former operate traditional businesses with a relatively small number of outside partners while the latter seek to build software platforms with a relatively large number of partners and participants. In terms of the value proposition to customers, every digital freight marketplace would also function as a digital freight brokerage but not every digital freight brokerage would be a true marketplace.
The Tyranny of Complexity
Transporting freight is a complex business:
There are numerous regulations with which carriers and shippers must adhere.
Often, freight shipments must be transported via different modes of transport between origin and destination – giving rise to a coordination problem between different counterparties.
Shippers expectations and needs keep evolving.
Things go wrong all the time when freight is being transported over relatively long distances.
This is why traditional freight brokerages are characterised by a relatively large number of people who understand shippers’ needs, and work as intermediaries between shippers and carriers. Individual freight brokers perform a function that can not yet be replicated entirely with software.
As a result of the inherent complexity of transporting freight, DFBs quickly start to resemble their non-digital counterparts in terms of organizational structure. To put this another way, they operate in almost exactly the same way that their traditional counterparts do with the distinction that;
Traditional freight brokers invest relatively more money on people and relatively less on developing proprietary software technology to make individual brokers more productive and efficient.
Digital freight brokers invest relatively more capital in developing proprietary software technology to make their individual brokers more productive relative to their peers at traditional freight brokers.
What is Disruption?
One way to think of disruption is that it happens when a wave of new entrants into a market leads to financial distress for the most dominant incumbent firms causing dramatic shifts in market share and market power. For this to happen, new entrants must function in a way that makes it impossible for incumbents to offer an appropriate response.
In other words, technology-enabled price competition is insufficient; The most powerful incumbents can compete on price. Traditional freight brokerages can invest in productivity-enhancing software if they realize that is the direction in which the market is going.
Digital freight brokers will not disrupt the freight brokerage market until they start doing things in a way that traditional freight brokers can not. This is where digital freight marketplaces could come into the picture. A digital freight marketplace is a platform that largely eliminates the need for human intermediaries between shippers and carriers for load matching, allowing them to transact directly with one another using the magic of software.
The Functions of A Digital Freight Marketplace
To succeed a DFM must build and maintain a multi-sided platform that performs four functions;
First, it must build a large audience of shippers and carriers who have an interest in transacting with one another on the marketplace.
Second, as I have already described above, it must successfully match shippers and carriers with one another for the purpose of transporting freight. For carriers, it is critical that such a marketplace also solve the deadheading problem.
Third, it must provide, or allow other partners to provide complementary tools and services that are important for facilitating and removing friction from the on-going value exchange between shippers and carriers.
Fourth, it must develop, maintain, and enforce rules of behavior for participants of the platform.
This is why I said every digital freight marketplace is a digital freight broker, but not every digital freight broker is a digital freight marketplace. To succeed, digital freight marketplaces must equal or beat the performance characteristics that shippers have become accustomed to and expect from traditional freight brokers and DFBs. If DFMs can do this at a lower price, while folding other critical services and features into the marketplace, then we may start to see disruption that is repeatable, scalable, and profitable. By itself, load matching is a commodity, and DFMs must offer much more value beyond load-matching.
Moreover, DFMs must eventually be capable of integrated into existing: Transportation Management System (TMSs), Warehouse Management (WMSs) and/or Warehouse Execution Systems (WESs); Demand Planning Systems (DPSs); Materials Planning Systems (MRPs); Distribution Requirements Systems (DRPs); Labor Management Systems (LMSs), Customer Relationship Management Systems (CRMs); Supplier Relationship Management Systems (SRMs); Enterprise Resources Planning Systems (ERPs); or Business Intelligence Systems (BI). Basically, a DFM must be capable of integrating with whatever software and technology systems shippers and carriers use daily to facilitate the movement of freight.
Some Final Questions
Rather than debating if DFBs will disrupt traditional brokers, I find it more productive to ask if any of the current cohort of DFBs will make the transition from being a product- or service-based company to becoming a platform, a digital freight marketplace? A related question is this: Rather than trying to supplant traditional freight brokers should software startups be building a platform of productivity tools for traditional brokers?
I do not think there’s an easy answer to either question, but the answers that entrepreneurs and investors develop to those questions will determine what happens in the freight brokerage industry.
About The Author:
Brian Laung Aoaeh writes about the reinvention of global supply chains, from the perspective of an early-stage technology venture capitalist. He is the co-founder of REFASHIOND Ventures, an early stage venture capital fund that is being built to invest in startups creating innovations to refashion global supply chain networks. He is also the co-founder of The Worldwide Supply Chain Federation (The New York Supply Chain Meetup). His background covers the gamut from scientific research, data and statistical analysis, corporate development and investing for a single-family office, and then building an early stage venture fund from scratch – immediately prior to REFASHIOND. Brian holds an MBA in Financial Instruments and Markets, General Management from NYU’s Stern School of Business. He also holds a Bachelor’s Degree in Mathematics & Physics from Connecticut College. Brian is a charter holding member of the CFA Institute.
Trimble MAPS Development Platform Web APIs Enables EKA to Provide Real-Time Trip Management and Precise ETAs as Part of its Cloud-Based TMS Offerings
SUNNYVALE, Calif., Sept. 12, 2019—Trimble (NASDAQ: TRMB) announced today that EKA Solutions, Inc., a provider of cloud-based transportation management system (TMS) solutions, has licensed web APIs from the Trimble MAPS development platform to deliver intelligent automated dispatch and real-time visibility solutions with interactive trip management tools for brokers, carriers and shippers.
Consisting of mapping, routing, navigation and location APIs, the Trimble MAPS development platform is specifically designed for solution providers and fleets looking to build or enhance commercial applications.
“EKA is excited to work with Trimble. The collaboration between Trimble and EKA will deliver transformative and affordable solutions to small- and medium-size broker, carrier and shipper businesses. It will empower them to provide a better experience for customers and drivers, while reducing the time, expense and effort of managing the business basics,” said JJ Singh, founder, investor & CEO of EKA Solutions, Inc.
EKA has integrated trip management web APIs from the Trimble MAPS development platform to enhance its TMS Cloud. Through the Trimble MAPS stateful web services, trip data is stored on the server and used to continually monitor and manage the entire trip lifecycle, from planning through execution and analysis, resulting in highly accurate ETAs and the ability to visualize real-time trip progress.
“Creating a relationship with a solution provider who, similar to Trimble, is focused on enabling carriers, shippers and drivers to achieve operational success is extremely important to us,” said Bill Maddox, business development for Trimble MAPS Division. “With increased carrier pressure to provide superior customer service and the shipper’s need for freight visibility, we provide innovative tools to create or enhance applications that benefit the entire transportation workflow.”
EKA’s TMS solutions using the Trimble MAPS development platform are expected to be introduced and commercialized beginning as early as the third quarter of 2019.
EKA Solutions, Inc., provides the Smart, Unified Platform EKA Omni- TMS® for – Virtually – Everyone. EKA Omni-TMS® is the cloud-based SaaS freight Eco-System designed to transform the transportation and logistics industry. It empowers small- and medium-size broker, carrier and shipper businesses to operate from quote-to-cash with affordable and best-in-class digital tools, enabling the higher performance demanded in tomorrow’s supply chain. With real-time information, EKA Omni-TMS® enables brokers, carriers and shippers to provide visibility and appropriate transparency as they fluidly trade across an expanding and verified network with key, trusted partners. For more information about EKA, visit: https://www.go-eka.com.
About Trimble MAPS
Trimble MAPS provides global map-centric technology dedicated to transforming journeys through innovative routing, scheduling, visualization and navigation solutions. Built on map data and a routing engine designed specifically for commercial vehicles, its development platform and trusted products are made for a broad range of industries, workforces and fleets of all sizes. The Trimble MAPS brands including PC*MILER, CoPilot and Appian are the foundation for safe and efficient journeys worldwide—one driver, one vehicle, one fleet at a time. Trimble MAPS is a Division of Trimble: maps.trimble.com.
Trimble is transforming the way the world works by delivering products and services that connect the physical and digital worlds. Core technologies in positioning, modeling, connectivity and data analytics enable customers to improve productivity, quality, safety and sustainability. From purpose built products to enterprise lifecycle solutions, Trimble software, hardware and services are transforming industries such as agriculture, construction, geospatial and transportation and logistics. For more information about Trimble (NASDAQ:TRMB), visit: www.trimble.com.
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