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2019 has already witnessed a flood of investment (over $1.5bn) into autonomous trucking and delivery companies, with more to follow into similar start-ups and established vendors. Nuro, Ike Trucks, Daimler, TuSimple and Embark are riding the wave, but is this flood really a drop in the ocean that is nothing more than a temporary distraction from a worrying lack of tested, sustainable business models?
Annual expenditure on road freight in the US topped $700bn in 2017 (according to the American Trucking Association). A huge, complex industry that supports nearly 80% of the US freight capacity will be difficult to disrupt in a short period of time.
Whilst Interact Analysis is firmly of the opinion that autonomous trucks will revolutionise the freight industry (over 1 million highly autonomous trucks will be shipped by 2040 – see figure 1), a major challenge that’s yet to be fully addressed is how to drive profitable growth and simultaneously engage with those companies requiring or operating freight services.
Without establishing solid market solutions that address a problem and that can be integrated into customers’ operational activities, significantly more investment and time will be required, and $1.5bn may seem like small beer.
Autonomous Trucks: a license to print money or burn money?
Traditionally, companies can either choose to handle their freight needs in-house – owning their own trucks and employing their own staff of drivers, technicians, etc. – or out-source their freight requirements to a variety of third-party operators. Expense management and control of competence versus flexibility are the main drivers for the decision for one approach versus the other.
To reduce expenditure, companies can look to reduce capital costs (buying vehicles) or operational costs (drivers, maintenance, repair, etc.). For autonomous truck developers this provides two immediate opportunities to establish revenue generating potential:
- Very specific scenarios where automation solves a problem easily, without infrastructure spending/changes or the need for companies to change processes. Examples include moving vehicles around loading yards, mining, or carrying freight along relatively short stretches of road where driving conditions are good (largely straight roads, low traffic density, good quality road surface). In these scenarios operational expenses would be reduced by removing drivers and lowering repair costs.
- Providing a freight-as-a-service model to companies to reduce costs and make freight services less complex.
A majority of autonomous truck developers have, sensibly, opted to solve the relatively ‘easy’ first problem, lowering their development costs and increasing the chances of successful operation. Examples include TuSimple’s autonomous port freight trial. Whilst these should be an ‘easy’ sell to companies, many solutions are still being trialled and are several years away from commercial use, meaning additional funding may need to be sought to keep autonomous truck developers solvent.
Providing a subscription or service model is proving to be much more challenging and should be a source of concern for the nascent autonomous truck industry. Trials are fine and necessary, but the solutions and companies that are providing them are unknown and, when viewed from the perspective of a customer requiring freight services, a risky prospect.
The freight market is typically risk averse and driven by cost. Therefore, paying for a ‘guaranteed’ level of service to move freight is appealing, but not to a start-up which may lack financial stability. Additionally, many autonomous truck developers have yet to decide how they will price a subscription service as they don’t fully understand the cost to scale their own businesses or the true value their solutions bring.
Autonomous Trucks: Fortune Favours the Bold
How can the autonomous truck market move from now to the bright future that Interact Analysis forecasts? The best approach now is to be fast and flexible: developers of the technology need to move quickly from testing to commercial deployment. This will help to ‘pressure test’ their solutions and drive early revenues, even if not sustainable in the long term. Over the longer term, autonomous truck developers need to maintain ‘open’ discussions with their customers about their costs and business sustainability. By doing so they will maximise their opportunity to create a business model that is profitable for both parties.
Equally, companies looking to trial autonomous vehicles as a part of their logistics should be prepared to make an investment that supports development of small companies creating new value. Shouldering some of the burden of development and risk will foster better relationships and help to develop the technology more quickly.
Autonomous Trucks – 2018 report outlines the current state of the automated and autonomous truck market, with long range scenario forecasts for platooning and higher levels of autonomy out to 2040. An in-depth review of business models, legislative factors and competitive dynamics are presented, with a key focus on start-ups and disruptors.
If you’d like to learn more about this report or have any questions, please contact us at firstname.lastname@example.org