Trucking fleets today must manage three main objectives: they need to operate profitably in an increasingly volatile and unpredictable environment, they need to become more sustainable to meet their shareholders’ and societal expectations, and they have to offer attractive driver jobs in times of growing driver shortages. Simply clinging to old operating models is unlikely to lead to an acceptable outcome, hence more and more fleets turn to technology such as connected, electric and autonomous trucks as well as the digitalisation of logistics to provide solutions to these pressing problems.
As always, the challenge for fleet operators is to differentiate the marketing noise of technology providers from sustainable and profitable business improvements that are enabled by technology. Luckily, the first successful use cases exist and indicate that technology will be able to support the logistics industry in providing goods to customers in an efficient and sustainable way.
Taking numerous challenges head-on
Trucking fleets need to operate profitably in a largely fragmented market, with a product that is highly commoditised and offers little room for differentiation. Industry margins have historically been low.
As the product of trucking is largely commoditised, most fleets achieve comparable revenue per mile. Optimising cost is key to profitability and requires tight management of key drivers. First, successful carriers are experts at quickly adapting their fleet composition in volatile market conditions and ensure that they do not have too many assets on their books. They also manage to proactively drive high utilisation of their trucks by dynamic matching of supply and demand. Lastly, they optimise operating cost parameters such as fuel consumption, maintenance and driver costs.
Drivers are a significant cost item which has gone up in recent years due to a systemic driver shortage in most markets. Fleets in the US and Europe have been facing a driver shortage for several years now. China is starting to see the same issue. Besides the availability of drivers, fleets need to worry about driver quality. Attracting and retaining good drivers is a key challenge. Besides attractive pay, fleets try other ways to make the job more attractive, such as by providing more comfort and safety features and working on return to base operations to ensure drivers can be home at night. Driver quality determines not only operational parameters such as fuel efficiency and maintenance cost, it also influences legal costs. The better the driver, the fewer the accidents and the less likeliness of time-consuming and costly litigations.
In addition to economic targets, sustainability is increasingly becoming a topic in the industry in all key markets. Logistics is a major driver of GHG emissions and hence in the limelight of both public opinion and regulatory action. For example, in March 2020, the European Commission proposed a law that aims to achieve net-zero GHG emissions by 2050. To achieve the 2050 target, the sales of internal combustion engine (ICE) vehicles would be reduced to a minimum by 2040 and would drive the logistics industry towards either battery-electric or fuel cell vehicles. In the US, California’s new Advanced Clean Trucks (ACT) rule introduces a regulatory push for fleet sustainability as well. China has generally been supportive of battery electric and fuel cell powertrains. However, at present, total cost of ownership (TCO) of alternative powertrains is higher than that of diesel engines for most use cases. Infrastructure availability and changed operating conditions at depots put additional strain on fleet operations. In a price-constrained, commoditised market, fleets must find a way to minimise the cost of running alternative fuel vehicles.
Technology – a necessary means to an end
Strong competition in logistics markets limits the capability of fleets to experiment with technologies for the sake of new technology. New approaches to doing business based on technology must prove that they can enable fleets to provide essential services effectively, safely, reliably and in accordance with the law. Luckily, several technologies are currently able to support fleet operators in their quest to navigate a challenging environment. The key technologies that we will discuss in this article are connectivity, zero-emission powertrains, automation and the digitalization of the logistics space.
Those that embrace technology trends and build up relevant capability early may have an opportunity to differentiate and earn above-normal returns in the mid-term
It is important to re-emphasise that fleets must take rational business decisions. For example, Camera Monitoring Systems (CMS) have a near-complete penetration in Europe as they are required by law. In the US, penetration for these systems is so far low, as fleets do not see regulatory necessity and economic benefits. By contrast, Automated Manual Transmissions (AMT) drove fuel efficiency improvements in Europe and were a tried technology that jumped from 10% penetration to over 70% penetration for new Class 8 trucks in the US over a short period of five years.
Connected solutions – impacting fleet operations today
New connectivity technologies are enabling a range of service offerings for drivers and fleets in the commercial vehicle space. Solutions like driver scoring, load monitoring and fleet management help improve efficiency, drive cost savings, improve safety and security, reduce downtime, and improve service levels.
While a whole range of solutions is available, they generally have very different maturity levels. Some solutions such as basic asset tracking are mature while services such as predictive maintenance are still emerging.
Fleet adoption of solutions is driven by whether or not the solution addresses clear pain points and integrates seamlessly with existing systems that are already in use. Generally, solutions that are ‘a mile deep and an inch wide’ are preferred versus solutions that are ‘a mile wide and an inch deep’. This means, that fleets are looking for comprehensive approaches to the needs of their specific logistics business. Adoption may require seeding fleets with new technology at a loss to establish positive use cases based on real-life examples.
For example, fleets have been cautious to implement camera systems such as forward-looking and driver monitoring systems, in the past. Many drivers saw them as ‘spy in the cab’. Once fleet operators saw the benefits, such as availability of relevant footage in case of accident and lawsuits and driver training, adoption sharply increased.
Digital logistics – a potential driver of efficiency
Digitalisation of logistics happens in many ways. One solution directly relevant for fleets is digital freight matching (DFM). Many startups, but also incumbent players are active in the space. In a simplified manner, DFM generates cost savings through automated supply and demand matching. In principle, this would lead to improved fleet efficiency and utilisation. By leveraging artificial intelligence (AI), DFM promises to find additional loads and to reduce empty miles.
However, the industry has been operating at a constant level of empty miles, for example, in the US, for many years. New technologies such as telematics have not been able to bring about significant improvements in this crucial KPI.
Clearly, widespread adoption of DFM would benefit greatly from proving that the empty run KPIs are significantly improved by employing this new technology.
Going green – where it makes sense
As mentioned earlier, sustainability is a key consideration for the logistics industry. Therefore, it is not surprising that many large fleets are testing electric trucks. In some areas, for example, London, city entry restrictions are a potent motivation to introduce and operate electric vehicles. In other use cases, electric trucks must have a positive TCO versus the diesel alternative to make a relevant dent in fleet asset purchases. Based on TCO considerations, applications of eTrucks will mainly be in local and regional networks, where range requirements result in smaller batteries, and hence lower costs, and the return-to-base character of the operations allows depot charging.
However, having electric trucks that have a sufficient range, decent TCO and high reliability is not enough for OEMs to be successful in this field. Fleets need complete solutions and extensive consulting to deploy larger numbers of eTrucks. Not all use cases and routes are suitable, charging networks both on route and at the depot need to be configured and established, charging cycles need to be optimised to bring down fuel cost, service networks for the eTruck fleet need to be robust. OEMs will only be successful if they work with the right partners and are able to provide a holistic eTruck solution.
Autonomy – tackling several challenges at once
Let’s remind ourselves, fleets want to optimise asset utilization, reduce lawsuits and associated costs, reduce operating expenses, improve driver well-being and reduce the negative impact of driver shortage. Autonomous trucking promises to address all these problems which is why we see a high interest in autonomy at present.
With autonomous passenger cars and robotaxis seemingly out of reach due to the complexity of the problem, most OEMs and startups are focusing on providing autonomous solutions in applications such as hub-to-hub or dock-to-dock for the trucking industry. While early market entry timelines by OEMs and startups seemed ambitious, we do believe that we will see a rollout of relevant autonomous solutions by 2025.
Changes that autonomous trucks bring will be fundamental to the way fleets operate
While the impact of the other industry trends discussed in this article will largely be evolutionary, automation has the potential to disrupt the industry. Operating cost savings of driverless trucks are unparalleled. Industry implications will be significant and include new operating models, fleet consolidation, a modal shift from rail to road and ultimately new business models such as capacity-as-a-service.
Automation is the trend that is the furthest out but due to its disruptive nature, fleets need to start preparing for it today. Changes that autonomous trucks bring will be fundamental to the way fleets operate.
A fleet CEO’s agenda
As we have shown in this article, addressing the numerous challenges that fleet CEOs face today requires detailed understanding and intelligent application of new technology. Connectivity and digital logistics are impacting fleet businesses today and need to be integrated in efficient operations. Sustainability will become a question of operating license over the next few years which drives fleets to understand and deploy electrified and potentially fuel cell trucks in their fleet in the short to medium-term. Automation and autonomous trucks are the 800-pound gorilla in terms of industry disruption and must be included in the strategic planning horizon of industry-leading fleets. Fleets have operated in a commoditised environment for a long time with a significant pressure on margins. Those that embrace technology trends and build up relevant capability early may have an opportunity to differentiate and earn above-normal returns in the mid-term.
Wilfried Aulbur is Senior Partner at Roland Berger and Walter Rentzsch is Principal at Roland Berger.
