Unlocking the potential of software-enabled freight marketplaces
The road freight industry is on the verge of being transformed by improvements in efficiency delivered by digitization and artificial intelligence. By accessing route planning and freight data and using AI-based matching models, digital marketplaces can identify optimal routes and reduce the number of trucks making empty or half-empty journeys. This offers an opportunity for the sector to both significantly cut costs and to reduce its carbon emissions: In the European Union, trucks are empty for around 20% of the distance they travel each year. If the use of digital marketplaces can reduce this by 10-20%, we estimate the industry could save €1-2bn and cut CO2 emissions by 1-2 megatons.
However, there are complex issues to address, both for established transport and logistics companies and tech entrants seeking to digitize the market before software-enabled marketplaces can reach their full transformational potential. The road freight sector in Europe was worth around €355bn in 2019, and has played a pivotal role delivering goods door-to-door and handling erratic patterns of demand during the Covid-19 crisis. Yet margins are (still) low, it is a deeply fragmented industry, and many parts of it remain offline and relationship-based.
The market is also facing another significantly disruptive force, in the shape of autonomous trucks. Using digital marketplaces to match supply and demand via algorithms will become even more effective, because automation will remove driver-related restrictions including availability, qualifications and rest times, as well as unexpected complications such as drivers falling ill or having accidents. We expect automotive manufacturers (OEMs) to offer ‘trucking as a service’ via their automated vehicles, and to gain access to shippers and freight, OEMs may look to form strategic partnerships with digital road freight platforms, or buy them outright, creating powerful rivals to established transport and logistics companies.
With all these factors in mind, we have identified a model for success for software-enabled platforms and set out the key considerations for incumbents, tech companies and OEMs:
Software-enabled marketplaces will generate unprecedented efficiency gains, reducing costs throughout the value chain of road freight, by designing and enabling transactions more efficiently than the intermediaries that currently exist. The gains fall into two fundamentally different buckets:
The key to better matches lies in marketplace liquidity, or customer access, on the supply side, and the highest quality matching algorithms, plus control over freight and planning data. The two categories, linear efficiencies and network effects, combine to create a virtuous circle in which the former helps to fuel substantial gains in the latter:
While online freight exchanges have existed for years without radically altering the industry, software-enabled marketplaces now have the technological capability to transform trucking, providing significantly better matches than the existing intermediaries. At the same time, ongoing cost pressures, emissions regulation and the eventual transition to autonomous trucks will also spur demand for a new generation of more efficient marketplaces. The industry is at an inflexion point, and both incumbents and new entrants must make changes now to capture the opportunities.