Updates – Industry Study: Freight Trucking (#Startups)

Note: John Azubuike (@jnazubuike) and I are currently conducting research on software startups in the ocean freight shipping market. We expect to publish that towards the end of January 2017.

Our blog post about freight trucking startups opened the door to numerous conversations that we may never have had, with people who know more about the freight trucking market than we do. This update is my attempt to augment our original article with some of what we learned from those conversations. If it comes across as somewhat unpolished, that’s because I decided arbitrarily that I should not let 2016 end without this update being published.

So without further ado . . .

1. The barriers to success for startups pursuing the “Uber for freight-trucking” business model is even more fraught with danger than we were able to convey in our article. It is even more clear to us that brokers do a lot more than field a couple of phone calls, and that assuming it will be easy to cut them completely out of the picture is probably a dangerous assumption. We heard numerous anecdotes about the difficulties freight trucking services marketplace startups are facing . . . Yes, that including some that have been lionized by the tech press. Presumably, many are running on borrowed time.
2. Compliance is as acute a problem as we have imagined. In fact, Walmart Transportation was hit with a $55 million settlement only 5 days after we published our article. Many settlements and fines do not attract the attention of the news media. If Walmart is stumbling, imagine how tough it must be for less sophisticated trucking companies to stay abreast of the complex state and Federal regulations. Compliance software that is easy to deploy, and easy for fleet managers and truck drivers to use is a necessity. A number of new entrants into the market are taking that path. Notable among them; San Diego, CA-based Platform Science whose co-founders previously ran OmniTracs, the fleet management software division of Qualcomm that was sold to Vista Equity partners for $800 million . . . in cash.
3. Ty Findley, a member of the GE Ventures team covering Advanced Manufacturing, Logistics, and Supply Chain pointed us to the 2015 patent lawsuit between Fourkites and Macropoint, two developers of Fleet Management Software that enables fleet operators to track and trace the activities of individual trucks. In this lawsuit Macropoint accused Fourkites of violating patents held by Macropoint. The court ruled in favor of Fourkites; dismissing the Macropoint patents as invalid under the United States Supreme Court’s Alice Corp. vs. CLS Bank Int’l ruling of 2014. It will be interesting to see what forms of intellectual property prove most valuable in this market. If you have an interest you can read my work on Economic Moats in order to understand how we think about these issues.
   • Chicago-based Fourkites – announced that they closed a $13 million Series A round of financing led by Bain Capital Ventures in October 2016, and
   • Cleveland-based Macropoint – announced a $44 million growth equity round of financing from Susquehanna Growth Equity in November 2016.
4. Based on her years of experience with technology innovation in the freight trucking market Debra T. Johnson of Eco-Edge discusses what she calls the “invisible barriers to innovation” that impede the success of startups in this market. She groups them under; Product, Customer, and Sales. Overcoming all of these invisible barriers to innovation requires founding teams that have; strong technical experience in order to build a product that works for this market, AND sufficient industry experience in order to build trust, and win credibility with potential customers.
5. Stefan Seltz-Axmacher of Starsky Robotics sent me the following comments by email – modified, and paraphrased for clarity. Starsky is a Y Combinator startup.
   • The huge inconsistencies in data about the industry are really frustrating. It would help to know what the most authoritative sources of industry data are.
     • I agree. We generally relied on data from industry associations, and then we extrapolated to fill in the gaps we wanted estimations for. Our estimations could be wrong. We relied mainly on: OODIA Foundation, and American Trucking Association. Data from the Bureau of Transportation Statistics is more difficult to parse if one is in a hurry. We did not have access to proprietary sources of data on the industry, but some times I wonder if they are any more accurate than data that is available from public sources.
   • The market map was a bit odd in terms of how you classified some of the startups, some of the startups may have been misclassified.
     • I agree. We expected this to be the case, since the way an investor thinks about a market is often not entirely congruent with how others see it. Our market map was only an approximation about how we think of the market – for example, we would group “truck automation” together with “automated cars” . . . Since the way we see it the key outcome is “automated land transportation” which can then be applied to trucks and cars – by the same startup/company, with adequate modifications to account for the structural differences between a truck and a car. Think smart-phones versus tablet computers; iPhone versus iPad. Or, think laptop computers versus tablet computers; MacBook Air versus iPad. That being said, we’ll take another look at the market map when we feel it makes sense to give it a major update. There are many startups we did not know about when we put it together.
6. Craig Fuller, CEO/Managing Director of TransVix stopped by our office to tell us about what they are doing to solve the dynamic assignment problem using the contract theory approach by building a derivatives market for trucking, rail, and containers. If you believe their estimates, this could be a $1.4 trillion opportunity in the United States, and possibly an $8.0 trillion opportunity globally. Yes, you read that right. Trillion, with a “capital tee”. Craig shed further light on some aspects of the trucking industry that we did not fully understand. He also laughed at me when I told him I had developed a headache as we were trying to unravel some of the mysteries of the maritime freight shipping market. He gave us some good ideas for paths along which we might conduct some research.
   • The only other startup I know about that’s pursuing a somewhat similar business model is the New York Shipping Exchange.
7. We also heard directly from startups based outside the United States that are building software for domestic freight trucking markets in; Israel, Brazil, Germany, India. We heard anecdotes about startups in the Middle East and Eastern Europe.
8. These news reports caught our attention in the days and weeks after we published;
   • Amazon Launches Uber-Like App for Truck Freight – December 18, 2016,
     • Intriguing, because of the relationship with Convoy – Bezos Expeditions is an investor in Convoy’s seed round, and the co-founders Grant Goodale and Daniel Lewis are both former employees of Amazon.
   • China’s Uber for Trucks Huochebang Fetches $1 Billion Valuation – December 21, 2016, and
   • Uber Launches Uber Freight – December 27, 2016.
9. Daniel Burrows, founder and ceo of XStream Trucking, a seed-stage tech startup – thinks about the problems in the freight trucking problem from the fuel efficiency side of the profitability equation. Fuel costs account for as much as a third of the operating expenses of a truck fleet. The team at XStream reports that its technology can generate fuel savings of between 2.5% and 8%. You can see the potential for those savings to add up to something significant for the industry when you consider that, according to the American Trucking Associations;¹
   • Trucks consumed 52.3 billion gallons of fuel for business purposes in 2011; 37.2 billion of that in diesel fuel and 14.8 billion in gasoline,
   • The industry spent $143.4 billion buying diesel fuel in 2011

This seems to be a market that will remain active for sometime to come, and we are eager to see what new developments occur as time progresses.

We’re studying startups building technology for the ocean freight shipping market. We expect to have made enough progress to publish it in a few weeks. Stay tuned. Better yet . . . Send us ideas; @brianlaungaoaeh and/or @jnazubuike.

Update: January 3, 2017 at 17:30 to include insights from Daniel Burrows at XStream Trucking.

1. Source: http://www.trucking.org/News_and_Information_Reports_Energy.aspx. Accessed on Jan. 03, 2017. ?