The global pandemic has reconfigured the competitive landscape for a myriad of businesses worldwide. Road freight is no exception, but there is another dynamic at play impacting freight companies. The arrival of a new administration in the White House has pushed climate change back up the corporate and political agenda in the US, while governments in the rest of the world are prioritising green recovery programmes.
Together, these two forces look set to accelerate the transition in commercial vehicles towards electric powertrains and autonomous driving technology. Greater adoption of one will benefit the other. And the connectivity which underpins both technologies will create opportunities for freight players to improve their operations, build new products that monetise their data, and respond to declining demand in their traditional markets.
Self-driving systems will impact long-haul transport first
National lockdowns and curbs on individuals’ movements introduced in reaction to COVID-19 have caused an explosion in e-commerce as consumers have turned to the Internet to meet the need for food and other goods. The shift in shopping habits is here to stay. By 2026, global parcel volumes are projected to rise to over 300 billion, up from around 100 billion in 2019.
This trend is having a huge knock-on effect on the road freight market. In the emerging post-pandemic environment, e-commerce will play a bigger role in shaping freight flows. We expect to see increasing flows from one distribution centre to another, and far greater emphasis on last-mile delivery.
Operators such as Amazon are rapidly building up capacity to meet these delivery demands. E-commerce companies have a relentless focus on cost and automation, and they are not shy about disrupting entrenched business models and practices in sleepy sectors like the freight market. As a result, these players are likely to deploy autonomous driving technology first, starting with long-haul commercial vehicles.
Self-driving technology is ideal for heavy-duty trucks travelling along interstate highways between distribution centres. Using autonomous vehicles (AVs) enables companies to achieve faster delivery times which are currently only possible with two-driver teams, while completely eliminating the cost of driver labour. We estimate that the technology can cut the life-time operating costs of a long-haul truck in half, boosting carrier margins by 35% if the need for a driver was removed entirely. These are major benefits for an industry that is surviving on thin margins.
We estimate that industry profits from vehicles with internal combustion engines will fall by more than US$2bn through 2030, while profits from new-energy and AV sales, components, and mobility services could reach US$10bn by then
The use of AV technology in last-mile delivery is more problematic. Driving in urban centres involves greater challenges than on a highway and the driver has an important role in physically delivering the goods. OEMs and parcel delivery companies are experimenting with using drones for the final doorstep delivery, but this raises regulatory and technological issues. As a result, the sight of autonomous delivery vehicles in cities is still likely more than ten years away.
Autonomous and electric vehicle technologies could work in tandem
The widespread adoption of new-energy commercial vehicles using low- and zero-carbon powertrains will take longer than self-driving trucks. Commercial customers are highly sensitive to the total cost of ownership. Thus, the sizeable savings offered by autonomous driving technology mean it is likely to appear on conventional vehicles first. Nevertheless, the shift away from the internal combustion engine in commercial vehicles is unstoppable.
Companies of all stripes are facing mounting pressure to reduce their carbon footprints as climate change resurfaces as a major concern for US policymakers. Companies will be taking a close look at their supply chains, and for many of these companies we’ve found that end-to-end supply chain emissions, so-called scope 3 emissions, or emissions which occur as an indirect result of a company’s business operations, are much higher than the direct emissions from their own operations. Freight transport players are significant contributors to these emissions.
As a zero-emissions solution for freight players, battery-powered electric vehicles (EVs) are likely to emerge ahead of the other main options—hydrogen fuel cells and liquefied natural gas—largely because the technology enjoys broad support, has benefited from extensive research and development money, and is improving rapidly. It is particularly well suited to shorter-distance uses such as in-town deliveries. By contrast, the development of long-haul, battery-powered electric commercial vehicles is hampered by the need to build a nationwide fast-charging infrastructure.
Once such hurdles are overcome, however, autonomous and EV technologies could work in tandem to reduce long-haul carriers’ costs and boost efficiency. Electric powertrains have lower running and maintenance expenses than gasoline or diesel engines. Meanwhile, autonomous technology could be used to optimise vehicles’ routes so they are built around the location of physical charging points. Self-driving vehicles could also be programmed to maximise savings from tapping cheap electricity in different parts of the country or at specific times of the day.
Data-driven opportunities across the value chain
The advent of battery electric-powered autonomous trucks will focus minds on the role of the digital ecosystem surrounding the vehicle. Passenger car manufacturers such as Tesla are already building high levels of connectivity into their vehicles to enable monitoring, improve performance, and to provide navigation and entertainment services. The next step will likely involve greater adoption of ‘smart’ charging systems that allow charging infrastructure to share real-time data with EVs so they can maximise the use of electricity at non-peak times.
Autonomous commercial vehicles will also depend on data so they can function properly. Developers currently rely on 3D image recognition, deep learning algorithms, and high-definition mapping capabilities to help the vehicle’s software understand its physical location, detect the presence of other vehicles and prevent collisions.
Technology players stand to capture value by creating products on top of the explosion of data generated by AVs and EVs. But the advent of these technologies will create opportunities for players across the value chain. AVs and EVs will have different maintenance needs from conventional vehicles, requiring a new approach to servicing and changes to existing service networks. Greater connectivity will also enable companies to carry out predictive maintenance—especially important for fully autonomous vehicles—leading to higher vehicle utilisation rates and increased uptime. Remote monitoring will support driver coaching, resulting in a more efficient drive, and better matching of vehicles with cargos will reduce the incidence of empty or partial loads.
Mainstream OEMs and suppliers already face shrinking demand for conventional vehicle sales, components, and aftermarket services. And they are being challenged by new market players, new suppliers, and technology companies for a share of the emerging market in autonomous and electric commercial vehicles. We estimate that industry profits from vehicles with internal combustion engines will fall by more than US$2bn through 2030, while profits from new-energy and AV sales, components, and mobility services could reach US$10bn by then.
We estimate that the technology can cut the life-time operating costs of a long-haul truck in half, boosting carrier margins by 35% if the need for a driver was removed entirely
To compensate for the decline in conventional revenues, OEMs and traditional suppliers will need to build businesses in AV and EV components and software, such as algorithms and battery cells, either by developing their own capabilities or selectively partnering with technology players. The end goal: to create strong positions in specific components or software that give them a competitive advantage over rivals. They can also move downstream and tap data-enabled mobility services, such as fleet management and pay-per-use, using their existing expertise and strong customer relationships.
Freight and fleet players can also benefit from the data explosion caused by AVs and EVs by creating new products like digital marketplaces based on information about the location of individual vehicles. US-based freight management platform KeepTruckin’ is already exploring how to use data from its core product, electronic logging devices which remotely record driving hours, to improve safety and optimise truck arrival times at depots. Logistics companies, including freight brokerages, will also need to find ways to become more efficient and create greater value for carriers and customers using some of the new data available. If they do not, their traditional information advantage could be seized by newcomers.
How the data-driven landscape unfolds remains to be seen. However, all players should act now. First, they need to build a data strategy that seeks to tap the data coming out of AVs and EVs, either monetising it through new products or using it to improve their existing businesses. Second, they need to develop a decarbonisation strategy in preparation for the low-carbon challenge ahead. Approaching these twin challenges together will put transportation players in a position of strength in the increasingly complex and competitive environment to come.
Matthew Kropp is a Managing Director and Partner in The Boston Consulting Group’s San Francisco office. He is the global leader for BCG’s software innovation group and is an expert in digital logistics and digital transformation topics.
