Is Uber Freight a Going Concern?

Uber’s debts have continued to grow. Uber lost $4.5 billion in 2017, up from $2.8 billion the year before. Uber reported a loss of $1.1 billion in the fourth quarter on revenues of $2.2 billion.  It was recently reported that Uber will discontinue its same-day parcel and package delivery service called UberRush by the end of June. Considering its losses, focusing on the core passenger ride hailing service only makes sense. This raises the question “how much longer can Uber Freight stay open?” Uber Freight was launched with a vision of matching truck drivers with available capacity to available loads to reduce deadhead miles.

But recent news reports have not been good. Uber Freight is facing a problem it has yet to face in its core business – a driver shortage. To address this, Uber Freight recently launched an incentive program offering discounts on fuel, tires, maintenance, and the purchase of new and used vehicles. Drivers who use the Uber Freight app to book a load at least once a month are eligible for the discounts under agreements Uber struck with various service providers.

Meanwhile, Uber’s head of freight trucking, Lior Ron, who helped work on autonomous-vehicle technology, is leaving the company. This follows the controversial crash that recently involved one of its self-driving vehicles that was driving in autonomous mode.

While I was in the process of doing a market study on the worldwide transportation management system market, now complete, I talked to logistics technology executives. The struggles that Uber Freight has faced are not surprising to these seasoned pros. Kevin Haugh, the Chief Strategy and Product Officer at Omnitracs, said “Uber Freight is actually fairly rudimentary. There is not a lot of intelligence beyond a truck’s location and the characteristics of the vehicle.” Omnitracs is a provider of fleet management solutions. Their network gives them visibility to “not just this truck is over here and has these vehicle characteristics, but in many cases a truck’s route, and hours of service data” on how many hours a driver can legally still drive before taking a break.

Omnitracs is one of several existing network providers of logistics solutions that aims to leverage both their network and their years of experience in logistics to build a better solution than Uber Freight and other Uber Freight type startups can hope to build.

The core problem Uber faces is that many shippers, and virtually all the larger ones, don’t want to do business with just any carrier. They want to do business with a closed network of trusted carriers. A trusted carrier has sufficient insurance, drivers with safe driving records, often has expertise in special areas – like HazMat or refrigerated shipping – and can be counted on to deliver reliably.

Large shippers typically develop a route guide that specifies that for a particular lane, two or three carriers are preferred vendors designated to get the initial tenders. Only when preferred vendors can’t take the loads, do shippers reach out to brokers and the spot market to find alternative carriers. In short, this is not like the Uber ride hailing service where most customers are willing to accept a ride from almost any driver. Shippers need to be far choosier.

For example, a carrier might be able to show the network that in five days, we will deliver into Chicago and want to head back to the east coast. A shipper can see that the carrier needs a load and based on the empty backhaul that carrier might be willing take the load at a discounted rate. If the shipper can get a rate from a carrier in their network at substantially less than what they pay their incumbent on that lane, they can “grab” the load and book it.  “Shippers can subscribe to these carrier alerts.” If the shipper does not have origin traffic in Chicago, they do not subscribe to that area’s alerts.

Descartes is another logistics network provider that offers transportation management solutions. Descartes Global Logistics Network processes 15.4 billion messages a year. These messages include everything from bookings, bills of ladings, shipment statuses, and customs clearance messages. Descartes purchased a company called MacroPoint that provides global freight visibility solutions for shippers. While the visibility provided can be based on EDI transactions, a large proportion of the transactions are tracked in near real-time using ELD devices and cell phone tracking from over 4.5 million commercial vehicles. This size of the network provides the critical mass necessary for an efficient digital freight matching service.

Mark Carroll, the Product Manager for Capacity Matching at Descartes, spoke about the service they are piloting with select brokers at the Descartes Evolution user group conference in March. As previously mentioned, there have been several venture capital funded startups in this area. Mr. Carroll said, “these freight marketplace startups are really technology enabled brokerage firms” seeking to “disintermediate” traditional brokers. They are trying to compete with brokers that already have well-established relationships with thousands of carriers.

“We enable brokers to operate more efficiently, said Mr. Carroll.” Getting capacity in today’s tight market is tough. Brokers, through years working with individual carriers and a great deal of “tribal knowledge”, have created large communities of carriers that have great value to their clients. In fact, in the process of serving customers, brokers often end up cooperating with each other. The Descartes solution creates a “capacity co-op” where a broker can visualize their shipments and open capacity in their community of carriers and even share it with other brokers in win/win scenarios.

Chris Jones, an Executive Vice President at Descartes, added “The freight brokerage is way larger than a spot market. Many of the brokers, like CH Robinson, are quite large ($ Billions) and handle a significant percentage of their customers freight movement needs. The techno-brokers are essentially relegated to the spot market because they don’t have the relationships with the carriers. They also cannot guarantee a large and relatively consistent volume of business to carriers. The broker/carrier relationship is very symbiotic. They form working communities because they can rely on each other for business.”

In conclusion, it won’t be a surprise to me, or to many of the experienced logistics technology professionals I’ve talked to, if Uber Freight shuts down.