On April 11th, Uber released their IPO prospectus. Uber Freight has gotten extensive attention in the logistics industry. The S-1 document reveals much more about Uber Freight than had previously been known. And what the company says about their opportunities in freight logistics is, at times, extremely misleading.
Here is what Uber says about the market opportunity: “According to the American Trucking Associations, businesses spent $700 billion on trucking in the United States in 2017, a total that we believe represents the SAM (serviceable addressable market), for our Uber Freight offering. Uber Freight currently addresses the brokerage portion of the United States market, which Armstrong & Associates estimates was $72 billion in 2017.”
The brokerage portion of the market – $72 billion – is the addressable portion of the market. As a rule, truck brokers serve small and medium sized shippers. Large shippers engage in long term contracts with large carriers. A certain carrier becomes the preferred vendor on a certain lane for a shipper, another carrier on another lane. It is only when the preferred carriers on a lane reject a tender, that large shippers reach out to brokers to secure capacity. So, when Uber lists enterprise shippers as clients – companies like Land O’Lakes – that is how these companies are using Uber; to secure capacity when their primary carriers reject a load.
Let’s look at this statement. “The freight industry today is highly fragmented and deeply inefficient. It can take several hours, sometimes days, for shippers to find a truck and driver for shipments, with most of the process conducted over the phone or by fax.” All true.
“Uber Freight greatly reduces friction in the logistics industry by providing an on-demand platform to automate and accelerate logistics transactions end-to-end. Uber Freight connects carriers with the most appropriate shipments available on our platform, and gives carriers upfront, transparent pricing and the ability to book a shipment with the touch of a button.” True.
What they have built is impressive. But it is not unique! ARC has had a detailed briefing on GlobalTranz’s on-demand brokerage platform. And there is other competition from leading logistics service providers (LSPs). These LSPs are spending billions to build out this kind of a solution. It is the view of many in the industry that what Uber is doing is an evolution more than a revolution; that the bigger brokers were already on this journey. Clearly though, Uber’s entrance into the market accelerated the investments in this area.
Further, there is something of a tech race going on surrounding transportation technology. In 2018, $2.7 billion was invested in transportation. This is up from$1.3 billion in 2017 and $849 million in 2016. There are techno-brokers with similar solutions, with Convoy being perhaps the best known.
And the competition is also coming from adjoining markets. Descartes purchased a truck visibility platform called MacroPoint in 2017. In addition to using this platform to provide visibility solutions for shippers, they are looking to create a digital freight matching service that does not disintermediate the thousands of small and medium size transportation brokers. In short, the list of competitors is much more extensive than the nine companies that Uber lists as their main competitors.
In the document, Uber indirectly addresses the issue of scale. For platforms, the bigger the network, the easier it is to provide shipper’s with loads on hard to service lanes and carriers with loads that reduce dead-head miles. In short, the bigger the platform the more the solution “greatly reduces friction in the logistics industry.”
The term used in the industry that reflects the size of the network is freight under management (FUM). Uber refers to it as freight gross bookings. Their freight under management is $359 million for 2018. My colleague Chris Cunnane has just finished up a market study on managed transportation, one of the solutions that competes with brokerage, and he has gathered data on this. The freight under management for BluJay Solutions is $2.4 billion, $3.6 billion for C.H. Robinson, $1.6 billion for GlobalTranz, and $7.2 billion for Transplace (a number that is inclusive of both the brokerage and managed trans operations).
It is also worth pointing out that you can’t automate processes to the same extent on a digital logistics platform as you can on a digital ride hailing platform. In using Uber or Lyft, I’ve never had to interact with a human when hailing my ride or paying for it.
But Uber employs customer service representatives because of the complexities of freight. Shippers may have requirements on special handling for products, very specific directions on delivery windows and where exactly in a yard the goods are dropped off, and many other things as well. Trying to provide a user interface that captured all these complexities would make the solution too unwieldy. Thus, Uber’s platform is digital. It does greatly reduce manual transactions. But it does not eliminate them. It is not quite analogous to their ride hailing platform.
What the numbers show is that Uber Freight has grown very rapidly over two years, although growth slowed considerably in their last reporting quarter. Uber Freight is also hemorrhaging money. Companies growing quickly can get away with money losing operations, but investors in platform solutions get nervous when growth slows.
Uber has a very powerful brand name. It undoubtedly contributed to Uber Freight’s growth. But if this was a stand-alone prospectus for just Uber Freight, and if the Freight division did not carry the name “Uber,” who would be foolish enough to invest in them?