Digging Deeper...

Investors have poured $11 billion into autonomous or driverless trucks in the last two and a half years, according to Seattle-based PitchBook, a data research company. Recently, several companies building self-driving trucks have gone public or announced their intention to do so. On August 15, CBS  60 Minutes aired its fifth feature on the topic in five years. Driverless trucks are being programmed to get from a distribution center to an Interstate to an off ramp where more conventional drayage will carry  goods and products over last mile to their final address. Ocean-going container ships are looking to service the last mile, as well, by acquiring freight forwarding and customs house brokerage companies.  Dennis McLaughlin, McLaughlin Writers LLC – Sources: Wall Street Journal editions August  2021; PitchBook, Seattle, WA; CBS “60 Minutes,” August 15, 2021; Statistica, Hamberg, Germany; Alberto Cavallo, Harvard Business School; Material Handling & Logistics, web-based magazine, Australia’ Supply and Demand Chain Executive; Digital Commerce 360, Chicago; Supply and Demand Chain Executive, Fort Atkinson, WI.

The Last Mile

Who’s Behind The Wheel? 

They’re not quite around the corner yet, but they’re not too far down the road. Self-driving trucks will likely hit the road before autonomous cars. Such an advance in automotive technology is all the more important because it comes at a time when over-the-road drivers are in short supply. The occupation just doesn’t seem to have the lure it once had of wide-open roads, independence and a campy counter-culture with its own CB-radio jargon, plaid shirts and logo caps. So freight companies, big-box retailers and shippers of all kinds of cargo are eager to get autonomous rigs on the road. The possibility of mitigating existing driver shortages – about 61,000 – while at the same time eliminating those salaries, has caught the attention of C-suite executives.

Other factors argue the case for driver-less trucks hitting the road first. Highways are ideal for 18-wheel AI truck operations; they’re wide, smooth and traffic is more predictable, with fewer stops and obstacles.  The business case is also strong.  The American Trucking Association said shippers paid $791 billion to move goods by truck in 2019.  Automotive engineers say autonomous trucking will significantly lower logistics and transportation costs, saving a lot of money. Embark Trucks, Inc., San Mateo, California, estimates its self-driving technology (which it hopes to sell to fleet operators as a subscription) will save 80 cents per mile, cutting costs in half, compared to human-driven trucks.

But who’s really behind the wheel of driverless trucks? Short answer: Capitalism and private sector investment. Recent investor enthusiasm reflects the importance of logistics in dealing with pandemic-related disruptions, including traffic jams at ports and driver shortages that have led to shipping delays. “It’s the Amazon effect [see more below], where everyone got comfortable getting everything delivered with the click of a button,” says Jim Scheinman, of Maven Ventures, which has invested in Embark.

Investors have poured $11 billion into autonomous truck startups in the past two and a half years. More telling is that $5 billion of that amount was raised in just the first five months of this year alone, according to Seattle-based PitchBook.  Investor enthusiasm for autonomous trucks is based on a more lucrative reality: Driverless trucks are expected to return larger profits. They will participate in a $800 billion market of moving goods. Driverless truck developers reason that if their technology lowers the cost of shipping, their cut of the savings will be staggering. By contrast, autonomous cars likely will debut in the ride-hail vehicle market valued at only $35 billion annually.  

Aurora Innovation, Inc., based in Pittsburgh, Pennsylvania and Mountain View, California, recently  announced plans to go public, joining a convoy of other autonomous truck startups, including Embark Trucks, Plus and TuSimple. These groundbreakers are working with big-name shippers like Hewlett-Packard, ABInBev (Anheuser-Busch) and carriers like UPS, Navistar, Paccar and Volvo. Players in the autonomous trucking space are somewhat mum regarding a rollout timetable, but 2023 or 2024 are reasonable target dates. Some, however, think driverless trucks will be operating by the end of 2021 and for sure in 2022.

Truckers themselves are obviously less enthusiastic than their bosses.  “Automated trucking threatens to jack-knife an entire $800 billion industry,” said 60 Minutes, in its latest coverage of the situation. Truck driving is one the more common jobs for American's without a college education. This disruption caused by the driverless truck cuts deep. Appearing on this segment of the CBS program, Steve Viscelli, a sociologist at the University of Pennsylvania and an expert in freight transportation and automation, said,  “I've identified two segments that I think are most at-risk: refrigerated and dry van truckload.” Those constitute about 200,000 trucking jobs. He added that 80,000 to 90,000 line-haul drivers were also vulnerable.  

On The High Seas

Last mile logistics refers to the final step of the delivery process from a distribution center or facility to the end-user. But the last mile delivery can range, metaphorically, from a few blocks to 50 or 100 miles, explains Carrie Mantey of the publication Supply and Demand Chain Executive. Last year, the ‘last mile’ grew its footprint in terms of the public’s awareness of its importance and of its critical role in the overall transportation operations of the entire supply chain. 

When the era of driverless trucks actually rolls out, it’s likely vehicles will travel autonomously to a highway exit near the destination, where a human or robo-operator will takeover. The last mile is precisely where robo-taxis will be most in demand.  “They’ll have to contend with less predictable characters, like people on foot, bike, and scooter,” says an Embark engineer.  “Building software to predict the movements of that group is a harder job.”

On the high seas, the last mile means literally (and easily) close to 50 or more miles. For one thing, the skipper has to shut down the average container ship or supertanker 15 miles from the dock. If a 180 degree turn is involved in the approach to a port, the vessel will require a one and a half mile turning radius. And it takes a fully loaded ship about 20 minutes to stop from its normal cruising speed. 

So, you might wonder why in the world would container ship companies  – whose non-stop circumnavigation time around the world for one of their ships takes about 77 days  and a normal Atlantic crossing from the UK to New York with 5,000 to 10,000 40-foot containers on board requires nine or 10 days – be interested in the last mile? 

Again, the short answer: Business and private sector investment.  “The whole global supply chain is under pressure,” Soren Skou, CEO of Denmark-based A.P. Moller-Maersk, said in early August. “Even if the consumer demand should turn down at some point, we will see the inventory restocking continue.”

That is why Maersk, the world’s largest container shipping line by capacity, is acquiring Salt Lake City-based Visible Supply Chain Management LLC, which operates nine fulfillment centers across the U.S. It is also purchasing Netherlands-based B2C Europe. The combined enterprise value is $924 million.

The deals follow a series of acquisitions and investments in sectors including warehousing, customs brokerage and trucking technology, aimed at extending Maersk’s expansion beyond ocean freight into inland logistics. 

“Our strategy has been to provide a more integrated solution,” says Skou. “So we are moving from shipping containers from port to port to shipping from door to door. For that to happen, we need to grow our capabilities on shore. Now, we are looking to be able to deliver goods from Asia to the U.S., not just to the port but also to someone’s door.”

Visible SCM is the larger of the two new acquisitions, with an estimated $550 million in annual revenue, while B2C Europe brings in about $140 million, according to investment analyst group Jefferies. The additional revenue is tiny compared with Maersk’s, but Skou notes the operations would help the company’s global sales force sell a broader array of services to big customers. 

Skou says the strong financial foundation would help accelerate a strategy Maersk launched in 2017 to make end-to-end logistics a bigger share of its revenue.  Maersk, he points out, has a “substantial” balance sheet, a bountiful war chest and $11.5 billion in free cash flow.  “With no debt, we have quite a significant ability to make acquisitions.” Maersk hopes to announce two more acquisitions by the end of the year.   

How Much Does Last Mile Delivery Cost?

Why Is It So Expensive?

According to Hamburg, Germany-based Statistica, a consumer research firm, the last mile delivery is the most expensive part of the fulfillment chain, costing an average of $10 per package, about $8 of which is paid by the consumer. Final mile delivery for larger items, such as refrigerators, ovens, and other electric appliances, can cost up to $50 per item. The average salary of a delivery driver is $15.69, so online stores delivering small items need to be sure that logistic plans ensure drivers make multiple deliveries an hour.   

Delivering thousands of packages to their final destination every day is a complex logistical challenge, notes Statistica. Last mile fulfillment is complicated, and many factors contribute to the overall cost:

Lower average speeds = more time on the road, and fewer miles-per-gallon: When drivers are delivering multiple packages to different locations around a city, they have to use local roads. The need to decelerate, stop, and accelerate at rapid intervals has a significant impact on both average speeds and fuel efficiency. So not only do drivers have to spend a lot more time on the road to cover the same distance, but they also burn in gas.

More stops lead to more idling and downtime: Driving and dropping off packages in the city leads to a lot more idling than other stages of shipping. With all the traffic lights, diverse vehicles on the road, and winding streets, it’s impossible to avoid. On average, a delivery truck uses 0.84  gallons of fuel when idling. And drivers are getting paid whether they are stopped or moving.

The Amazon Effect

Online spending represented 21.3% of total retail sales in 2020, according to Digital Commerce 360, a research and media firm. Consumers spent $861.12 billion online with U.S. merchants in 2020, a significant bump upwards of 44% year over year. Much of the boost coming from the COVID-19 pandemic, no doubt. That was the highest annual U.S. ecommerce growth in at least two decades. It is also nearly triple the jump of 15% between 2018 and 2019.  Globally in 2020, 80% of consumers shopped online, says consumer data provider Statistica, Hamburg, Germany.  In the U.S. an estimated 60 percent of shoppers said their favorite online source was Amazon, followed by Walmart’s web shop at 15%. 

But Amazon didn’t become the world’s most valuable public company in 2019 just because it was essentially the first company to operate in and exploit the potential of the online e-commerce retail space. Rather, Amazon focused on the last mile from its beginnings 25 years ago, delivering purchases to customers with faster, more affordable and uncomplicated shipping capabilities. Last mile delivery is the most expensive part of the fulfillment chain, costing an average of $10 per packaged delivered, reports Materials Handling & Logistics journal. On average, businesses charge the consumer a little more than $8 to cover these costs, covering the rest from the profit of sold products. 

Global logistics spending soared beyond $10.6 trillion annually in 2020, MH&L reports. Of that figure, the journal adds, 70% derives from transportation costs, and more than 40% of the transportation costs are within last mile distribution. “The only way to survive and thrive in the omnichannel, contactless era,” says MJ&L, “lies in understanding the impacts that are reshaping the state of last mile distribution and what it means for supply chain visibility, use of technology and growth going forward.”