December 3, 2019
Technology has upended one business after another across the United States. To cite only the most recent developments: Lyft and others have utterly changed personal transportation, and Airbnb has done the same for hospitality. And in January 2018, the first Amazon Go store opened, sans checkout clerks, promising similar upheaval for grocers.
Start with autonomous trucks (ATs), which will change the cost structure and utilization of trucking—and with that, the cost of consumer goods. Sixty-five percent of the nation’s consumable goods are trucked to market. With full autonomy, operating costs would decline by about 45 percent, saving the US for-hire trucking industry between $85 billion and $125 billion. The big question is how this savings will be distributed. How will shippers and carriers divide the lower costs of logistics? Or will most of the surplus move to consumers, in the form of lower prices?
The sustained acceleration in e-commerce continues to catch shippers by surprise. Today, between 12 and 15 percent of all purchases in the United States are made from the comfort of home. Amazon’s same-day delivery service is only a couple of years old, but already, up to 5 percent of all its deliveries are same day. By 2025, that figure might be as high as 15 percent, cementing customers’ expectations for fast and free delivery.
Automation at every step of the supply chain is expanding logistics firms’ ability to flex with peak demand, take on heavier cargo, and pick and pack individual products—all attributes that will support e-commerce. The industry is shifting toward comprehensive automation through projects such as XPO Logistics’s “warehouse of the future,” with collaborative robots, an advanced sorting system, and indoor drones. We expect that, as automation proceeds, logistics costs might fall by up to 40 percent.
Asset sharing is familiar to everyone who has stayed in an Airbnb home. We now see the same behavior in B2B environments, unlocking unused capacity in capital-intensive assets, such as trucks and warehouses—and even trains and ships. Already, last-mile crowdsourcing models, such as Amazon Flex, Australia’s Shipster, and other supply-and-demand-matching platforms, are making their presence felt, particularly in the less-than-truckload industry.
Finally, leading shippers and carriers are using data and analytics to forecast demand and optimize their routes in ways we couldn’t imagine even a few years ago. Some shippers have trimmed inventories by up to 75 percent, cut warehousing costs by 15 to 30 percent, and reduced administrative costs by 80 percent. Even some already-efficient third-party logistics (3PL) firms are finding that, in some cases, new routing powered by connectivity and analytics can produce efficiencies of up to 25 percent. Developments in mobile internet, the Internet of Things, and other technologies are not only increasing the data available but also helping reduce risk.
Any one of these five trends might—might—seem like a distraction. But taken together, these shifts clearly imply disruption across the logistics business system—trucking, rail, port, and warehousing. To stay ahead, executives should ask strategic questions, such as, how might disruptive trends affect their companies? When will these trends begin to impact customers, suppliers, and revenue streams? Do the trends present threats, opportunities, or both? And how can companies prepare?
While there are no easy answers to these questions, it is possible to identify the range of potential outcomes and define clearly where to take action. In our experience, a good first step is to brainstorm the potential sources of disruption, both technological advances and market changes, looking out ten years or so. For the logistics industry, new technologies include everything from mobile internet to hyperloop, while market changes include shifts in global trade flows and regulation. Exhibit 1 shows a sample of the trends worth considering.
The next step is to narrow down to a short list of trends that will happen soonest and exert the greatest impact. As a guide for the logistics industry, we have short-listed the five trends previously mentioned, though any company in this industry might come up with a different list, depending on its subsector and its circumstances.
In a series of articles, we will address the impact of one trend and the associated actions to take, subsector by subsector, to stay ahead of disruption. In this article, the first of the series, we describe the upheaval caused by ATs and the actions each player might take first to determine and quantify the impact (negative or positive) to the business, and then design initiatives to mitigate risks and make the most of opportunities.
ATs: Disruption on wheels
Trucking is deeply woven into the national fabric. The industry moves about two-thirds of all goods shipped in the United States. Truck driving is the primary occupation in more than half of all US states. And the industry is deeply traditional, with few major or structural changes in the preceding decades.
That’s all about to change. Already, companies have made fully autonomous beer deliveries and struck alliances to operate ATs jointly. The rigs these companies are using are typically new medium- and heavy-duty trucks, outfitted with lidars, sensors, and other technology to allow the vehicle to operate without human intervention. Basic versions of the kit cost as little as $30,000; high-end packages might cost $100,000.
Full autonomy is a long way off, however. Our colleagues at the McKinsey Center for Future Mobility have researched1 the likely development of ATs, which can be best understood in four waves (Exhibit 2). Each wave will lower operators’ total cost of ownership (TCO)—a little at first, and then a lot.
The first two waves will feature “platooning,” a technique to connect wirelessly a convoy of trucks to a lead truck, allowing them to operate safely much closer together and realize fuel efficiencies. Platooning with drivers, the first wave, will still require a driver in each truck (SAE International calls this Level 3 autonomy, or “conditional automation”). Over the next three to five years, networks of these connected convoys will develop, utilizing algorithms to link up. With better aerodynamics that lead to fuel savings, these convoys could reduce the TCO of a truck by roughly 1 percent.
In about five to seven years,2 the next wave, driverless platooning, will take hold. On interstate highways, these platoons will feature a driver in the lead truck and unmanned trucks following close behind. Upon leaving the highway, drivers will resume control of each vehicle. We estimate that the savings in fuel and labor will cut TCO by an additional 10 percent, though savings will be dependent on the proportion of highways and surface streets in the route. In every wave, long-haul routes (which have more highway miles) will offer greater savings.
In roughly seven to ten years, we expect a third wave of AT development: constrained autonomy (SAE International calls this Level 4 autonomy). Unmanned trucks will operate throughout the interstate-highway system and other “geofenced” areas without a platoon, subject to weather and visibility conditions, and developments in infrastructure such as the ability to communicate with traffic lights. Drivers will meet the trucks at the interstate exit and drive them to the ultimate destination, navigating city streets, local and pedestrian traffic, parking lots, and loading docks. This constrained autonomy will produce total savings of about 20 percent.
More than ten years from now, we expect the first fully autonomous trucks, operating at scale without drivers from loading to delivery (Level 5 in the SAE International framework). These ATs will reduce today’s TCO by 45 percent—though it will take many years for the autonomous fleet to displace the nonautonomous national fleet.