Trucking: The Next Unicorn Marketplace?
With over $5.4B dollars poured into Uber over the last year, we are seeing more and more founders coming to us with an “Uber for X” pitch for their marketplace business. As frequent investors in (and builders of) marketplace businesses, we are thrilled to see new technology companies building marketplaces in B2C niches, but have been spending a lot of time thinking about B2B marketplaces, and are increasingly drawn to that landscape.
Often, it is the older industries that are most ripe for disruption because they exhibit low technology penetration rates, high transaction costs and inadequate resource utilization. Nearly a decade ago, Lightbank’s co-founders (Brad Keywell and Eric Lefkofsky) saw these conditions in freight brokerage and set out to create the world’s most technology-forward logistics company. Today, that company, Echo Global Logistics (NASDAQ: ECHO), is valued just under $1B, and demonstrates how mapping supply and demand effectively can create contributions in the value chain.
Looking to the future, we see an emergent class of startups seeking to build upon Echo’s legacy and further disrupt the freight brokerage landscape by leveraging the real-time marketplace technologies available in advertising networks and financial markets. Dozens of businesses have been funded over the last decade attacking the $53B addressable market in freight brokerage revenue, and a growing share of these businesses are focusing on creating dynamic marketplaces for trucking. Many of these companies are branded by insiders with the increasingly familiar terminology: “Uber for Trucks”.
We see many reasons for founders to disrupt the trucking industry: it’s massive, has low technology adoption, is highly fragmented on both supply and demand sides, and has dismal resource utilization. It’s estimated that $25.5B is wasted every year on trucks traveling back to their original destinations without loads or standing idly waiting for shippers to call. Investors have been pouring dollars into the industry, with over $400m invested in the trucking tech category and over $100m in what we call “Uber for Trucks”.
The conditions of the trucking market, however, are more complex than those of a traditional consumer marketplace. Loads can be worth millions of dollars, creating a heightened need for trust and accountability, which is difficult when counting on fragmented truckers dominated by high turnover. Brokers have developed a strong incumbent position due to their networks of reliable truckers, but even these organizations struggle to acquire quality and cost-effective carriers due to the increased competition for the best drivers. Because carriers face low multi-homing costs, it’s difficult for any broker (especially a new comer) to lock-in supply in the marketplace — which is often a prerequisite to marketplace success. I occasionally borrow a framework popularized by Tomas Tunguz (link) which helps illustrate that flows of power in the trucking value chain generally belong to the incumbent brokers. Entrants that have been able to steal share (including Echo and Coyote Logistics) did so by leveraging technology to leap frog their competitors.
Despite these characteristics, the trucking industry is destined for change. Many great companies are on a mission to leverage technology to disrupt trucking, and we hope to see more. Great companies will find a way to gain a foothold through partnerships and capital to disrupt traditional incumbents and create efficiencies along the value chain. Breaking through will likely require more handholding than in traditional marketplaces (providing comfort to legacy users to ease the transition to digital) as well as partnerships that can facilitate immediate scale. With a market opportunity this big, there is plenty of wealth to go around and we expect several unicorns to conquer the space and take the trucking industry to the next era of digital productivity.
