Since it’s announcement and launch phases, Uber Freight has been hailed as the future of the freight industry, Uber’s greatest blunder, and quite a bit of what falls in between those extremes. The reality is that the venture will almost certainly have a lasting impact, but perhaps not in the ways we might have initially believed. As entire industries have slowed or halted altogether in response to novel coronavirus, Uber Freight has, thus far, failed to establish a firm foothold at a time when its business model seems ripe for success. Uber’s recently announced layoffs and plans to re-evaluate “non-core” businesses only serve to confirm as much. But Uber’s model of using freight as a loss-leader in a wider network of profitable subsidiaries may be here to stay.
Freight Brokers and Trucking Companies Do What Uber Doesn’t
Uber’s application-based model for ride sharing certainly made waves in personal/public transportation. Anyone with a smartphone can book a ride to their destination with a few taps, and they know exactly how much the ride will cost and roughly how long it will take. The automated approach works for that sort of service because the trips are highly localized and their purposes straightforward.
Hauling freight, especially over long distances, is a very different proposition and requires a degree of logistical know-how that can’t be automated right now. Truckers move time-sensitive loads of freight over long distances, and they often have support from logistics professionals to manage their routes and help them navigate unforeseen delays. Uber’s app offers none of that support.
Uber’s models for food delivery and personal transportation allow them to control to the price of their services and payments to contractors, but in the freight world this simply isn’t the case. Uber Freight has no more control over spot rates than any traditional trucking company, so that part of their model collapses in the freight sector.
They also have less control over what they pay out to contractors because there’s a more established baseline pay scale for freight haulers than for ride sharers. In short, freight may not be working for Uber because they can’t control the cashflow the same way they can in other arms of their business. Taken together with Uber Freight’s shortcomings in logistical support, the outlook is less than rosy.
Freight Emerging as a Loss-Leader?
Even if Uber Freight ceases operation, though, one part of its business model may impact the trucking industry drastically: freight as a loss-leader. Traditional trucking companies and freight brokers must haul loads for an overall profit to stay financially viable. An obvious statement, sure, but one that needs to made for context.
A company like Uber, with several active streams of income and potential revenue, can afford to infuse one arm of its business with profits from another and either haul freight for no profit or a loss. While Uber may be too small to finance the long-term evolution of a losing proposition into a winning one, there are most certainly corporate giants that can.
Amazon has already made waves with its disruptions to the traditional supply chain, and that’s just in service of moving the company’s own goods. If they decided to expand their operation into a full-fledged, one-stop shop for hauling freight they could have the potential to undercut the rest of the market until they’re the only game in town, so to speak. That sort of reduced (or eliminated) reliance on profit from trucking could have a massive impact on the industry if any suitably large corporations aggressively pursue those models.
A changing landscape for the trucking industry means that companies need to be increasingly cautious when choosing business partners. Planning for long-term success includes paying attention to credit scores – both for your company and your contractors. Let TransCredit help you with your credit needs. Contact us today.