Blockchain-The Next Big Thing in Transportation

By Jason Seidl, Managing Director, Cowen Inc.

Jason Seidl, Managing Director, Cowen Inc.

The impacts of technology have been seen across the supply chain, from the men and women who move the freight, to the boardrooms, and even to the investors themselves. The last few decades brought us significant technological and equipment-based advancements that have positively impacted the transportation of goods throughout the world. Yet, these advancements will likely pale in comparison to what is still in store.

Companies such as Tesla, Uber, Waymo, Embark, TuSimple, and Nikola are in various stages of testing their self-driving Class 8 Trucks and other new technology. In late 2016, Nikola unveiled its plans to produce a hydrogen electric semi-truck. Dubbed the Nikola One, this class 8 tractor will be powered by high-density lithium batteries, produce zero emissions, have a range of 800-1,200 miles, and deliver over 1,000 horsepower. Plans for a $1 BN production facility were announced in early 2018, and Nikola has secured several large pre-production orders, including a flagship order of 800 vehicles (valued at roughly $720 MM) from Anheuser-Busch. In total, the company claims to have 9,000 non-binding orders and expects to deliver the first trucks in 2020. Meanwhile, rival Tesla announced its plans to produce a semi-truck in November of 2017. The Tesla Semi will have a range of 500 miles per day thanks to a battery pack powered by Tesla’s new mega charger, which leverages solar and Powerpack technology that is expected to generate a cost of electricity of $0.07/ KWh, according to Cowen Sustainable Energy and Industrial Technology analyst Jeffrey Osborne. Tesla has not generated near the orders Nikola has, booking an estimated 2,000 orders, with the first trucks expected to be delivered by 2019.

Compared to traditional diesel powered trucks, these hydrogen and battery technologies, among others, should save money for trucking companies and will likely be adopted over time. However, given the trucking industry’s conservative approach to change, adoption of more drastic advances will take more time (~7 years). The next step towards that end will be trucks utilizing conditional autonomy, where drivers will operate the vehicles when necessary and the computers will log most of the driving time. While this will not solve the age old driver availability issues, it is likely to still produce notable cost savings for trucking companies in the short-term. In the longer-term-i.e., decades—we view fully autonomous vehicles on our nation’s highways as realistic.

While it appears that the trucking industry has a head start with automation, it may not be the first to the finish line. The railroads could beat it. The rail industry’s journey to automation can be traced back to a tragic collision in 2008 between a commuter train and a freight train in California that caused the deaths of 25 people and injured 135 more. This accident caused Congress to pass the Rail Safety Improvement Act of 2008 that required all Class I railroad mainlines and commuter rail passenger services to fully implement positive train control technology (PTC) that gives railroads the ability to automatically stop a train from a remote location. Initially, the rail industry balked at Congress’ unfunded mandate, accurately claiming it would cost the industry billions over time. However, PTC has become the proverbial gateway drug for automation in the rail industry. Once PTC is installed across the rail network (likely a 2020 event) we expect Class I railroads to negotiate with the unions and the Federal Railroad Administration to reduce their crew size to one person, and in some cases be allowed to run without anyone in the cab. While this sounds futuristic, it is already happening on a smaller scale domestically at Disney Parks and in airport shuttle trains, as well as on a much larger scale in Australia. (Rio Tinto operated the first fully autonomous freight train in October 2017)

Companies, including Cowen, are utilizing Big Data to gain an edge in their day-to-day business practices, and the logistics industry is no different. Big Data has already been widely adopted by many companies, with uses such as operations, weather and financial forecasting, and vehicle diagnostics. XPO Logistics’ recently announced XPO Direct had a Big Data component to it. XPO’s flexible distribution model will target omnichannel retail and e-commerce customers by utilizing its existing operations/facilities in its freight, last mile, logistics, and brokerage divisions, and XPO will utilize Big Data to predict customers’ inventory needs and match them to capacity.

In the transportation sector, blockchain technology may be one of the biggest buzz words, but also one of the least understood. Simply put, blockchain provides an immutable ledger that is time-stamped and completely transparent to all parties in a particular network. This technology should permit participants to track freight through complex supply chains, where sometimes five or more separate entities are responsible for the movement of, and payment for, a single piece of cargo. Friction in the supply chain can occur for many reasons, including things as simple and benign as human error—miscommunication between people, or even typos—a lack of accountability, or more complex and sinister issues of fraud. Blockchain provides a way for multiple parties in the network to see who is responsible for what and when. We foresee numerous opportunities to utilize blockchain in the US brokerage and trucking industries, but believe that the best application for it could come in international trade. Indeed, international movement of goods relies on the visibility and traceability of cargo via foreign languages, different regulations, various time zones, and variances in quality control and customer service standards. But, like some of the advances in autonomous vehicles, we view the international application of blockchain as being years away. That being said, the fact that The Blockchain in Transport Alliance (BITA), which was established less than a year ago to develop a common framework and standards from which the transportation industry can build applications, was able to sign up 300 companies representing over $1 trillion of freight spend, should let people know just how important blockchain technology could be to the future supply chain.

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