Breathless news that driverless cars are poised to take over the roadways has so far left us skeptical—partly because we believe that the technological challenges to real-world implementation are higher than tech cheerleaders want to believe, and partly because we see that regulators, the insurance industry, and public opinion are likely to provide higher hurdles than commonly supposed. The technological transformation has a way of confounding its early-adopting apostles by taking longer than they think—and then catching the skeptics flatfooted when it finally matures after a period of incubation outside the limelight.
April gave us an indication of an incremental movement towards autonomous vehicles—one that will be implemented well before you climb into a Google [NASDAQ: GOOG] or Apple [NYSE: AAPL] car for your morning commute. Although it falls well short of the vision of enthusiastic futurists, it promises dramatic disruptions for many industries and workers and benefits to many other industries and consumers.
Platoons on the Road in Europe
In April, a dozen trucks traveled autonomously in six convoys across much of northern Europe. The successful trial was in response to a challenge set by the Dutch government, and involved participation by six major European truck manufacturers—Volvo [Stockholm: VOLVB], Scania [Stockholm: SCVB], Daimler [Frankfurt: DAI], Iveco (a subsidiary of CNH Industrials [NYSE: CNHI]), DAF (a subsidiary of PACCAR [NASDAQ: PCAR]), and MAN [Frankfurt: MAN]. The largely self-driving trucks traveled in convoys, or “road trains,” with a lead vehicle followed by other vehicles linked to it by Wi-Fi, and reacting instantly to the actions of the lead vehicle, permitting them to travel much more closely together and realize significant fuel efficiency gains. They had drivers in them, but only for backup, not to manage the vehicles’ movement on the highway.
Such “platooning” is not new. In fact, the Europeans have been working on it with less fanfare for years. In 2009, European Commission grants funded a project dubbed “Safe Road Trains For the Environment,” or SARTRE for short. Perhaps only European bureaucrats would find humor in naming a tech project after Jean-Paul Sartre, the 20th century’s premier grumpy Marxist philosophy professor and the author of one of the largest books you’re grateful you never read: Being and Nothingness.
The project brought together a consortium of seven European tech firms and university-associated research institutes (the only automotive company included was VOLVB, also one of the participants in the recent convoy challenge). The effort successfully concluded in 2012 with tests of a platoon that consisted of a lead truck driven by a human, followed by another truck and three Volvo sedans all linked to it and controlled by the lead’s actions rather than by their drivers. (The drivers of the SARTRE project, in keeping with its namesake, were thus free to stare out the window and reflect on the inevitability of their own death, which would now be far less likely to happen in a traffic accident.)
As the name of the project suggested, the main focus was on increasing fuel efficiency (read “carbon emissions”) and safety, and reducing road congestion: benefits that appeal to a public largely concerned with environmental issues and social welfare.
The same benefits were cited in this year’s challenge, but with a little bit more of an explicitly economic twist, noting in addition that the technology would help control infrastructure expenses by reducing the need for roadway expansion, and would help transport companies deal with a looming shortfall in trained drivers. But the emphasis was still on making roads safer, cleaner, and more enjoyable for humans to travel on.
Another successful project has come from the architect of Alphabet’s [NASDAQ: GOOG] autonomous car effort, Anthony Levandowski, whose startup firm, Otto, is planning to offer kits to retrofit trucks for autonomous highway operation. He says current technology is sufficient to permit trucks to operate autonomously, with the challenges of highway travel setting a much lower bar than the operation of vehicles in urban traffic. That implies, again, that the remaining hurdles are psychological and legal—and progress is already being made, with legislation enacted in California, Nevada, Michigan, and Florida, and in the works in other states as well.
The Economic Effects
To us, though, the most significant implication of the project’s success is that automated trucking is, in fact, technologically ready for implementation. The future of highways filled with autonomous cars may be a decade or more away, but the presence of autonomous truck convoys is likely much closer. The hurdles for it are psychological, legal, and administrative, not technological. (Although there will be further minor technological hurdles as it becomes more widespread—for example, smoothing the process by which vehicles schedule and negotiate their entry and exit from a convoy.)
Disruption Is Around the Corner
This means that a real disruption of the trucking industry could be imminent. The labor expense of trucking is significant. Today, shipping a trailer from Los Angeles to New York costs about 00—of which 75% is labor cost. But there are more savings since driverless trucks can travel 24 hours a day while human drivers have to park their rigs after 11 hours on the road. Driverless trucks could double the output of US long-haul trucking at 25 percent of the cost.
Autonomous trucks traveling in convoys, as the European experiment demonstrated, will also realize substantial benefits in fuel costs. The platoon formation alone can save 20% on fuel, and robot drivers are not paid by the mile and will have no incentive to drive faster and sacrifice fuel efficiency. (Of course, his means that the platoons will be driving like your grandmother. That’s probably a good thing, all told.)
From an economic perspective, accidents and their attendant costs will also be reduced. Being a long-haul truck driver is dangerous; 835 truck drivers were killed on the job last year, more than any other occupation. More people will die in truck-related accidents this year than have died in domestic airline crashes over the last 45 years.
All this means that the arrival of autonomous truck convoys will mean a huge saving for businesses that ship goods, as well as for their customers. It will mean cheaper retail goods for consumers, and better margins for retailers.
It will also mean disruption for American workers. Consider the following map of the US, showing the most common occupation in each US state, in 1984 and a generation later in 2014. A nation of clerical workers has become a nation of truck drivers. (E-commerce may have driven some of the rise of truck driving as an occupation, and the same shifts have led to the rise of four states where the number one occupation is software developers.)
Truck driving is the most common job in 29 states, and with 1.6 million workers, the profession accounts for a full 1% of the US workforce.
Not only will autonomous trucking put these people out of work, it will also radically reshape all of the trucking’s economic ancillaries: gas stations, highway restaurants, motels, rest stops, and fleet fueling businesses (not to mention firms that deal in fleet telematics, which could reinvent themselves or be destroyed).
We simply note that this disruption is nothing new. It has happened over and over in the waves of industrialization that have swept the developed world since the 19th century. Now, as then, consumers will benefit from cheaper goods, and workers will slowly and painfully retrain or retire, and employment patterns will shift. (This is all the more likely to occur now, since trucking is tough work, and the average age of drivers is 55 and rising—making the industry ripe for automation.)
Investment implications: Autonomous cars may be decades away from widespread adoption due to remaining technical, social, and regulatory factors, but autonomous trucking is ready for implementation. Successful experiments with autonomous truck operations on highways have been conducted by a European research consortium and by a US firm headed by the architect of Alphabet’s [NASDAQ: GOOG] autonomous car effort. This technology will generate huge savings for anyone whose livelihood depends on shipping goods long distances—especially retailers and their customers. It will also create disruption for trucking employment, as well as the ancillary businesses that are supported by trucking: fueling businesses, telematics, and hospitality, among others. Look for additional incremental benefits to accrue especially to e-commerce firms, as well as mass retailers dependent on a just-in-time supply chain.
For more commentary or information on Guild Investment Management, please go to guildinvestment.com.