Uber Freight was born out of the marriage of an internal team with members of Otto, after Uber acquired the latter company early last year. Since then, the teams have split up into self-driving research and development, managed by Alden Woodrow, formerly of Google X, and the Uber Freight team. Freight has a floor of one of Uber’s offices in downtown San Francisco and a large operations team in Chicago.
Uber has had a brutal last year. The company’s culture has been critiqued from the inside and outside as sexist and fratty. The problems led to the ouster of a series of top executives, including founder Travis Kalanick. Even in trucking, Uber’s acquisition of Otto has led to a lawsuit filed by Alphabet’s self-driving car division, Waymo, related to the alleged theft of sensor technology. One Uber employee I know recently joked, “Uber’s become a four-letter word.”
Alexis Madrigal: Let’s talk about Uber Freight and self-driving trucks. When Uber started, self-driving cars were pretty far away. When Uber Freight starts, perhaps self-driving trucks are not that far away. How much do you think self-driving trucks would change the economics for you guys?
Eric Berdinis: In my time at Otto, we did spend a decent amount of time thinking about the economics of trucking once it happens, even if it is a decade out. Now that I have been spending more time on the freight side, I haven’t been as close to that. But the teams are in communication about how these things might work together at some point.
Berdinis: You see that come up every once in a while.
Madrigal: I know this isn’t what you’re doing on a day-to-day basis anymore, but how could you see the automation playing out?
Berdinis: I’ll first start by saying that one of the last things I worked on on the Otto side was the Otto-Budweister partnership and the video and the whole thing around that. Once I joined Uber Freight full time, I was thinking to myself, “We really made it seem like this thing was coming sooner than it is. We probably scared a lot of people. We kind of hyped this thing up.”
And it is showing what the future will be like. But it won’t be coming as fast as the video made it seem. The reality is that the transition to any kind of self-driving truck future is quite a ways away.
But in terms of how we think about that future, we actually do see a future where jobs don’t get impacted in the way that people expect them to. We wouldn’t be doing Uber Freight, which is a human-driven product, if we didn’t think that there was a responsible way for the future to look with humans and self-driving trucks.
Berdinis: Uber Freight, because it has been incubated from the beginning with the Otto acquisition, we’ve always had really strong leadership internally. So, there has not been a huge impact from any of the searches for COO or CEO. The board is extremely excited about freight. They love having Uber with a diverse set of business opportunities. It hasn’t affected shippers. It hasn’t affected drivers. If you asked a driver, “Did you hear about Travis Kalanick?” They’d be like, “What are you talking about?”
Madrigal: But you did have a big departure from Otto in [founder Anthony] Levandowski. And there’s the Waymo lawsuit. Does that affect you guys on the Uber Freight ops side?
Berdinis: It really doesn’t. Because there are no self-driving components to Uber Freight. We definitely get questions like you’re asking me now. But it’s not like our technologies have anything to do with self-driving.
Berdinis: There is a defined model for how you build a company in the brokerage industry, which is the middle man between shippers and carriers. There have been a lot of brokers that have come along since the 1980s, when brokers became a formal thing.
Madrigal: Because of deregulation.
Berdinis: Right. So, there was a playbook for that. But it was completely unknown for how we do this in a tech-forward way that doesn’t totally follow the normal step-by-step that a brokerage would go after.
Madrigal: Which would just be lining up both sides of the marketplace, getting loads and getting trucks.
Berdinis: You make a promise to a shipper and hustle to find a driver and then, boom, that’s your first load. You just keep doing that at scale. It’s very easy to do it manually because you’re just calling and negotiating. You can muscle through that. But how do you get drivers to use an app or embrace a new way of doing things, especially when: 1) These drivers don’t really use technology in their day-to-day lives, and 2) when we’re really small, they log in and there are like five loads. That’s not a very useful product. So how do we get past the chicken-and-egg problem to the point where we are today when drivers come back every single day. And some of them are 100 percent on Uber Freight, like they completely transitioned their business.
Berdinis: Yeah, for sure. Uber has a very specific kind of ops executor. The Uber-style ops executor is very analytical, lot of them from finance backgrounds. They can work very hard and think through problems in a very analytical, data-driven way. And then there is the brokerage-style ops person, who is much more on the execution side. They know the industry really well. They can hear in the driver’s tone of voice if they are lying about a flat tire or just delayed from their previous shipment. All that kind of stuff. So, marrying the two kinds of operators together helped us build that ops team.
Madrigal: You guys decided to regionally build out. So the first market is … Dallas?
Berdinis: We call it the Golden Triangle: Dallas, Houston, San Antonio. There are pretty even flows of freight in and out of each of those cities. So if we can capture that triangle, as soon as you drop off a load in Dallas, you can pick up a load to either Houston or San Antonio. There are other kinds of natural triangles around the country, but just within that triangle area, that makes up about 10 percent of the country’s freight.
Berdinis: It all comes back to earnings at the end of the day.
Madrigal: Because they are small business owners.
Berdinis: And drivers get paid from shippers, net 30– and net 60–day terms. [Meaning, the people shipping stuff have 30 or 60 days from the work being completed to pay the truckers.] If their truck breaks down, they struggle with the 60-day terms because they are working week to week. As a result, there is this huge industry called “factoring,” it’s kind of like payday loans. The trucker says, “Give me 95 percent of this receivable but today, versus making me wait 60 days.” That’s just 2–5 percent skimmed off of every single load. And when these drivers are only making a few percent profit margin, that could be all the profit they are making. The whole payment process does not work and it is causing a lot of trucking companies to go out of business.
Madrigal: What else has surprised you in making this foray into logistics?
Madrigal: It’s almost like the early stories around cell phones and farmers in whatever country being able to check the prices at market.
FRANKFURT/DETROIT—BMW and Daimler, the world’s top luxury carmakers, have announced alliances with suppliers, talking up the virtues of having a bigger pool of engineers to develop a self-driving car.
But another motive behind these deals, executives and industry experts told Reuters, is a concern that robocars may not live up to the profit expectations that drove an initial investment rush.
Carmakers are increasingly looking to forego outright ownership of future autonomous driving systems in favor of spreading the investment burden and risk.
The trend represents a clear shift in strategy from little more than a year ago when most automakers were pursuing standalone strategies focussed on tackling the engineering challenge of developing a self-driving car, rather than on the business case.
“Although it is a substantial market, it may not be worth the scale of investments currently being sunk into it,” said a board member at one of the German carmakers, who declined to be identified because the matter is confidential.
Dozens of companies – including carmakers and tech firms like Google and Uber – are vying for a market which, according to consulting firm Frost & Sullivan, will only make up about 10 to 15 percent of vehicles in Europe by 2030. There are sure to be losers.
“It’s impossible for me to believe there will be 50 successful autonomous vehicle software producers,” said John Hoffecker, global vice chairman of Michigan-based consulting firm AlixPartners.
In July last year, BMW became the first major carmaker to abandon its solo development of self-driving cars in favor of teaming up with chipmaker Intel and camera and software manufacturer Mobileye to build a platform for autonomous cars technology by 2021.
The decision followed a trip by senior executives to visit startups and suppliers to gauge BMW’s competitive position.
“Sitting at other companies, one rattles off the technological challenges and safety aspects, and you come to realize that many of us are swimming in the same sludge,” Klaus Buettner, BMW’s vice president autonomous driving projects, told Reuters.
“Everybody is investing billions. Our view was that it makes sense to club together to develop some core systems as a platform.”
Daimler’s Mercedes-Benz has since combined efforts with supplier Bosch, three months ago, while Japanese carmaker Honda has said it is open to alliances in the area of autonomous cars.
Even deep-pocketed tech companies are teaming up. San Francisco-based transport app operator Lyft and Alphabet Inc’s self-driving car unit Waymo pooled their resources in May.
Share the burden
Partial autonomy is already a reality in higher-end cars that keep in lane and adjust their speed in motorway driving. Each of the next stages – “eyes off,” “mind off” and ultimately driverless autonomy – will likely take years to become reality.
Klaus Froehlich, BMW’s board member responsible for development, said the company was likely to lose money with its first fully autonomous vehicles, just like it did with its first-generation electric cars. But developing the technology remains a necessity in order to stay relevant as a carmaker.
“It is an enabling technology, not a business case,” he said about BMW’s decision to develop autonomous vehicles. “But if the burden can be shared on a platform, I have nothing against that.”
One of the most financially promising markets that autonomous technology will open up is driverless on-demand taxis, which may one day come to replace regular cabs and parts of public transport in large cities.
“Robotaxis” are expected to drive the wider market for car sharing and ride-hailing, which was worth $53 billion last year and could be worth $2 trillion by 2030, according to a McKinsey study published earlier this year.
Ford and General Motors are investing at least $2 billion each to develop self-driving vehicles for urban ride-sharing fleets beginning in 2021, competing with incumbents and start-ups.
The emergence of alliances involving the likes of BMW and Mercedes-Benz comes at a time when regulators are pushing for a creation of standards for the new technology, which has the potential to improve vehicle reflexes and cut accidents by up to 90 percent, according to Boston Consulting Group.
In September 2016, the US Department of Transport and the National Highway Transportation Safety Administration released guidance for heavily automated vehicles.
“It is important to consider whether highly automated vehicles are required to apply particular decision rules in instances of conflicts between safety, mobility, and legality objectives,” the guidance said.
“Algorithms for resolving these conflict situations should be developed transparently using input from federal and state regulators, drivers and passengers.”
European regulators, too, are debating whether to standardize speeds and distances which autonomous cars need to adhere to while weaving in and out of traffic or joining lanes.
Pressure not to waste development costs is laying the groundwork for alliances and even mergers between the various companies supplying technology for autonomous cars, including makers of vehicles, software, computer chips, radar, camera and laser sensors and high-definition maps.
BMW, Mercedes, and Audi put aside their rivalry and teamed up to buy mapping firm HERE, for example, in order to cut their dependence on Google.
What starts out as arms-length agreements designed to capture market share, much like code-sharing deals between airlines, may evolve further into takeovers once the next investment round is due, executives and advisers said.
This story was reported by Reuters.