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13 dec 2018

Now is the time to act in the new era of tran­sporta­tion


How electrified and autonomous trucks will significantly lower road-based transport costs

Electrified and autonomous trucks are the start of a new era of transportation that will be a game changer for all types of road-based transportation, with expected cost reductions of 20-35%.

Electrified trucks will dramatically decrease the fuel cost and autonomous trucks the labor cost, both of which will have major effects on P&L. Our research indicates that the EBIT effect is as high as 40% in some industries. The momentum of this disruptive force is high and companies without a solid plan will fall behind and, in the worst-case scenario, go out of business. Download this white paper as pdf

However, to capture the opportunities in this exciting field of development a few prerequisites must be met. These opportunities and prerequisites are the main foundations for this study.

All transport segments will be significantly affected

Among the road-based transportation segments, this article highlights last mile, regional distribution, and long-haul in the Swedish market. The main cost drivers, fuel and labor cost, are differentiated between the segments and total cost saving potential is therefore also different.

Regional distributors are in the sweet spot for upgrading their truck fleet

Companies can choose to implement only electrified trucks or electrified and autonomous trucks, depending on business, technique, and potential.

Labor cost is the main cost driver, independent of transportation segment. With autonomous vehicles these costs will dramatically decrease, especially in the Swedish market, where wages are high by global comparison. For last mile deliveries, there are already autonomous trucks on the roads. (1) This will, however, probably not be the first segment where autonomous trucks are fully implemented, since last mile deliveries are to some degree still dependent on drivers delivering goods and representing the company/brand. The future potential, on the other hand, is huge.

Fuel costs will also decrease, particularly for last mile deliveries, which consist of many starts and stops. The long-haul transportation segment requires less loading/unloading than last mile and is therefore more likely to implement autonomous trucks sooner, even if the charging infrastructure and charging time are potential obstacles that need to be solved. Regional distribution, however, is in a sweet spot, where charging and loading/unloading can be carried out at terminals, with allocated personnel. Capacent’s research indicates that regional distribution will probably be the segment with the highest conversion rate from traditional trucks to electrified/autonomous.

Independent of transportation segment, whether serving customers the last mile or moving freight long distances, electrified and autonomous trucks will have a huge impact on transportation costs.

Potential cost savings for long-haul transports of 35%

The starting points for the segments differ. For example, driver cost represents a larger share of the total cost for last mile deliveries compared to long-haul, where the fuel cost is a larger part of total cost. Below is a summary of the current cost allocation for each segment. (2)

Without drivers, labor costs will decrease to almost zero. However, it’s reasonable to believe that there will be a demand for coordinating and monitoring. This will increase the need for other competencies and system support that drive cost. In addition to this cost increase, labor from warehouses/distribution centers that needs to be allocated to loading and unloading the autonomous trucks will also drive costs (today the driver is involved in this activity). It’s probably a feasible solution to let people from warehouses do these tasks, instead of the drivers, due to lower wages for warehouse staff. (3&4)

In addition to the overall decrease in labor cost, fuel costs will decrease significantly due to higher fuel-efficiency, as well as lower prices and taxes for electricity.

Electrified and autonomous trucks are expected to increase depreciation, since initial investment will be higher compared to ordinary trucks. However, this estimation is uncertain, especially for autonomous trucks where cheaper materials can be used since the ‘driver safety’ aspect will be eliminated. We believe that there is an upside to this cost item.

The total cost reduction potential is different between transportation segments, mainly driven by differences in the ratio between driver and fuel cost. In the figure below the total operating cost savings amount to 20-35%.

Potential EBIT-effect of 45% for e-tailers

The main determinant of the P&L effect is the share of total sales value that road-based transport costs constitute, along with the level of refinement of the goods being transported. A lower level of refinement leads to a greater impact on transportation costs. Some examples from industries with a high proportion of transportation costs:

  • Retail: The EBIT-margin can increase by about 20% for a retailer with a current margin of 3% that enjoys a decrease in transportation costs of 20% (distribution to stores accounts for appr. 3% of total sales). (5)
  • E-tail: The EBIT-margin can increase by about 45% for an e-tailer with a current margin of 3% that gets a decrease in transportation costs of 20% (shipping and return costs amount to about 7% of sales). (6)
  • Wholesale: Slightly lower potential than retail, about 10-15% EBIT-margin improvement. (7)
  • Forestry and mining: For a wood working industry in Sweden, a decrease in transportation cost can improve the EBIT by approximately 20-30%. (8)

The entire competitive landscape will change, not isolated, of course, to the industries mentioned here. In general, the higher the proportion of the cost (and/or revenue) that is driven by road-based transportation by truck, the greater is the impact on P&L. For example, haulage contractors will have a hard time surviving if they don’t adapt their businesses, since their margins will quickly be eroded if their competitors offer superior services.

Potential threats to this change

The potential cost savings presented in this article are predictions and, as with any predictions, there are potential factors negatively affecting the calculation. As with any change, obstacles and threats can slow down or even put a stop to development, as well as limiting the scalability of the solutions. We highlight the most important threats in the table below.

If any of these threats becomes reality, it will most certainly negatively affect development and slow down the progress of electrified and/or autonomous vehicles. It’s important that legislators adopt supporting laws, that charging infrastructure is expanded, and that the power network and supply of power can manage the increased demand for electricity.

Who will reap the potential of electrified and autonomous trucks?

If the rate of change for electrified and autonomous trucks remains or increases, we will, in the coming years, see a completely different landscape for road-based transportation. Business models and value chains will need to change to remain competitive.

Who will reap the potential of electrified and autonomous trucks? The truck manufacturers, by offering lucrative leasing opportunities to their customers? The transportation companies, by attracting the capital needed to upgrade their truck fleet on their own? The goods companies might integrate vertically to take control of the value chain to lock-in the cost savings? A joint-venture of several market players to take control over parts of the value chain?