Originally appeared in CCJ Digital
Throughout my career in the transportation space I have seen the trucking industry struggle through some major disruptions: deregulation; the oil crisis of the late 1970s; the 2002, 2004, 2007, and 2010 EPA emissions standards; the Great Recession; and most recently the COVID-19 pandemic. As difficult as these were, I would classify them as tactical disruptions.
We’re facing a significant strategic disruption in the industry in 2022 driven by climate change, which is behind many recently enacted government regulations. One of the more prominent charges, reducing carbon emissions, is propelling change that will substantively transform the entire industry.
Reducing fuel consumption is not enough to mitigate the potential environmental damage. There is a multitude of options, which is why forward-looking organizations are exploring various alternatives. The use of electric vehicles is one such example. With EVs alone comes change to the existing business models of both OEMs and their dealers, regardless of their size, as well as a major shift in the supply chain. The result will be higher capital requirements to participate in the transportation industry.
However, the scale of change is much more extensive and complex. While a transition to EVs will be effective in reducing emissions, it will lead to significant alterations in transportation systems and infrastructure as smart technologies are incorporated and more charging stations are needed. Coupled with other factors like inflation, alternative fuels, and the accelerated pace for change, just how far and widespread this evolution will extend is unknown.
Anticipating disruption, embracing change, and thinking strategically are the best ways to prepare for the future of trucking and delivery.
Looking to the future
Today, parts and service are a big part of the profitability of truck makers and dealers. But electric trucks will have far fewer components than their diesel-powered counterparts. With this transformation, OEMs and dealers will need to determine how they are going to replace the revenue stream from their current business model to stay profitable in the future.
Electric trucks will change the capital requirements needed to compete in this industry, as well. They cost significantly more than diesel-powered vehicles and, as such, will require huge capital investments and even new financing models.
All this means that every business in the transportation industry should ask itself what it is going to look like in the future. When businesses look ahead three to five years, they tend to have a relatively clear vision of what the future will hold and what steps they need to take. Looking beyond that is more difficult. Transportation-related businesses need to do their homework to determine how they will position themselves in an industry that may look vastly different than it does today.
Charting the course
Transportation businesses will need to consider how to change their business model to take advantage of this current disruption and thrive in it. The winners will focus on modifying their strategy with the changes necessary to stay relevant. The losers will continue doing what they have always done and hope for the best. I can tell you with some degree of certainty that continuing to do business as usual without planning ahead will lead to a company’s demise.
Charting a new course is not easy, especially when there is so much information—and misinformation—flooding the marketplace. A good starting point for seeking clarity is to have discussions with trusted suppliers. Also, attend an impartial meeting or two that you have not participated in before and that presents unbiased information. Look for sessions with content around regulations, climate change, and other broad, topical issues.
The next step is to talk with people across the transportation industry who are strategic thinkers. I am not suggesting discounting information from people who take a more tactical approach, but it is important to seek out people who are trying to figure out the next big thing.
Key considerations
Collaboration with key trusted partners is vital to navigating our way into the future. Start by making a list of people with whom you have solid relationships and scheduling time with them to learn how they see the future. These meetings should focus on what you need to do, not how you are going to do it. The how will come later once you have determined the direction you want to go.
There are two key dates to pinpoint as part of the planning. The first is 2027 with the proposed new emissions regulations for diesel-powered trucks. Consider how this regulation is going to impact your business. Is it likely that the business will be disrupted by a pre-buy event also impacting the used truck market?
The second date is 2030 when we start to see what I call “audacious goals” on the part of some state governments setting objectives for zero-emissions vehicle sales. Some states have set goals as high as 50% of new vehicle sales needing to comprise zero-emissions vehicles. This raises the question about how fast you need to move to change your business model. This decision will be an individual one that each company makes based on its own priorities and goals.
Weathering the uncertainty
The trucking industry has weathered many disruptions in the past, but what it is facing today is like nothing it has seen before. Relying on the tactics used in the past to navigate this disruption will not be enough to survive it. It is going to take strategic planning and a top-to-bottom look at every aspect of your business to reinvent a new model that will allow you to remain a key player in the trucking industry’s future.