For the trucking industry, 2016 was a year dominated by a number of themes, but one single word: “connectivity.” It has come to represent a proxy for the future – whatever that may be.
At heart, however, it is a nebulous construct. Connectivity’s relevance, application and, above all, meaning to the trucking industry remains elusive.
Connectivity is, of course, the manifestation of the Internet of Things (IoT) upon the trucking industry. Here again, we are racked by the nebulous.
Added Complexity
Peer behind connectivity’s curtain. As a vehicle maintenance professional, you will see the start of a trend that is both interesting and, perhaps, alarming. I do not need to tell you professionals that the vehicles you are charged with maintaining have become increasingly more complex over the past couple of decades.
The core task demanded of the vehicle maintenance professional, nonetheless, remains as it always has been: to keep the vehicle out of the shop and on the highway where it earns it’s living. But the means by which that task is effected have changed markedly.
Regulation
This genie is now firmly out of the bottle. As we move towards new iterations of GHG (greenhouse gases) regulation, the landscape upon which the OEMs compete has shifted significantly.
During the nitrogen oxides and particulate matter era, R&D was – for those OEMs – a cost of doing business. The aim of those research dollars was less one of optimized efficiency and more one of compliance with a regulatory standard that stood at odds with optimized efficiency.
Now, those two aims are effectively aligned. Regulation demands a reduction in GHG output and operational efficiency is measured at least in part by fuel efficiency. Reduce GHG output – by reducing fuel burn – and you improve mpg – by reducing fuel burn.
QED (quod est demonstratum) for sure, but a QED that now allows those OEMs not to seek mere compliance but optimized efficiency. Optimized efficiency inevitably means increased complexity.
Complexity for the vehicle maintenance professional is nothing new. Witness the adoption of exhaust gas recirculation, selective catalytic reduction and all manner of new componentry that had – at their respective points of introduction – demanded a steep learning curve for those charged with maintaining vehicles.
Those vehicles sat on your balance sheet, and the nature of the regulatory framework meant that – by playing the trading cycle appropriately – a fleet could optimize not just vehicle efficiency but procurement efficiency too. In a market where a newer truck did not necessarily mean a better truck – 2007 stands out here – managing that trading cycle was a commercial imperative.
Implied Obsolescence
This is changing. The new GHG-derived regulatory framework ushers in an era of almost implied obsolescence in terms of trucks. Fuel is – at present – pricing towards the lower end of the historical curve. The notion that this will continue is one that is both quaint and misplaced in equal measure.
At some point in the future, fuel costs will normalize and, thus, a newer more GHG-fuel efficient truck will be a far more attractive commercial proposition than an older less GHG-efficient truck. But that newer truck is a likely more complex beast than its older sibling. The knowledge that in three years’ time a yet better truck will emerge shifts the procurement equation around somewhat.
Do you want to own something that is both complex today and will put you at an operational disadvantage tomorrow? Arguably not. The days of vehicles held on balance sheets as assets may not be over, but twilight is certainly approaching.
Time was in North America when the OEM could earn its pay by selling a truck that it had assembled. There was a decent margin to be had based on the transformation of collected components into an assembled truck.
Shifted Value Chain
Maintaining the thing was not a part of the value chain. Today’s truck – in real terms – is not really that much more expensive than yesterday’s truck. Yet, the simple cost of compliance would imply a minimum 10 percent upcharge at each regulatory change.
Look at the income statements of any of the truck OEMs and this upcharge is conspicuous by its absence. For the OEMs, the value chain has shifted – it did so in Europe some 25 years ago – and now the money is to be made from the maintenance. Connectivity is less a tangible product and more a signal on the part of the OEMs that they wish to be less a supplier of trucks and more a part of the fleet ecosystem.
It is an acceptance of the commercial reality that use – as opposed to ownership – is the trajectory that the fleets are almost certain to follow as we move ahead, and it is an attitudinal change that places the supplier almost in direct competition with its customer in terms of the maintenance function.
As complexity, demography and the core task of the trucking fleet continues to change at an accelerating pace, the vehicle maintenance professional sits at the center of a world that is tilting.
A 25-year veteran of the trucking industry, Oliver Dixon is a U.S. and European based commentator and industry analyst specializing in the strategic and financial market dynamics of the global heavy truck business. He holds both a U.S. and European Commercial Driver’s License and has direct experience of the industry from an operational perspective.
