The era of

digitized trucking
Transforming the
logistics value chain
Contact

Munich

Dr. Gerhard Nowak

Partner, PwC Strategy& Germany
+49-172-2719205
gerhard.nowak
@strategyand.de.pwc.com

2 Strategy&
About the authors

Dr. Gerhard Nowak is a partner with PwC Strategy& Germany, PwCs

strategy consulting business, based in Munich. A global operations
specialist with 20 years of industrial and consulting experience in the
automotive and industrial products industries, he assists global OEMs
in value chain optimization, product cost improvements, general profit
optimization programs, and development of innovative business
strategies.

Jens Maluck is an associate with PwC Strategy& Austria. Based in

Vienna, he advises clients throughout Europe in industries ranging from
telecommunications to automotive on cost optimization, digitization,
and new business model development.

Christoph Strmer is a senior manager with PwC Germany.

Based in Frankfurt, he is the global lead analyst of PwC Autofacts,
an international team of automotive industry analysts and consultants
focusing on research and forecasting of automotive production data,
as well as major industry trends and challenges. He has been active
in the automotive industry for 20 years, with experience at OEMs,
independent research companies, and consultancies.

Jan Pasemann is a manager with PwC Germany. He is a member

of PwCs operations consulting practice and leads the Europe, Middle
East, and Africa division of PwCs Growth Markets Centre. Based in
Dsseldorf, he is an international marketsspecialist with more than
10 years of experience in developing international markets and growth
strategies, helping clients enter and operate in challenging markets
around the world.

Dr. Joachim Deinlein (partner, PwC Strategy& Germany), Alex Koster (partner, PwC Strategy&
Switzerland), Jrg Krings (partner, PwC Strategy& Germany), and Dr. Richard Viereckl (senior
vice president, PwC Strategy& Germany) also contributed to this report.

Strategy& 3
Executive summary

Just as the arrival of the connected car is already changing how

carmakers will operate in the future, the advent of the digital truck
will completely transform how freight is transported on the worlds
highways. Thanks to a combination of new technologies, trucks
will move down the road guided by a wealth of information from
transportation infrastructure and other vehicles, improving utilization
through remote maintenance, increasing efficiency, and boosting safety.
Eventually, these trucks will drive themselves, freeing up drivers to
take on administrative tasks, and eventually doing away with them
altogether.

These advances will have an equally profound effect on the entire

logistics system. Trucks will become even more tightly integrated into
the entire logistics chain, with the arrival of shipments to factories,
warehouses, and end customers timed precisely, as all the players across
the supply chain gain full transparency into the whereabouts of their
goods. And ultimately, trucks will be able to communicate their
contents and destination with other trucks and with technology
platforms that will automatically match shipments with trucks with
available space, rerouting them as necessary.

As these digitally enabled, cloud-based solutions come on line, they will

rearrange how the logistics business operates, rendering obsolete old
business models and enabling new ones. Some players, such as the truck
makers, will look to offer increasingly sophisticated shipping solutions,
taking over much of the territory now controlled by shipping companies
and other logistics providers, as will many large end customers.
Technology companies will try to enter the market as well, offering
their own trucking and logistics platforms and even, perhaps, their
own trucks.

The promise of connected trucks combined with the digital supply chain
is huge. But so are the risks for those players that dont move now to
begin building the capabilities and business models needed to win in
this new world.

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Further down the road

Imagine a world in which long caravans of large trucks travel in

lockstep down major highways while each of the trucks automatically
transmits its whereabouts, estimated time of arrival, and load
information to its next stop. The warehouse system automatically
assigns each truck to a loading dock, where several autonomous
forklifts stand ready to unload it. Then they move the load on to
another portion of the warehouse, where it is sorted by machine for
local delivery routes and loaded onto the proper small autonomous
electric trucks for final delivery.

This digitized trucking, and the logistics industry of which it is a

part, is still at least a decade in the future, but parts of it are already
being put in place thanks largely to two major global trends that
are transforming the trucking industry. First, efforts on the part of Digitized
regulators around the world to manage climate change and to save trucking is still
energy and resources are forcing the industry to develop cleaner, more
efficient trucks and optimize the use of heavy vehicles. Second, social at least a decade
and cultural changes are opening up new markets and increasing in the future,
expectations for the efficiencies to be gained through autonomous but parts of it
vehicles and the digitized supply chain.
are being put in
The effect of these trends isnt just a matter of how trucks move down place.
the highway, or how the global supply chain is managed. Rather,
digitized trucking will transform how virtually every stakeholder in
these linked businesses original equipment manufacturers (OEMs),
logistics companies, warehouses, and local delivery businesses will
operate. Some stakeholders will see a wide range of new business models
open up, while others will likely struggle as their roles in the logistics
chain are diminished.

And in the longer term, the trucking business will likely divide into
two distinct markets. Emissions regulations, increased competition,
big strides in connectivity, and coming disruptions in the entire
logistics chain will primarily affect developed economies. In emerging
markets, the issues will involve the need for more reliable and

Strategy& 5
economical trucks, a growing interest in regulating emissions, and
strong overall growth prospects, but not necessarily the development
of digitized solutions. These distinctions will likely last into the
foreseeable future.

In this report we focus on developed markets: how the forces behind

the transformation of trucking will develop, and what that means
for OEMs, trucking companies, and other logistics providers in the
long run.

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Driven by technology

Perhaps the best way to understand the technologies that are already
being implemented in the trucking industry, and how they will
transform the industrys many stakeholders, is to break them down
into two primary areas: the truck itself and the logistics chain of which
it is an essential part (see Exhibit 1).

The connected truck. Like cars, trucks are changing rapidly.

In addition to increased efficiency, new sensor and connectivity
technologies linking the truck to its surroundings, to the repair shop,

Exhibit 1
The six technological advancements that will transform trucking and logistics

1.
Vehicle-to-
infrastructure
communication

6. 2.
Automated freight Vehicle-to-vehicle
matching communication

Digitized
trucking
2025
5. 3.
Integrated Remote
supply chain diagnostics

4.
Autonomous
driving

Source: Strategy& analysis

Strategy& 7
and to other vehicles are making obsolete the notion of the lone truck
traveling down the lonesome highway. And in the longer run, they will
lead to the brave new world of autonomous trucking.

Vehicle-to-infrastructure (V2I) communication. This technology

makes it possible for trucks to remain in constant communication
with their surroundings through GPS tracking and digital links
between the truck and the road or other infrastructure installations
(see Exhibit 2, next page). The goal is to optimize traffic flows,
automate routing, improve parking efficiency and safety, and allow
drivers to be more efficient.
The technology will provide drivers with real-time information
about congestion and accidents and automatically update routes.
Automated parking features will provide suggestions on where to
park depending on the drivers level of fatigue, regulatory provisions,
and the traffic situation. Intelligent road signs will even be able to
signal to specific vehicles.

Vehicle-to-vehicle (V2V) communication. Trucks will be able

to communicate automatically with other vehicles on the road,
decreasing fatalities and improving accident rates. Intelligent
telematics systems linking trucks will share information regarding
position, speed, and direction, allowing for automated alerts.
When integrated with advanced driving technology such as adaptive
cruise control, collision avoidance systems, and radar, V2V will also
enable trucks to save fuel through platooning: moving down the
road in tight convoys, close enough to benefit from the decrease in
aerodynamic drag. This technology can save as much as 11 percent
of fuel costs for a three-truck platoon. Of course, the lead truck wont
generate these savings, so an internal payment system will allow the
trucks in the platoon to share the savings equally. The first examples
of this technology are already coming on the market, but the legal
and regulatory status of platooning still has to be worked out before
its benefits can be fully realized.

Remote diagnostics. Through constant monitoring of the condition

of the truck, remote diagnostics will allow companies to make more
timely repairs, develop more efficient maintenance schedules, and
considerably reduce truck downtime. It is estimated that the
technology can prolong a trucks service life and reduce maintenance
costs by as much as 5 percent. The technology will also provide truck
manufacturers with detailed understanding of how vehicles are
used, as well as the ability to control their electronics remotely. And
the attraction for customers is clear: improved utilization of trucks
and significant maintenance savings.

8 Strategy&
Exhibit 2
Examples of improved traffic flow and safety through vehicle-to-infrastructure (V2I)
communications

1. Real-time data sharing in combination with intelligent road signs and vehicle information

2. Intersection assistance and hazard warning

3. Automated parking place suggestions

4. Automatic parking and rest necessity notification Source: Strategy& analysis

Strategy& 9
 The truck monitors its own condition and maintenance status
and gives real-time updates to the driver and fleet managers (see
Exhibit 3, next page). These systems will be able to automatically
suggest the nearest repair shop and even contact it about the problem
and time of arrival. And because the repair shop will already have
the diagnostic information, it can begin making repairs as soon as
the truck arrives. This will improve how the repair shop operates,
increasing utilization and profits from spare parts, and improving
customer satisfaction. It will lead to more integrated service
agreements between repair shops and fleet owners. And it will
be the first step toward advanced mobility solutions offered
by OEMs and other players.

Autonomous driving. Ultimately, of course, these technologies,

combined with short- and long-distance radar, laser detection,
cameras, sensors, and 3D mapping, will eventually lead to the era
of self-driving trucks and completely revolutionize the entire
industry. The first road tests for autonomous trucks are already
under way, carried out by OEMs such as Daimler and Freightliner, its Drivers may
U.S. subsidiary. Whether these trucks will be fully accepted around not be needed
the world is unclear, however, given ongoing regulatory concerns
about drivers control of the trucks and whether the driver or the in long-haul
truck is responsible for the trucks behavior in emergency situations. trucks, but
And the complete elimination of the driver is still far in the future. will still be
Meanwhile, the development of the completely autonomous truck needed for local
will likely come in stages. Within the next 10 years, drivers may not deliveries.
be needed in long-haul trucks anymore, but will continue to take
over trucks entering urban areas, the way local pilots board large
ships as they enter a harbor. And drivers will still be needed for local
deliveries. It will take another five years or so before all trucking
becomes fully autonomous.
The key advantage of the connected truck over the unconnected
truck lies in its total cost of ownership, which will vary by its stage
of autonomy. Connectivity itself will play a major role in recruiting
younger, more digitized drivers, whom trucking companies are
desperate to hire, in part because they are less expensive.
Automated driving saves money by optimizing accelerating and
braking, in addition to platooning. Improved safety will reduce
insurance premiums. And drivers can turn their attention to
administrative tasks that would otherwise have to be done by
others. In the end, of course, the cost of the driver can be
eliminated completely.

10 Strategy&
Exhibit 3
How remote diagnostics will improve truck utilization

Continuous Problem
Repair Alternative
monitoring detection and
process mobility
of a trucks suggested
preparation solutions
condition solutions

Source: Strategy& analysis

Strategy& 11
Exhibit 4, next page, breaks down how much the connected truck and
autonomous driving can ultimately save fleet owners. The current
annual operating costs are around 115,600 (US$128,900) for an
average traditional long-haul truck, and only some of the costs can
be reduced through connectivity and automation notably the cost
of fuel. Depending on the stage of automation and on regulatory
changes, fleet owners could save between 17,000 and 32,400
($19,000$36,100) a year per truck.

This level of savings, by itself, will completely change the economics

of fleet ownership. But this is by no means the only way the trucking
industry will be transformed. The connected truck and other
technologies, many of them already in place, will also revolutionize
the entire logistics industry.

12 Strategy&
Exhibit 4
Reduced operating costs with autonomous driving technologies

Cost structure 2016 38.8 115.6

(, in thousands)

38.8
driver

4.7
1.1 0.5 1.2
40.8 Driver
AdBlue Wheels
Fixed
depreciation Lubricants Repairs
(time dependent) 56.5
variable
1.5% Interest
on truck loan
8.3
Insurance
4.3 Fuel
5.0 0.7
Operating
8.3 1.9 Other 20.3
depreciation
fixed
Breakdown days

Total
2016

Future cost structure

(, in thousands)
5% vs. 2016
115.6
110 15% vs. 2016

98.1 Note: Other includes

38.8
28% vs. 2016
tax, testing costs, fixed
driver 38.8
driver
rate for cleaning, and
26.9 82.8
driver
communication costs.
11.6
driver
Additional investment
and operational costs for
autonomous technology
56.5 are included. Costs are
variable 52.3 52.3 52.3
variable variable variable based on annual driving
of 140,000 kilometers.
Due to rounding, numbers
shown here may not add
up precisely to the totals
20.3 18.9 18.9 18.9 provided.
fixed fixed fixed fixed
Source: Lastauto Omnibus
Circa Circa Beyond (May 2016); Strategy&
2016 2020 2025 2025 analysis

Strategy& 13
Digital logistics

As critical as the connected truck will be in bringing sweeping changes

to the global transport of goods, its very connectivity will allow it to be
fully integrated into the entire logistics effort. That in turn will fully
enable two key elements of the effort: the integrated digital supply
chain and freight matching.

The integrated supply chain. It will soon be possible to integrate

the truck into real-time logistics data across the entire supply chain,
from parts and materials suppliers to manufacturers to warehouses
and distributors and finally to the end customer. Thus, for example,
when a customer sends an order to a manufacturer, the system will
send back a report on the availability of the goods and timing of
shipment, enabling the manufacturer to optimize its just-in-time Trucks will
production schedule. Once the goods are available, the shipment
will be dispatched from the warehouse along a predetermined route.
eventually
If an accident or heavy traffic impedes the on-time arrival of the be able to
truck, the system can automatically determine a new route, and send determine
a new estimated delivery time to both the shipper and the customer.
Given the delay, the system will then calibrate changes in the
whether they
shipping rate and cost of the goods. Moreover, manufacturing can take on
customers whose goods are delayed will be able to make immediate additional
changes in their production sequences to avoid loss of production
capacity while waiting for the missing parts. All thats needed now
freight.
is their approval of the changes.

Automated freight matching. Thanks to their ability to

communicate with fleet management and with shippers of goods
and in the future with cloud-based solutions for freight matching
trucks will eventually be able to determine whether they can take
on additional freight. The truck trailer itself will be able to determine
through sensors its available space and weight, as well as scheduled
route, ETA, and other relevant information, and communicate this
data to a digital freight-matching platform (see Exhibit 5,
next page).

14 Strategy&
Exhibit 5
Freight-matching information flow

1.
Sensor-based automatic tracking of available
load area: Trailer recognizes loading status, and
truck assesses current loading weight and
available capacity.

4. How it works 2.
Truck and driver are notified of new Truck communicates information
freight pickup and delivery schedule. to digital freight-matching platform.

3.
Fleet management is notified of available freight-sharing
opportunities. Agreement is struck between freight
owner/forwarder and fleet management.

Source: Strategy& analysis

Strategy& 15
 In turn, the platform will notify the driver and fleet management
about available freight-sharing opportunities, and an agreement can
be struck between the truck operator and the shipper. Ultimately,
with the aid of smart cloud-based solutions, goods sitting in a
warehouse equipped with their own communication chips will be
able to contact trucks directly to find their own transportation to
their intended destination. At this stage, not only will the efficiency
gains throughout the supply chain be significant, but freight brokers
themselves will no longer be necessary, as standard logistics
processes will be digitized all the way through to when the invoice
is submitted to the customer.

16 Strategy&
Industry transformation

The combination of technologies that underlie the connected truck and

the digitally integrated supply chain has already begun to transform the
entire logistics business. Expect to see further development of a hub-
and-spoke delivery structure, with the logistics industry profoundly
changed and many current players no longer relevant.

Hub-and-spoke. Thanks largely to the automation of the truck, the use

of large distribution hubs will become much more common indeed,
necessary. Trucks will have the ability to drive the majority of hub-to-
hub routes completely without human interaction (see Exhibit 6, next
page). In a first step, platooning between these hubs will increase
highway capacity by as much as 50 percent and play a key role in the
regulatory debates around autonomous vehicles, thanks largely to the
technologys huge impact on fuel consumption and CO2 emissions. The rise of smart
And it will significantly raise the utilization rates of trucks. Further cities will lead to
improvements will come as trucks become increasingly automated.
more intelligent
The routing of the trucks will be entirely data-driven and freight routing,
matching between the centers will become common. Increases in decreased
transparency and efficiency will radically reduce the amount of time
goods will be stored in the distribution centers, thanks to just-in-time traffic, and
delivery planning along the entire supply chain. easier delivery
processes.
The long-haul trucks themselves will change as well. Alternative
powertrain solutions such as hybrids will become much more common
in an effort to reduce fuel costs and CO2 emissions. And much longer
combinations of trailers, already in service or the test phase in several
European countries, will become common across the continent.

At the local level, actual drivers will make deliveries from the hubs in
smaller hybrid and fully electric trucks, reducing pollution and fuel
consumption. Ultimately, however, these trucks, too, will become
autonomous. And the rise of so-called smart cities, incorporating
sensors and communication technologies into their roads and
infrastructure, will lead to more intelligent routing, decreased traffic,
and easier delivery processes for the local trucks. Moreover, notification

Strategy& 17
Exhibit 6
The hub-and-spoke network will be implemented much more widely

Distribution
hub
Hub-to-hub delivery Last-mile delivery
Autonomous trucks E-trucks
Hybrid powertrains Autonomous trucks
XXL trucks with connected trailers
New truck design

Distribution Distribution
hub hub

Source: Strategy& analysis

18 Strategy&
of delivery to recipients will be more precise, leading to a better
customer experience and higher customer satisfaction in the world
of online shopping.

The logistics chain. The current logistics chain is dependent on several

different, clearly distinct market players, from the OEMs that build the
trucks, to the fleet operators that deploy the trucks, to the logistics
providers that organize the shipping of goods, to the end customer. The
coming changes in truck technology and logistics processes within the
global trend toward digitization will have a profound effect on how the
chain is organized, with some players increasing their roles and others
disappearing completely. Larger, more heavily utilized trucks will
decrease the sheer number of trucks needed, forcing OEMs to look
for value elsewhere in the supply chain although overall logistics
volume will likely increase in the future. But greater connectivity and,
eventually, autonomy will allow them to participate more fully in both
leasing and shipping.

As OEMs move upstream into these businesses with smart mobility

solutions, however, they will put increasing pressure on current fleet
operators and logistics providers. Already, some downstream
companies, like Walmart and FedEx, are building their own trucks
to fulfill their logistics needs; this development will put increasing
pressure not just on OEMs but on the logistics providers as well.

Strategy& 19
Three scenarios

Given these changes, three different scenarios for the future logistics
business are possible, depending on how aggressively the various
players in the overall supply chain pursue the coming opportunities
(see Exhibit 7, next page).

1. OEM downstream integration. OEMs will continue to manufacture

autonomous vehicles, given their detailed knowledge of vehicle
functions, maintenance, and efficient operation, and they will
continue to own the underlying connected and autonomous truck
technology. Thanks to their control of the truck technology, however,
they will be in a good position to take over more and more of the
functions of the leasing and trucking companies by providing
mobility solutions to the market. Having the most modern truck fleet
available and the ability to optimize operational costs by using big
data, they will be able to offer especially cost-effective solutions. The
challenge will be to avoid competing against their own customers or
to find models that allow them to enter the market in parallel with
other players.
The OEMs will also start to expand into freight-matching solutions to
gain additional control of the logistics chain and to add another brick
to their digitized business models, further improving their positions
as full mobility service providers.

2. End-customer upstream integration. Here, the end customer

uses its market power to move upstream to become a logistics
provider. This could happen in two ways: Either the customer
simply meets more and more of its own logistics needs, or it
actually builds the trucks most likely in partnership with an
OEM that it needs to carry out the transportation of its goods,
as Walmart and FedEx are already doing. Either way, no fully
digital overhaul of the logistics business will be necessary, since
all supply chain activity will take place within the customers own
business. At the same time, however, no end customer will be able
to capture the entire market.

20 Strategy&
Exhibit 7
Three potential scenarios for the logistics value chain

Logistics stakeholder chain today

Component Leasing Trucking Logistics End

OEM
supplier operator company operator customer

Alternative logistics stakeholder chains 2030

Scenario 1: OEM downstream integration

Component Logistics End

OEM
supplier operator customer

Scenario 2A: End-customer integration with logistics

Component Trucking Logistics End

OEM
supplier company operator customer

Scenario 2B: End-customer integration with OEM

Component End
OEM
supplier customer

Scenario 3: Disruptive outside player

Disruptive
Component End
outside
supplier customer
player
Source: Strategy& analysis

Strategy& 21
3. Disruptive outside player. In this scenario, a tech company uses
its strengths in software and innovation to move into the logistics
business. A prime example would be Google, which is already the
front-runner in autonomous driving technology. The company takes
an innovative and disruptive approach to every business it enters,
and given its advanced digital technology and experience, it could
very well supply its own freight-matching digital solutions. Googles
weakness, of course, is its lack of knowledge and experience in
manufacturing actual vehicles. Another player could be Tesla,
which recently announced a goal to build long-haul trucks with pure
electric powertrains, and if it succeeds a very difficult task, given
the demands on the typical long-haul truck the company would
likely develop digitized mobility solutions for the truck as well.

These scenarios offer different visions of the future of the trucking and
logistics industries, as the players develop more and more advanced
digitized solutions and processes. In every case, however, various
players OEMs, end customers, tech companies are putting real
pressure on traditional logistics providers, threatening their very survival.

The traditional specialized trucking and shipping companies face the

greatest risk as the new entrants essentially take over their business,
or at least become significant competitors. The added value that the
traditional, typically midsized companies provide is simply not enough
to enable them to survive as the industry becomes more digitized. In a
connected and digitized logistics world, the only remaining traditional
process will be the physical transportation of goods from A to B.
Virtually every other main and supporting logistics process from
order placement and acceptance through delivery of documents and
invoice submission after dispatch will be fully automated. The end-
to-end digitization of transport is not far away the first solutions are
in the testing phase already and will soon come on the global market.

22 Strategy&
The era of digitized trucking

The radical transformation coming to the trucking and logistics

industries over the next 10 or 15 years presents many risks but also
opportunities for all the players in the business. For some, the risks
will be so great that they will likely not survive. For others, success
will depend on their ability to understand the opportunities available to
them, and to build or buy the capabilities needed to aggressively pursue
them. The real risk lies in failing to move forward.

Strategy& 23
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