The shipping and logistics space is being rapidly transformed by technology. Innovations in this space span the way buyers and sellers transact (digital freight brokerages), the way goods are monitored during shipment (sensor-enabled real-time monitoring) and the manner in which risk is managed (novel approaches to pricing insurance). With diverse opportunities like these, it is no surprise that this is a space ripe for significant disruption.
And yet technology is not the only force driving change. Regulators are taking a fresh look at the lives of workers in the gig economy, often concluding that many folks classified as independent contractors ought to be treated as employees. As we will see, this is causing a sharp uptick in the creation of small-motor carriers. At the same time, oddly enough, driver scarcity is forcing innovators in the shipping and logistics space to think very hard about how to entice new drivers into the market.
Two forces — driver scarcity and regulation — are working in unison to forge the shipping and logistics space of tomorrow. Before we dive into precisely how this is happening, let me introduce the dramatis personnae in this ecosystem:
- Shippers — These are the folks who have goods that need to be moved from point A to point B.
- Carriers — These are the folks who shippers hire to load goods on a truck and move them from point A to point B. I will use carriers and small-motor carriers as interchangeable terms.
- Brokers — These are the people who connect shippers with carriers, often doing the hard work of making sure that carriers are properly licensed and have the appropriate levels of insurance.
- FMCSA — Federal Motor Carrier Safety Administration, the body responsible for facilitating safety programs, licensing motor carriers and ensuring compliance with a wide range of shipping and transportation rules and regulations.
A tale of software and shipping
Today, shipping runs on a backbone of telephone calls, manual logging and delayed payment. Yet the shipping ecosystem of the future will have an entirely different nervous system. Before we examine how driver scarcity and regulation will shape this future system, let’s consider where we are today.
Historically, the shipping industry functions on the basis of trust and deep-rooted professional relationships. The largest shippers have relied for a very long time on an entrenched broker network that connects them with carriers capable of moving cargo reliably at scale. Brokers are paid for reducing risk for the shippers by properly vetting the carriers. These relationships form the nervous system of the traditional trucking industry.
This traditional approach to shipping is being disrupted by a number of well-well-funded, ambitious startups. Companies like Samsara, Convoy, and Freight Rover are introducing next-generation hardware, software tools and other solutions to optimize shipping at scale. These companies have different theses about how to properly optimize shipping tasks, but the common thread is that they all appreciate the need to leverage new technology to remove unnecessary friction between ecosystem actors.
The wake of disruption is going to benefit everyone in the shipping and logistics space.
Carriers will get two important benefits: (1) instant access to shipping jobs and (2) a data platform for managing and understanding their businesses. Shippers will also receive two things essential to optimizing their revenue — (i) a constant supply of reliable carriers and (ii) a wealth of real-time data about live and legacy shipments.
The role of regulation
Against the background of the disruption described above, there has been a lot of regulatory activity affecting the shipping and logistics space. In general, the government is becoming more active in regulating the way in which the shipping industry runs, especially when it comes to the treatment of drivers and the unreasonable demands often imposed on them by aggressive shipping schedules.
The first change came from Congress at the end of 2017 in what is known as the Electronic Logging Device (or ELD) mandate. In a nutshell, the ELD mandate requires carriers to have an approved logging device in their trucks to ensure that their hours of service are properly logged and available for regulator review.
This is surely just the beginning of regulatory activity. Not only has Congress expressed interest in closely monitoring Hours of Service — the amount of consecutive hours a truck driver may lawfully drive — the ELD mandate is widely viewed as a way to better enforce those rules.
Thus, at the federal level, you have a regulator who wants to keep granular tabs on what truck drivers are doing. What about at the state level, what’s going on there?
At the state level, many states are adopting laws that require an employer (including shippers and carriers) to classify someone as an employee if he or she provides services for the employer’s core business. In short, if the employer’s core business is X and a person is hired to do X, then that person is an employee.
In California, for example, this is known as the ABC Test from the Dynamex decision handed down by the California Supreme Court. In that case, Dynamex believed they could lawfully classify their delivery drivers as independent contractors. The benefit of doing so is that independent contractors are not entitled to key employee benefits, including healthcare and expense reimbursements. The California Supreme Court decided that Dynamex made a mistake in not classifying these drivers as employees.
Developments like the ABC Test are already transforming the shipping world. Under this test, a driver is almost always going to be legally entitled to the status of “employee” because a driver in the shipping world is by definition being hired to fulfill the core business activities of the shipper.
So, let’s combine the regulatory developments happening at the state and federal level. At the federal level, Congress is encouraging the rapid adoption of monitoring technologies like ELDs. At the state level, employers are facing pressure to classify drivers as employees. Increased tech-based monitoring is thus occurring at the same time that drivers are getting increased rights to employee benefits at the state level.
This is a big deal. Drivers are getting increased leverage vis-à-vis their employers, while the employers (i.e. shipping companies and carrier owners) are being required to use safety-enhancing monitoring technologies. Regulation is moving in one direction — toward providing a greater degree of protection for truckers.