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Venture Capital and Private Equity Investment in Fleet Management

March 13, 2018

A Surge of Investors in the Fleet Management Arena

Many refer to the trucking industry as the backbone of America and for good reason. The freight trucking industry is responsible for transporting products of any kind to industries of all kinds. It serves the economy in ways no other industry can by delivering quantities of raw and finished goods, and works in progress to all sectors of business. These drivers deliver materials for housing, the food we eat, the clothes we wear, the technology we are dependent on, and in emergencies, the healthcare products that could save lives. As an industry with such value, sustainability, and potential, it is no wonder that private equity organizations and venture capital firms are lining up to invest in fleet management operations across the nation and the world.

According to a recent report, the trucking industry revenue hit a record $726.4 billion in the U.S. in 2015, and employment increased to 3.5 million drivers with sales exceeding $700 billion in 2015 while collecting 81.5% of freight revenue nationwide. It is expected that growth in all of those areas will rise within the next decade. The ATA U.S. Freight Transportation has forecast continued growth in volume and weight as well. In 2017, ATA Projects that 15.18 billion tons of freight will be moved by all modes – a figure that rises 36.6% to 20.73 billion tons in 2028.

With projections like these, investors can be as confident with investments in fleet management as they are in fueling technology, which is why the industry is seeing a surge in interest from venture capital and private equity resources alike. As these investors recognize problems within the trucking arena, they are quick to align themselves with innovators that can respond, and almost always, that responsive nature and mentality lies in start-up operations. Venture Capital and Private Equity firms focus on financing smart start-ups because these temporary organizations can recognize a problem and respond in a nimble way in order to develop solutions and strategies that includes a repeatable, scalable and profitable business model designed for faster growth. It’s all in the economics!

The Economics of Trucking: Looing at the Problems

In order to identify the problems, it is necessary to look at the economics of the industry and examine which categories affect cost the most. The main areas that drive operating costs within the industry are as follows:

  • Fuel Costs: 34.2%
  • Truck/Trailer Payments: 12.6%
  • Repair & Maintenance: 9.3%
  • Truck Insurance Premiums: 4.2%
  • Permits & Licenses: 1.1%
  • Tires: 2.6%
  • Tolls: 1.3%
  • Driver Wages: 27.1%
  • Driver Benefits: 7.6%

Other factors affecting cost:

  • Driver shortages and workforce retention issues
  • Federal and state transportation regulations
  • Environmental regulations
  • Technology for fleet management
  • Fuel Management

With the costs identified, it is easy to see where investment has the most potential, and why there has been a significant increase in the aggregate amount of capital investors deployed into start-ups in the trucking market each year since 2009. Because the industry has been perceived as inefficient and lacking the innovation that is needed to move the industry forward, investors see the opportunities as ripe. Besides the fact that it is a huge market with longevity, investors see these two points of rationale.

  1. Significant room to apply technology to fleet management and operations, freight brokerage, and compliance.
  2. A highly fragmented industry – making it an attractive candidate for the types of software platforms that have already transformed the way business is done in other markets.

These investment platforms have already given rise to successful companies managing several aspects of the trucking business from financial capabilities in AP solutions and payment software to fuel management and logistics programs.

“A lot of the tasks that were previously done offline for trucks are now being digitized, and it’s going to impact this industry tremendously. But if you start thinking through different industries that trucking impacts, it becomes even more significant. That’s why I’m investing in this space.” — Paul Asel, Managing Partner at Nokia Growth Partners

A study from CB insights recently projected that the sector is on track to raise more than $1 billion in 2017, well above the $763 million invested in 2016, and about eight times the $132 million invested in 2013. These start-ups are focusing on technology and innovation directly related to the trucking industry. Services and products that can enhance trucking-oriented marketplace platforms, fleet management solutions, onboard monitoring and tracking systems, and trucking-focused ERP systems. They are also seeing opportunities in fuel management and warehouse automation as well as fleet card services and products. Companies like EFS were created as a direct response to these needs. By offering digital solutions in payment processing within the trucking industry, EFS is having a significant impact on the companies with which they partner and the industry overall. The company has identified specific inefficiencies and answered them by developing an operating system to meet the demand. They have even partnered with Mastercard to offer fleet and fuel cards that provide the control and visibility on fuel management as well as managing and tracking expenses more efficiently and accurately.

“A rising tide of buyouts by private equity firms is changing the competitive landscape of trucking. Not only is the process accelerating a transition from small family-run companies to large, professionally managed corporations, it is changing the way many for-hire carriers are organized and managed”. Daniel P. Bearth

Millions of dollars are flowing into the industry raising the bar within the competition. Smaller, independent trucking companies are finding it harder to meet the standards that the equity-backed companies have set. With the promise of accelerated growth, many well run fleet management companies have been acquired with the intent to make them bigger and better — not just the quick profit that these same companies might offer. However, even with the surge of outside investments into the industry, it is challenging to see which companies will be successful and which aspects of the industry hold the most potential. Luckily, accomplishments from companies like EFS show that the industry is worth notice. Investments in technology and innovation will not only empower the company, but they will also shape the industry.




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