Tuesday, February 14, 2017

Financial Edge February 2017: Chuck the steering wheel out the window

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David Nahass David Nahass

Among the daredevil set, the cadre of YouTube videos of drivers that attempt to stress the limitations of Tesla’s driver assist (or self-driving) mode (searching “Tesla Autopilot” yields a search result of almost 250,000 videos) is poor man’s fodder.

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Never reaching the heights of daredevil insanity of Evil Knievel making a jump over Snake River, these overnight daredevils push the boundaries of good sense (“Testing Tesla’s autopilot system at 70 mph”).

Daredevil behavior might get a shot in the arm as driverless truck technology is moving quickly from the stuff of fiction and cinematic special effects (who didn’t love Stephen King’s Christine?) to mainstream traffic arteries that connect U.S. cities and regions. You think the daredevil set is hungry now? Wait until the only thing behind the wheel of a FedEx trailer is a motherboard, microchips and someone at a command center thousands of miles away.

What’s the motivation behind a surge in investment and interest in driverless truck technology? According to Rod Case, Global Rail Practice Head at Oliver Wyman and a speaker at Rail Equipment Finance 2017, the surge comes from two main thrusts: safety and economics. It doesn’t take a computer science degree to know that a computer will not need rest, text while driving, or fall asleep behind the wheel. Think about it: Road traffic accidents are (roughly) the 14th highest cause of death in the U.S. Humans (most, at least) are wonderful creatures, but even without researching it, one could hypothesize that there is unlikely to be one legitimate study that favors human drivers over driverless technology as a means of reducing road traffic fatalities and accidents.

On the economic side, with driverless technology, a looming driver shortage becomes less, well, looming. Rod notes that logistics planning, supply chain management, insurance costs and fuel consumption can all be optimized when the human element is removed. It is not pretty, but most long-haul truck drivers will become one more roadside casualty of productivity.

With interest in driverless technology continuing to grow. I asked Rod his thoughts on the technology and its implementation. First, I asked about the timing for implementation. Rod told me that “technology is largely available now or in final test,” and that “several states already allow use of driverless trucks—implementation is now largely a commercial carrier decision.”

I asked Rod about the best type of implementation for driverless technology. He said, “Long-haul trucks are easier to do than short-haul trucks.”

I asked him about the application hurdles of driverless technology. In other words, would there need to be a lane added to Interstate 80 or Interstate 95 in order for states to approve the use of driverless tech? I was surprised at the answer: “Both concepts are out there without a clear direction. However, any additional lanes would be interior, HOV-style lanes.”

In answer to today’s million-dollar question, “What will the Trump Administration have to say about driverless technology?” Rod answered that the President has said, “Nothing yet, but if we expect regulation (generally) to be reduced, then this promotes quick adaptation of the technology.”

In the competitive discussion between rail and truck, the human element and its connection to cost has always been a factor. The railroads are busy (and correctly so) fighting Washington on lowering crew sizes while support for driverless technology has been moving ahead at a rapid pace. Contemporaneously, rail has been looking for ways to improve intermodal growth on routes of different length to try to peel away some of the business that currently or ultimately may be allocated to truck. Could driverless technology be as impactful to railroad loadings growth as the loss of coal loadings?

We heard it at REF 2016 and expect to hear it again at REF 2017: For rail transportation to remain vibrant and competitive, rail must find a way to be something other than the transportation method of last resort. Driverless technology adds another layer of urgency to that issue. Its impending implementation makes it an issue the industry needs to prepare for today, now. Once the barn door is open, that horse (sans rider of course) won’t be back.

Have you registered for Rail Equipment Finance 2017 yet? With great keynote speakers like Sergio Rebelo, Tokai Bank Chair in International Finance at the Kellogg School of Management; and Kenneth Fischl, Vice Chairman of the Marmon Group (a Berkshire Hathaway Company) as well as the best attendee list and networking in the industry, it is an event not to be missed. Go to www.railequipmentfinance.com and register today. The dates are March 5-8, in La Quinta, Calif.











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