Autonomous trucks: Sooner than you think

Semi-autonomous Level 3 trucks will be ubiquitous on America’s highways within 5-10 years; driverless Level 5 vehicles some time after that, according to Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. Cowen’s analysis by its various sector heads looks at potential impacts on the freight transportation industry, including railroads.

• Jason Seidl (Surface Transportation & Logistics ): “Level 3 autonomous trucks (AT) permit the driver to cede control of the vehicle to the technology on certain roadways under certain driving conditions, akin to autopilot on an aircraft. ATs come with significant technological, economic and personal benefits. In fact, we think a fleet could see a 4-8% earnings improvement from fully utilizing Level 3 trucks. Based on conversations we’ve had with industry executives, the amount of testing taking place today and the current regulatory framework, we think Level 3 trucks will be ubiquitous on America’s highways in 5-10 years. Level 4 automation could require a driver as well, albeit in a far more passive role, while driverless Level 5 trucks present entirely new possibilities.

“A truck without a driver would no longer be subject to the current 11-hour daily drive time limit, which is in place to protect the public from overtired drivers. Therefore, a Level 5 truck could cover more mileage, haul more freight and ultimately generate more revenue per day than a truck driven by a human. Trucking, which has lost market share on longer hauls in recent years to railroad intermodal service, could become more competitive again. Additionally, the transport landscape could be radically altered. The very nature of for-hire trucking companies could be threatened over the long term as one of their biggest roles is managing drivers. Third-party non-asset logistics companies (3PLs) could play a much bigger role in management of Level 5 trucks as OEMs/tech companies shoulder responsibility for the production, maintenance and repair of the vehicles.

“Nearly two-thirds of shippers we asked said they expect to see autonomous trucks on the road within ten years. Eighty-six percent said they would consider ATs to haul their collective $7.7 billion of freight. Large trucking companies are taking very close looks at the capabilities of autonomous trucks, seeking to help craft regulatory policy and in some cases actively testing them as they attempt to size up the economic benefits. Federal regulators appear supportive, but at the very least don’t seem headed in the wrong direction (more on that below). At least 12 states have autonomous vehicle testing ongoing or will have it soon as governments seek to attract job opportunities, R&D dollars and partnership opportunities for their local universities.

“Importantly, level 3 trucks are not job killers. The largest trucking organization and an influential voice in Washington DC, the American Trucking Associations, is supportive of this technology because of the safety benefits and job security it ensures. Of course, as we look long-term at Level 5 trucks, the labor issue will certainly arise as truck drivers are the most common job in 28 states. However, there are still some hurdles to overcome. Federal regulators and state lawmakers must provide an environment whereby the innovators and truckers can operate without hindrance. Liability and cyber-security/hacking concerns will need to be addressed by insurers and software developers. Infrastructure investment is also key in that in order to realize the full benefits of any level of autonomous trucking, the vehicles should be able to communicate with everything around it, including signage and lane markings.

“The march to automation has been going on for years with federal lawmakers taking a backseat to state lawmakers. Public policy can accelerate automated vehicle developments, though it can also stop them cold. States are leading the way through a dual mandate: 1) the sense of opportunity around economic development, and 2) sense of fear (stop SkyNet and the rise of robo-cars). The innovators are well ahead of the regulators, which is helping to push lawmakers to formulate the rules of the road. There are some initiatives under way at the federal level, but mainly through the National Highway Traffic Safety Administration (NHTSA), the federal authorities are purposely neutral, in our opinion. NHTSA’s preliminary statement on automated vehicles from 2013 was supplanted by the September 2016 White House/DOT policy guidelines. The federal government (at least pre-Trump—his FY18 Budget is likely sometime around May and could include their position) seems to recognize that a prospective approach with specific standards could slow innovation.

“Congress has already held a hearing on the topic this month in the House Energy and Commerce Committee. Not to lose out to the lower body, the Senate is also moving forward (in a bipartisan fashion) with a bill being crafted by Sens. John Thune (R-S.D.) and Gary Peters (D-Mich.), who are looking for ways to reduce hurdles for self-driving car manufacturers. The states are moving with great speed, with several doing a fair amount to attract research and development dollars or offering roadways as test beds. They’re also causing some headaches. State departments of motor vehicles (not typically the tip of the spear in relative bureaucratic excellence to begin with) are leading the charge with patchworks of contrasting regulations that are a cause of concern for the industry. Unification of state laws is a real issue, to say nothing of cyber security and job disruption. Lawmakers are aware of issues and are shifting into first gear with the states ahead of them, though the innovators are remaining out in front.

“Infrastructure could provide a legislative vehicle for autonomous truck/car legislation—along with financing. However, ‘infrastructure’ is stuck in the gridlock caused by the FY17 ObamaCare Reconciliation process that has ground Capitol Hill to a halt. There is also big uncertainty around actual policy and political coalition on Capitol Hill. Democrats will likely support straight spending a la Highway Bill/2009 Stimulus, but will not be in favor of Navarro/Ross Plan that is heavy on public-private partnerships, leverage, and tax credits, i.e. tolled sidewalks. Commerce Secretary Nominee Wilbur Ross authored Trump’s infrastructure plan, is a very creative financier, and was a supporter of the Build America Bond Program: $167 billion down payment (ballpark range of deemed repatriation of ~$2.4 trillion overseas trapped earnings) yields $1 trillion in total spending through tax credits equal to 82% of equity investment. We suspect Trump’s address to a joint session of Congress on Feb. 28 will prominently feature infrastructure, and we expect the Administration’s plan in the space in the coming weeks and months. Infrastructure will not move through a reconciliation process, so 60 votes in the Senate (52 Republicans and 48 Democrats) will very likely be required.”

• Helane Becker, Airlines, Aircraft & Container Leasing: “UPS is testing autonomous vehicles, but believes there are still many issues to overcome. Given this, UPS believes the first application of fully autonomous vehicles will be for movements inside their facilities. This includes the fleet of vehicles that move oversized packages in their facility as well as possibly using drones to move packages on higher shelves or to move packages that are hazardous for humans to touch. Safety and control are main concerns, and UPS has more control over the environment inside their facilities than they do outside. Given this, we believe all technology will be tested and proven inside their facilities before they are on the road. Union labor also presents a potential issue for UPS, whereas that would unlikely be the case for truckload carriers.”

• Jeff Osborne, Clean Technology: “Autonomous driving, if fully adopted, could represent one of the single-most disruptive events to occur in the transportation industry since the original advent of the automobile. Not only does this technology have the ability to reduce vehicular accidents, it can also create paradigm shifts in vehicle use and ownership that could unlock new sources of economic value. While the economic incentives for autonomous trucking are still being quantified, there are several near-term productivity improvements that trucking companies can leverage to offset adoptions costs. However, for retail consumers, the value proposition in the short term is more closely aligned with safety. In our view, the rate of autonomous adoption by retail consumers has a tangible impact on autonomous trucking, as large-scale adoption will help to materially reduce autonomous system costs as economies of scale for components become better realized over time.”

• Paul Silverstein, Networking & Wireline Equipment: “Our latest industry checks indicate that autonomous driving on American highways, at the 4th and 5th level of automation, is still a distant opportunity—at least a decade away from meaningful deployment. According to our checks, the key impediments withholding autonomous driving adoption to Level 4/5 is that the overall transportation ecosystem currently does not enjoy greater than five-nine (99.999%) reliability. We see it as more likely that the ecosystem will mature over the next decade as opposed to over the next 3-4 years to meet the requirement of five-nine reliability. To be clear, we are not referring to equipment reliability in the system, but the reliability and buildout of support systems to enable autonomous driving.”

• Novid Rassouli, Metals & Mining: “As the United States and other countries explore the regulatory and technological possibilities associated with autonomous trucks, there are several examples of driverless trucks already on private job sites around the world. While these machines are larger than the typical 18-wheeler on public highways, Rio Tinto, BHP Billiton, and Fortescue Metals utilize self-driving technology on the trucks running on some of their worksites across the globe. The financial and safety benefits are compelling. Rio Tinto ex-CEO Andrew Harding stated that the company’s autonomous fleet outperforms a manned fleet by an average of 12%, due to the elimination of required breaks, absenteeism and shift changes. Fortescue Metals has utilized driverless truck technology at its Solomon Hub mines in Western Australia since 2013 and claims to have seen a 20% productivity gain.”