(Bloomberg View)—Travel to the edge of any Chinese city and eventually you’ll find a parking lot full of idling trucks and suffocating diesel emissions. In bigger cities, such as Shanghai, these lots sprawl for tens of acres and can lead to paralyzing traffic jams when they overflow. Even as China embraces ride sharing and delivery drones, and builds vast networks of airports and high-speed rail, it still depends on long-haul trucks to carry 80 percent of its cargo.
It’s a dirty, low-tech and inefficient industry. But with an estimated market value of $750 billion, it’s not going away any time soon. Instead, technology is transforming it. This week, China’s two largest apps for delivering Uber-like services for truckers and cargo owners agreed to merge. The resulting $2 billion behemoth is likely to reduce delays, cut down on pollution and improve life for the country’s 30 million truck drivers. It may also be the first step in creating a revolutionary new transportation system.
Not every app can make that kind of a difference. But there are few big industries that remain as fragmented and untouched by technology as the Chinese trucking business. It’s a condition that dates to the earliest years of China’s economic transformation, and the government’s decision to disband the state-owned trucking monopolies. In their place, millions of entrepreneurs bought trucks and hit the road. By 2012, there were 9 million trucking companies in China—6 million of which owned only one truck. Today, independent driver-owners represent roughly 90 percent of all commercial trucks on Chinese highways.
For these drivers, finding cargo can still be a struggle. Usually, they affiliate with a larger company or drop by a freight market where jobs are posted on chalkboards by small brokers. Finding a haul that can take a driver where he wants to go, and at a profitable rate, can take hours and involve painful negotiations. Then the driver must negotiate China’s notorious traffic to pick up the freight, spend hours waiting for it to be loaded, and then hit the road again.
These inefficiencies come with steep costs. A truck that isn’t hauling cargo is losing money, and China’s trucks spend a great deal of time empty: By one estimate, 40 percent of their time. That hurts the bottom line, exerts a harsh toll on drivers who spend too much time in the cab, and generates huge amounts of pollution. China’s largest Uber-for-trucking company, Truck Alliance Inc., also known as Huochebang, says that its dispatching system saved more than $9 billion in fuel costs in 2016, and prevented more than 33 million tons of carbon emissions.
But perhaps the biggest cost of all those empty and idle trucks is economic. China’s fragmented trucking sector, combined with notoriously expensive toll roads, is a key reason that it devoted an immense 14.9 percent of gross domestic product to logistics costs in 2016, ranking it 27th in the World Bank’s Logistics Performance Index. (The comparable figure in the U.S. is just 7.5 percent of GDP.)
Improving those figures is a major priority for China’s government, and this week’s merger of Huochebang with Yunmanman, its bitter rival, should help. The resulting company should be able to match drivers with cargo far more efficiently and on a huge scale. As of July, Huochebang was working with 4.5 million registered vehicles and 880,000 cargo owners.
But the merger also advances a more far-reaching goal: the development of an “internet of vehicles.” The idea is for every vehicle on China’s roads to report its location and, in turn, receive data related to every other vehicle’s location, thereby reducing congestion, improving safety and streamlining supply chains. It’s a crucial, centrally planned step in the development of self-driving cars—and it won’t work if China’s highways are jammed with millions of independent truckers following chalkboard dispatching systems.
This week’s merger solves much of that problem. It creates a company with the scale to rationalize an inefficient and often chaotic industry. It gives the government a large, computerized dispatching agency that can be integrated into its broader plans. And it may well be the first step toward creating a transformative national transportation network—one that could drive China’s slow-moving trucks quickly into the future.
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