{"id":19034,"date":"2016-11-18T16:10:15","date_gmt":"2016-11-18T21:10:15","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/otto-set-to-disrupt-the-freight-industry\/"},"modified":"2016-11-18T16:10:15","modified_gmt":"2016-11-18T21:10:15","slug":"otto-set-to-disrupt-the-freight-industry","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/otto-set-to-disrupt-the-freight-industry\/","title":{"rendered":"Otto Set to Disrupt the Freight Industry"},"content":{"rendered":"

The American transportation industry accounted for 8.6%, or $1.4 trillion of annual US GDP in 2013, making it the 11th largest industry by GDP. [1][2] The trucking industry accounts for 81% of the transportation industry. Despite its size, the trucking industry has seen little innovation over the past century surrounding its business model. Freight movement is still driven by trucking companies, dispatchers and drivers. Specifically, companies that wish to ship goods access a network of trucks via a dispatching service (either 3rd party or wholly-owned), which matches capacity with demand. Once the match occurs, drivers physically move the products from point A to B. Drivers are hampered by hour limits, meaning that trucks cannot be fully utilized given driver protection laws. [3]<\/span><\/p>\n

While there has been some innovation along the edges (better data collection via platforms like Lytx to improve driver safety and reduce insurance costs), none of these innovations address the core operating model: drivers, trucks and dispatchers. [4]<\/span><\/p>\n

Enter Otto – a self-driving truck company. Otto retrofits trucks with hardware kits that enable trucks to navigate, steer and accelerate without human intervention. Otto accomplishes this through both hardware and artificial intelligence. Its hardware includes LIDAR (light detection and ranging) technology, which surveys its distance to objects by sending and receiving laser signals.<\/span><\/p>\n

Otto has built sophisticated artificial intelligence to interpret these signals to make decisions on what to do: brake, steer, accelerate, etc. Human-based decision-making is very complex, especially during driving. Humans react to new situations using context they have gained via previous experiences. Artificial intelligence mimics human decision-making. Using large data sets, artificial intelligence algorithms build up databases of decisions that it can draw upon during new experiences. These new decisions in turn strengthen the underlying algorithm. In other words, these algorithms are not deterministic – humans cannot code algorithms to cover the millions of situations trucks will encounter. Rather, the algorithms are learning – they make decisions and use those decisions in turn to improve the algorithm. <\/span><\/p>\n

Otto\u2019s technology, then, aims to disrupt the $1.4 trillion dollar industry by removing the bottleneck: humans. Without driving limits, truck utilization can essentially be doubled by unlocking more hours trucks can spend on the road. Not only will this speed up the time needed to transport goods from point A to B, but allows more goods to be transported over a comparable time period. In the best-case scenario, trucks can then transport the same daily average of 55 million tons using half the truck volume.<\/span><\/p>\n

Otto is also betting that it can bring this technology to market faster than self-driving cars by being slightly less-ambitious. Otto\u2019s first generation of driverless technology will only work on highways (e.g., \u201cbetween offramps\u201d). [5] This cuts out many of the decisions that the algorithm will need to make, such as stoplights, crosswalks, stop signs, pedestrians and stop-and-go traffic.<\/span><\/p>\n

Lastly, Otto\u2019s self-driving technology represents a significant environmental benefit. Truck emissions account for 12.5% of the United States\u2019 annual output on an annual basis. [6] A typical truck has a mileage rating of 6-8 miles per gallon (hybrids, on the other hand, have a mileage per gallon of 56). [7] Decreasing the variability in acceleration will reduce emissions by at least 10%. [8]<\/span><\/p>\n

To be explicit about their business and operating models: Otto doesn\u2019t yet have a business model, as they\u2019re focused on building the underlying technology. There are many methods to choose from to monetize the technology, e.g. a flat fee for the kit, a usage rate based on number of miles driven, etc. Otto\u2019s operating model has two aspects: delivery and improvement. On the delivery side, their kits are modular, making them very easy to install in existing trucks (as opposed to building trucks from scratch). Second, once in the trucks, they can consume data to improve the underlying algorithms.<\/span><\/p>\n

While this represents a significant improvement over the existing trucking industry model, they can further innovate by building a capacity marketplace. In addition to their kits, they can ensure high utilization of space within truck trailers by matching capacity to demand within routes – much like uber matches supply and demand in UberPool. This represents an opportunity to disrupt the dispatcher-side of the business in addition to the driver side while also further maximizing capacity and utilization. (717 words)<\/span><\/p>\n

[1] \u201cFreight Facts and Figures 2015\u201d. Bureau of Transportation Statistics, <\/span>http:\/\/www.rita.dot.gov\/bts\/sites\/rita.dot.gov.bts\/files\/data_and_statistics\/by_subject\/freight\/freight_facts_2015<\/span><\/a>, accessed 11\/18\/2016<\/span><\/p>\n

[2] \u201cReports, Trends and Statistics\u201d. American Trucking Association, <\/span>http:\/\/www.trucking.org\/News_and_Information_Reports.aspx<\/span><\/a>, accessed 11\/18\/2016<\/span><\/p>\n

[3] \u201cSummary of Hours of Service Regulation\u201d. Federal Motor Carrier Safety Administration, <\/span>https:\/\/cms.fmcsa.dot.gov\/regulations\/hours-service\/summary-hours-service-regulations<\/span><\/a>, accessed 11\/18\/2016<\/span><\/p>\n

[4] \u201cLytx DriveCam\u2122 Helps Andrus Transportation Services Follow Its Core Value of ‘Doing the Right Thing’\u201d press release, 11\/7\/2016, PR Newswire, http:\/\/www.prnewswire.com, accessed 11\/18\/2016<\/span><\/p>\n

[5] Steinmetz, Katy. \u201cInside Otto, Uber\u2019s New Self-Driving Truck Division\u201d, Time Magazine, 8\/18\/2016. <\/span>http:\/\/time.com\/4458507\/otto-uber-deal-driverless-autonomous-trucks\/<\/span><\/a>, accessed 11\/18\/2016<\/span><\/p>\n

[6] Valentine, Katie. \u201cBig Trucks Emit Huge Amounts Of Carbon Every Year. The EPA Is About To Do Something About It.\u201d Think Progress, 6\/2\/2015, <\/span>https:\/\/thinkprogress.org\/big-trucks-emit-huge-amounts-of-carbon-every-year-the-epa-is-about-to-do-something-about-it-5c402732888#.kj7knkl7n<\/span><\/a>, accessed 11\/18\/2016<\/span><\/p>\n

[7] Roberts, Jack. \u201cThe Future of Fuel Economy\u201d, truckinginfo.com, 6\/2016. <\/span>http:\/\/www.truckinginfo.com\/article\/story\/2016\/06\/the-future-of-fuel-economy.aspx<\/span><\/a>, accessed 11\/18\/2016<\/span><\/p>\n

[8] Enstein, Paula. \u201cAutonomous and Self-Driving Trucks Will Improve Safety, Fuel Economy\u201d, Trucks.com, 4\/7\/2016, <\/span>https:\/\/www.trucks.com\/2016\/04\/07\/autonomous-trucks-improve-safety-fuel-economy\/<\/span><\/a>, accessed 11\/18\/2016<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Otto's self-driving technology will disrupt the $1.4 trillion freight industry<\/p>\n","protected":false},"author":2228,"featured_media":19035,"comment_status":"open","ping_status":"closed","template":"","categories":[1909,203,2079,1353,1094],"class_list":["post-19034","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-artificial-intelligence","category-freight","category-self-driving","category-trucking","category-trucks"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\nOtto Set to Disrupt the Freight Industry - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/otto-set-to-disrupt-the-freight-industry\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Otto Set to Disrupt the Freight Industry - 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