How one change to shipping goods could change the way we live

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum. Author: Stefan Seltz-Axmacher, Founder and Chief Executive Officer, Starsky Robotics

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Between 191 BC and 1915, it became 10,000 times more efficient to move a ton of grain from Egypt to Rome. But the last 20 miles, from the seaport to Rome’s inland location, became just five times more efficient. Until World War I, the first and last legs were carried out the same way as in the Roman Empire: by horse. The invention of the truck, which saw widespread use during the war, changed everything.

We’re on the cusp of another such disruption to shipping: autonomous freight. This technology will cause the cost of shipping goods over land to fall dramatically, which could be the single-most transformative effect of self-driving on the way we live.

Recently, I tried to order wine from a friend who has a vineyard in Argentina. After making my selection on his website, I discovered shipping the wine to my place in San Francisco would have cost more than the actual bottle. So, I didn’t complete the transaction.

Another friend has a clothing line for premature babies – adorable pieces so small they look like doll’s clothing. Her business is the type of long-tail, niche enterprise the internet was supposed to empower. She’s doing well – but getting the products to her customers is the biggest problem. While most of the orders fit in a FedEx envelope, her freight expenses represent more than half her fulfillment cost.

Thanks to the internet, wineries in Argentina and niche clothing brands in the United States artisans creating everything from Death Star firepits in Wisconsin to windchimes in Israel can advertise and sell their wares to customers around the world. But no one’s yet been able to solve geography. Shipping these products to the customer can be so expensive, it eliminates an enormous number of potential transactions.

All that’s about to change, as autonomous technology will eliminate almost all of the labor cost associated with moving goods. The decrease in the marginal cost of labor – combined with the decrease in the cost of fuel due to the proliferation of electric vehicles – will drive down the fixed cost of transport vehicles, further lowering freight rates.

The result? The cost to move goods will drop to nearly zero – as easy, and almost as cheap, as moving bytes of information. To understand the scale of the transformation to come, we need to go back in history to examine other times new technologies have disrupted the economics of shipping, along with the course of history.

Historically, the only way to decrease shipping costs was by transporting in bulk. And until the last 200 years, this was only possible on water – which is why most empires were built around waterways.

Take Rome. The empire was powered by the Mediterranean, which citizens referred to as “Mare Nostrum,” or “our sea.” During the reign of Augustus, from 27 BC to 14 AD, Egypt sent around 150,000 tons of grain to Rome per year. However, horse carts could only move 5-10mph with a maximum cargo capacity of one ton, so transporting the grain by horse alone would have taken 150,000 trips. For greater efficiency, Rome’s logistics managers used seagoing galleys. The 150-person crew of a galley could move 150 tons of grain at 6mph – much more efficiently than a cart. You could haul all of the grain at once – with 1,000 galleys and a crew of 150,000.

Roman-style galleys ruled the seas for nearly 1,500 years. Then, Spanish galleons arrived around the year 1500. Requiring just one-third the crew of a galley, they could go twice as fast and transport 500 tons of cargo, roughly three times the weight of a Roman galley.

To transport the aforementioned Egyptian grain to Europe in the same amount of time required 175 galleons and a crew of 8,000 people – or about 5% of the crew required for the galleys. The Spanish galleon was a huge technological leap forward. And it allowed a few small kingdoms to take over nearly the entire world within 200 years. Even so, it wasn’t cheap: according to some estimates, it cost around $30,000 to move a ton of goods via galleon across the Atlantic at the time.

The galley and the galleon transformed the cost of bulk freight transport – over water.

More than a millennium passed between the fall of Rome and the most substantial change to over-land shipping capacity: the invention of the steam engine in the 19th century. Early trains could haul 100,000 tons at 40mph with a crew of six. To feed Rome, you’d need just a single train, making two trips, with a crew 0.08% the size of the previous galleon flotilla.

Trains brought wealth to inland towns and cities – and helped define state and international borders. If you look at a map of the United States, the borders of older states tend to be defined by waterways (rivers, lakes, oceans) because that was how they got their goods to market. The introduction of railroads decreased the economic importance of waterways, which was a factor in newer states being square-shaped.

Ships and trains are highly efficient methods to transport lots of goods from one place to another. You can move thousands of tons of grain efficiently from Egypt to Rome via boat –or, for another example, coal from Appalachia to New York City via train. But people don’t buy tons of grain or coal. As a new middle class rose in the late 19th century, its members wanted more consumer goods, of a higher quality. Rather than grain, they wanted sliced bread. Rather than fabric, they wanted pants in a certain style and size. Today, consumers don’t want aluminum or rare earths – they want an iPhone.

The problem? No city has sufficient demand for a train full of iPhones. (In fact, all the iPhones ever sold would barely fill three trains.)

The consumer goods supply chain demanded a low-cost and reliable way of shipping a medium amount of goods – less than a train or boat load, but more than a horse cart.

The solution? Containerization and trucks. Many modern container ships are able to haul the freight equivalent of 50 galleons (or 167 galleys) with a crew of 18.

Remember, when galleons ruled the seas, it cost roughly $30,000 to move a ton of freight across the Atlantic from England to North America. The container ship brought the cost down to $30 per ton.

Let’s go back to the invention of the truck, which, as noted, quickly replaced horses after World War I.

Trucks aren’t particularly labor- or fuel-efficient compared to a train, but they enable smaller quantities of “many-to-many” shipments. For example, an inland factory producing specialty goods like refrigerators could fill a truck with products, then travel 1,000 miles to a small-town appliance store. This wasn’t practical by train because a store didn’t need a train load of refrigerators – and it would take weeks to deliver the cargo if the train made multiple stops.

Even though modern trucks are barely more labor efficient than Spanish galleons, within 100 years they came to move 70% of all the overland freight shipped in the United States. Because of their poor labor and fuel efficiency relative to over-sea shipping, shipping by truck is expensive. You might spend $300 moving a shipping container 6,000 miles from Europe to Jacksonville, FL – and it would cost $700 to get that container the last 400 miles to Atlanta.

Shipping by tractor-trailer is so expensive for several reasons. The fundamental inefficiency in US logistics is the cap on the labor productivity of truck drivers. No matter how capable a truck driver you are, you can only drive one single truck at one time.

Regulations (and statistical safety) limit the size of the payload, as well as operating hours. Furthermore, the market exerts downward pressure on trucking rates, which translates into a cap on driver pay. Plus, the work is difficult and monotonous. When you combine low pay with difficult work, you have the labor shortage – and that’s affected the American trucking industry for years.

The industry’s preoccupation with the staffing issue has eased downward pressure on equipment and fuel expenses relative to other transport modes. Rather than becoming cheaper, new trucks are becoming more expensive as equipment manufacturers add creature comforts to attract and retain a sparse workforce. Even though fuel costs represent 25% of trucking’s gross revenue, fleets have been unable to invest sufficient resources into becoming fuel efficiency because they devote so many resources to the hiring and retaining of drivers.

The next transformation in the economics of freight will be triggered by the advent of autonomous, electric trucks. My company, Starsky Robotics, is making trucks autonomous on highways and remote-controlled for the first and last miles, resulting in an unmanned truck for the entire trip. Once self-driving technology eliminates the staffing problem, the market will be able to focus on its next biggest marginal cost: fuel. Soon, a number of factors – such as improving battery performance, hybrid power trains, platooning and battery swaps – will allow trucks to go from diesel-powered to electric.

Labor and fuel account for 50% of the cost of trucking. With the labor shortage solved by autonomy and remote control, and the variable cost of fuel for an electric vehicle just 10% the cost of diesel, the dual innovations of autonomy and electric drive will reduce freight rates by 60 to 70%. Further cost reductions will happen as truck size grows more flexible, driving further efficiency. The highway of the future may have Class 8 trucks hauling 50,000 pounds of potatoes next to a super-delivery bot zipping along with 40 MacBooks.

Remember how it cost $700 to transport the shipping container from Jacksonville to Atlanta? Autonomous, electric trucks might bring that rate to $70 in 50 years, and maybe just $7 in 2119.

With the convergence of self-driving and electric technologies, goods on land will become cheaper than moving goods on water. And moving small amounts of goods will cost almost the same as moving in bulk. It will reduce the need for middle men, further reducing delivery time and cost and allowing new business models to flourish. It will change the geography of wealth, leveling the playing field for landlocked countries and regions. It will change where we build factories, where we live, as cost of living falls and personal prosperity rises. Here are a few specific thoughts:

The rise of the landlocked Being a rich country has necessitated access to blue water ports, because moving goods over water was significantly cheaper than over land. It’s why most of the wealthy US states are designed around access to the Atlantic, the Great Lakes, and Mississippi. Autonomous electric freight vehicles will level the playing field for landlocked countries and regions. It will be more efficient to ship goods from Uzbekistan to Greece than it currently is to ship from New York to London.

The end of economies of distribution scale There’s a massive advantage to shipping a large amount of goods. Shipping costs add over 20% to the price of most things you buy, and economies of scale when it comes to distribution provide a meaningful benefit. The rise of autonomous electric freight will make it as competitive to ship a cooler full of product as it is to ship a trainload.

The disintermediation of matter Whole industries have arisen to enable economies of distribution scale. As they recede, things will become available faster and for less money. It might make more sense to buy all of your produce fresh from farms 500 miles away. Rather than the fashion cycle being predicted six months in advance so that it can be made across the world in time for the season, factories could now be making the clothes you wear next week.

This is a monumental civilizational shift, far beyond the robotaxi debate, with a similar impact on the physical economy as the internet had on the virtual one.

But as we’re thinking about the positive impact of such a shift on humanity, it’s important to be mindful of the potential downsides, too. While the Spanish galleon revolutionized freight transport, it allowed a few European countries to place much of the rest of the world in economic servitude. Likewise, the world wars yielded their appalling death tolls in part because trains helped transport munitions and soldiers to front lines, sometimes even faster than their leaders realized.

Disruptions to the economics of freight can help or hinder humanity – so as shipping technology advances, we must leverage it to build a more prosperous and more peaceful world.