FMCSA ELD mandate: The opportunity, market and provider impact, Part 2

How are providers winning the ELD mandate right now?

It's still too early to tell which individual telematics provider will reel in the most business (in terms of net-new customers) from the ELD mandate. There are more than 370 registered and self-certified ELDs listed on FMCSA's website, which has ultimately favored buyers in pricing negotiations. While self-certifying will undoubtedly lead to dishonest providers with ultimately failing devices, there has yet to be a single revoked device listed by the FMCSA.

The largest addressable market for the ELD mandate consisted of subsegments that would constitute SMB fleets (11-100) and owner-operators (less than 10). Providers in these size categories have been on the slow end for adopting technology, primarily because they are operating on tight margins and are budget-constrained. This has driven providers and several startups to undercut costs and provide alternative financing plans to sell to these SMBs and owner-operators. To date, this method has seen success in penetrating this relatively untapped small-fleet market in the US via ELDs. Evidence comes with KeepTruckin, which was founded in 2013 and claims 200,000 drivers using its ELDs, while BigRoad claims over 500,000.

There are ELDs that only charge an up-front hardware cost, with no monthly subscription fees, offering free Android or iOS mobile applications or other reporting mechanisms (VDO RoadLog has no cellular connection and a built-in thermal printer option). Other vendors in this category include Garmin (eLog), ZED Connect (offered by Cummins) and Switchboard.

However, in addition to offering minimum compliance, some do sell additional fleet services bundled for monthly fees, which somewhat undermines the offerings connotation as being free. VDO RoadLog Plus includes a cellular connection and real-time fleet management of vehicles and drivers – features that would also be table stakes in other telematics providers' ELD packages. Ease of implementation is another important factor for small fleets that can't afford the downtime that can come with implementing a complex ELD system across their vehicles.

Cost is important, but definitely, less of a factor for the enterprise fleets (250-plus) because many already have some telematics devices in place due to the need for control of their massive logistical operations while recognizing key ROI metrics that come with implementation. These enterprise fleets not being financially restrained means they are less price-sensitive to aftermarket devices, supporting services and innovative applications.

While low cost was ultimately the major factor in purchasing decisions for first-time adopters, reliability has already begun to emerge as an important competency. Small fleets simply cannot afford fines from the US Department of Transportation (DOT) and FMCSA enforcement officials. A malfunctioning ELD device can result in these fines, unplanned downtime and even a driver losing their commercial driving license. While the FMCSA has not officially revoked an ELD, the Owner-Operator Independent Driver Association (OOIDA) has cited issues reported from its member base. The problems range from systems failures and mechanical breakdowns to misreporting driving status. Unsurprisingly, the list of 12 providers with malfunctioning devices includes several companies with low-cost offerings. One of which is ONE20, which ceased operations on June 18, and those that have purchased its ELDs will need to look elsewhere for compliance. Traditional telematics providers have continued to report conversions from users with low-cost and unreliable ELDs.

Education, training and support

There have been several reports of confusion and misuse of ELDs – both on the truck operator and law enforcement sides. The FMCSA purposely granted these several transition phases so operators would be prepared when enforcement began, but unfortunately, many motor carriers waited until the last minute. For non-tech-savvy drivers accustomed to using paper logs, this is not an overnight adjustment. It is crucial that telematics providers put an emphasis on educating these drivers on how the system works and that their customer service operations are responsive. It will be challenging for financially constrained ELD startups to maintain customer service departments to match the scale of their quickly growing installed bases in the short term. On the opposite side, law enforcement officers from the DOT and FMCSA have had challenges interpreting the ELD data generated by the more than 370 registered devices on the market. To solve this, a few telematics providers have put emphasis on a simple and easy-to-use UI that is enforcement-offer-facing, such as Zonar Systems' Roadview application.

There have been various ELD partnerships that leverage providers' differences and strengths around software applications, hardware devices and connectivity. The major providers mostly have their own go-to offering that they are pushing truck operators toward, but still are placing multiple bets in the broader ecosystem. Per the FMCSA registered-devices list, CalAmp has approximately 15 third-party users running HOS applications on top of its hardware, including Verizon and VisTracks, as well as its own offering (V-Series with iON Hours). While Verizon operates its WorkPlan ELD logbook software application on two different pieces of CalAmp hardware, it also operates on Xirgo and Sierra Wireless devices; similar to other US MNOs, it's reaping the benefits of other providers using its mobile infrastructure. There have been a few notable MNO partnerships with fleet management providers, including AT&T with Fleet Complete and Sprint's ELD initiatives with Geotab and Spireon.

Other major hardware providers with multiple and notable partnerships include Geometris, Geotab (VisTracks, J.J. Keller) and a few (including Trimble and Command Alkon) operating mobile HOS applications on Samsung tablets. Providers are also registering multiple offerings, especially since they pertain to specific verticals; Trimble has five different registered ELDs, including its Android-based 5530+ EnergyTablet geared toward the oil & gas sector. Construction equipment renter Sunbelt Rentals has registered a Geotab device as part of its ELD offering. Coretex is bringing ELDs to its primary customers in cold chain, construction, and waste and recycling markets.

Upselling innovation

Telematics providers across the board have been reporting increases in value-added services and applications on top of bare-minimum ELD compliance. North American fleets require affordable and reliable offerings with support from the provider. The next great frontier will be upselling applications that are differentiated across big data, security, connectivity, hardware and other features.

Big data

Continuing to better understand the driver by analyzing behavioral data points is on every telematics provider's roadmap. Driver behavior analysis can inform a variety of models, such as predicting which drivers are at risk for turnover and diagnosing fatigue to preemptively address drowsy driving. These insights are pivotal for organizations and fleet managers as the driver shortage looms increasingly closer. Data stems outside of the driver and into the vehicle through predictive maintenance and even accident reconstruction, which can have serious cost savings for unplanned downtime and insurance, among others. While some fleet features like route optimization are seemingly becoming table stakes, real-time data feeds through integrations into the outside environment (traffic, weather, road closings, etc.) and business operations (sales targets, shipping information) can substantially improve a broad range of KPIs for trucking operators.

Security

Spanning the means to physically secure the vehicle and its cargo in-tune with the points that information technology enters/exits the vehicle in telematics, providers are looking to differentiate in this arena. Physically authenticating the driver's identification and retrieving the vehicle in stolen-vehicle recovery (SVR) use cases are pivotal features. Geotab provides an IOX NFC RFID reader that can determine the driver's identification and related data, regardless of which vehicle in the fleet they are using, and CalAmp made a major play in SVR with the purchase of LoJack for $134m in March 2016. But authentication extends past this as aftermarket devices with connectivity plug into the OBD II port and access the ECM. For data transmission between the telematics devices and back-end cloud-based fleet management applications, there has been increased use of encryption, monitoring for intrusion detection and signed firmware for OTA updates. The automotive industry is geared to, unfortunately, draw more attention from hackers as it becomes connected – particularly in telematics use cases, where financial information is often at stake.

Connectivity

Ensuring constant and reliable connectivity to and from the vehicle is pivotal in the context of the ELD mandate. An operator with a device with poor connectivity operating on a limited mobile network runs the risk of not being protected from law enforcement officials. Additionally, being able to manage multiple forms of connectivity (BLE, Wi-Fi, cellular) for various devices in the vehicle is a growing theme in long-haul fleets.

Hardware

Aside from hitting bare-minimum compliance for ELD hardware, there are several different sensors and devices entering long-haul fleets and presenting interesting applications through integrations. Video telematics is an emerging area where companies such as SmartDrive Systems and Lytx are gaining new insight into driver events through video data of the driver's cabin, as well as potential insight into distracted- and drowsy-driving occurrences. In the back of the cabin, sensors from emerging incumbents like BlackBerry Radar and Samsara are enabling trailer tracking and location features for streamlining driver and shipping operations, permitting reefer monitoring for cold chain compliance, and preventing unauthorized access for sensitive cargo shipments.

These sensors are increasingly playing an important role in the broader transportation ecosystem and supply chain for logistics operations. According to 451 Research's Voice of the Enterprise: Operational Technology Q1 2018 survey, 50% of transportation respondents claim to have implemented supply chain, logistics management, and asset and shipment tracking through IoT technologies, while 41% plan to do so in the next two years. Implementing these many different features for trucking operators' custom requirements with thousands of fleets is a challenging SI project, which many look to solve through partnership ecosystems and marketplaces, a notable one being the Geotab Marketplace.

Zonar Systems – The US-based Continental AG subsidiary reported an influx of demand right before the December 2017 compliance date that then carried on through Q1 2018. Most of its customers were new and came in SMB fleets. It's been seeing steady traction for the months leading up to and including April, most of which leverage its Android-based tablet (Zonar Connect). It's put a lot of emphasis on educating both law enforcement officials and drivers, in-tune with proving it's a reliable and financially stable entity.

The final question to contemplate for telematics providers is, 'What will happen first?' Will low-cost startups upgrade their offerings to be more reliable and provide more support in the short term, eventually building value-added services to upsell to their sizable installed bases? Or will they lose the trust of trucking operators, who could convert to traditional providers for reliability, financial stability and support? It stems back to reliability and cost concerns, but for a different reason; now that the April 1 deadline has passed and law enforcement officials are actually imposing fines, these SMBs and owner-operators may not be able to budget for these costly penalties, which could cost them even more in the long term than they thought when they purchased a low-cost and unreliable ELD. These conversions are imminent, and a shakeout of the currently 370 registered ELDs is likely to happen.

There will still be a long tail of SMBs/owner-operators slowly transitioning to ELDs and opportunities for telematics providers to further monetize. This still favors the major providers with sizeable sales forces across the US to sell to these small regional fleets. Given the issues and pushback from truckers on this mandate, one must contemplate that technologies such as video telematics in the near term and automation in the long term will eventually be widespread. We have seen increased interest from AV providers Waymo and Uber, and now even startups solely targeting the long-haul tractor trailer market (TuSimple). What exactly this future shipping equation will look like for the driver remains to be seen, but it's not too far off on the horizon.