Due to issues related to the pandemic, supply chain problems plagued the nation as logistics systems failed. Temporary closures and worker restrictions contributed, and at the same time, consumer demand for delivery services and online ordering added stress to these systems While shortages continue to exist, one of the major effects of these shifts has been an increased demand for trucking. And this is also encouraging autonomous trucking companies to step up to meet the challenge. But making sure all the right pieces are in place is more difficult than initially imagined.
One of the key components that autonomous trucking companies need to advance their services involve large land plots. Autonomous trucks function safely and efficiently on Interstates and highways. (Read more about autonomous trucking in this Bold Business deep dive.) But the final leg of the journeys in major cities still need to be managed by human drivers. As a result, these companies are in search of transition hubs for trucking where transfers can be made. Such lots are where autonomous trucking loads are transferred to human drivers. But large areas of land adjacent to metropolitan areas are rapidly becoming hard to find. Not only are trucking companies competing for transition hubs for trucking. But other industries are also searching for similar plots of land to meet their needs.
“Distribution yards are critical links in the supply chain and prime targets for automating the flow of goods between over-the-road transportation and fulfillment centers, warehouses and manufacturing plants.” – Andrew Smith, founder and CEO of Outrider
Competing Demands for Metropolitan Land
Large areas of land are needed for transition hubs for trucking. Plus, these areas need to be extremely close to major cities in order to maximize the benefits of autonomous trucking. But autonomous trucking companies are not the only ones who see these plots as attractive. For years now, e-commerce sites have been purchasing or leasing these tracts of land for storage warehouses. Likewise, with a boom in construction lately, such sites are also used for construction materials and equipment storage. Because of this, it has been increasingly difficult to secure transition hubs for trucking.
Increased demand is not the only reason autonomous trucking companies are struggling with land leases. Many major metropolitan areas have zoning restrictions that prohibit the use of these land tracts. Despite the fact lots may be ideal for transitions hubs for trucking, zoning barriers prevent their access. Many urban areas are trying to revise their mobility and transit systems but have yet to do so. Similarly, declining interest rates haven’t helped either. Lower rates mean an increase in interested parties to lease or buy land in general. This too has led to increased competition making it even harder to find transition hubs for trucking. And given that many leases usually extend from 5 to 10 years, waiting for a property to become available often takes time.
“Industrial outdoor storage as an asset class has yet to be institutionalized, making it difficult for tenants with specific and nationwide real estate needs, like Embark, to systematically access a network of suitable sites.” – Leo Addimando, Managing Partner of Alterra Property Group
Trends in Metropolitan Land Development
In many urban areas throughout the country, property values are increasing at surprising rates. Supply is failing to meet current demand as construction projects dropped off over the last several years. For some, this has meant moving farther away from city centers into more adjacent areas. Therefore, land that might have been previously used for transition hubs for trucking has shrunk. And the farther away autonomous trucking must go from city centers, the less value they gain from autonomous trucking efforts. A larger metropolitan sprawl thus reduces the benefits autonomous trucking provides.
At the same time, other land development trends will likely impact transition hubs for trucking as well. Self-storage units used to be owned by small owners and enterprises. However, larger corporations now own significant numbers of these in major cities. The same is true for many vacation rentals and housing rentals. As a result, pension funds and sovereign wealth funds prefer dealing with these larger entities. This has resulted in higher prices for these properties due to additional competition with these investors. Many now predict the same thing will happen regarding industrial outdoor storage land. Which is precisely the land autonomous trucking companies need for transition hubs for trucking.
“Industrial outdoor storage is rapidly emerging as a new distinct subset of the industrial asset class.”- Ben Atkins, Co-founder and CEO of Zenith IOS
Partnering Through the Challenges
In an effort to address shortages in metropolitan land availability, many autonomous trucking companies are pursuing partnerships. One of the more recent deals was between Embark Trucks and Alterra Property Group LLC. Embark is among the more notable autonomous trucking companies, with its public launch in November for $5 billion. It plans to begin its autonomous trucking routes in 2024 in between select cities. Embark has also indicated a need for over 100 transition hubs from trucking, which will be managed by Ryder Corporation. This is what led to a recent partnership with Alterra, which plans to locate and lease necessary land plots for these services.
Other similar arrangements have also been secured by other autonomous trucking companies. For example, Zenith IOS recently partnered with JP Morgan Global Alternatives in December. They have indicated a desire to acquire over $700 million in outdoor storage properties for transition hubs for trucking. To date, they have only acquired $150 million in such land, but they are aggressively pursuing other acquisitions. The same is also true for outright investors like Stonemont Financial Group and Cerberus Capital Management. These investment arms have formed a joint venture, understanding the supply and demand dynamics of these plots. In each of these cases, the hope is that increased capital will allow access to what seems to be increasingly scarce opportunities.
Preparing the Groundwork for the Future
In recent weeks, autonomous trucking companies have made additional headlines. Tu Simple conducted the first unmanned, unsupervised autonomous trucking journey between Tucson and Phoenix. The 80-mile trip was successful, which suggest more advanced autonomous trucking is around the corner. But for now, the use of these trucks in urban environments poses too many risks. This is why transition hubs for trucking are needed, especially given increased demand for supplies and logistics. While partnerships and collaboration might be a short-term answer, longer term solutions need to be explored. These may involve zoning changes or reduced land plot requirements for transitions. But transition hubs for trucking are a key piece of the puzzle when it comes to the future of autonomous trucking.