Truck Alliance has helped truck drivers like Huang Min reduce downtime and generate more income. © IFC
Huang Min is a 36-year-old long-haul freight driver from Tianmen, in Central China. Like millions of owner-operator truckers in the country, Huang used to spend an average of three days to find a shipment in need of hauling. Once he did, he was at the mercy of the shipper, who gave him little choice in the destination.
For drivers, this is time and money wasted because they have to cover for their own lodging and food while searching for a match. To make up for the time they stand empty, they often charge shippers more.
But that’s not the only difficulty faced by Huang and his long-haul truck-driving colleagues. Drivers in China usually have to share up to half of fee earnings with a number of intermediaries who make connections with shippers. This inefficiency has consequences, contributing to artificially high logistics costs: 15 percent of China’s GDP in 2015 versus 8 percent in the United States, for example.
The new Truck Alliance, a platform for connecting long-haul logistics drivers and shippers online, is disrupting this “traditional” industry and offering a better way forward. In December 2016, IFC led an early-stage investment in the company, of $15 million for our own account and $16 million mobilized through the IFC Catalyst Fund, managed by IFC Asset Management Company.
The investment in Truck Alliance, known in China as Huochebang, is being used to enhance its platform and build up a more accurate matching system between truckers and shippers.
In China, trucks carry more than 80 percent of the nation’s goods. But although the country’s logistics sector reached $1.6 trillion in 2015, the trucking industry remains highly fragmented and inefficient. Individuals own more than 90 percent of trucks on the road, and trucks stand empty 40 percent of the time.
IFC sensed the need for an innovative solution and responded with an investment in the two-year-old Truck Alliance. The new platform can make the industry more efficient and substantially reduce the friction and cost of intermediaries. There are environmental benefits, too, when a truck's mileage and the waiting time between loads are reduced.
Truck Alliance has already signed up over one-third of China's six million truck drivers, and is currently hosting 70,000 transactions—equivalent to $110 million in shipping costs—each day through its App and website. With the online marketplace, truck drivers are able to increase their loads and generate more income, and shippers can reduce overall shipping costs.
One of Truck Alliance’s key strengths is recognizing that bridging the information gap between supply and demand is only the first step. Building trust between drivers and shippers, while establishing a mechanism to keep track of goods during the whole process, will deliver the most long-lasting results. To this end, Truck Alliance also provides ancillary services to the truck drivers, such as toll pass cards, truck and driver insurance, and financing for new trucks. It is in the process of rolling out discount fuel cards, used truck trading, and aftermarket services.
Innovation is an important part of IFC’s engagement strategy in China, and we have been active in supporting venture capital initiatives in the country. We see significant opportunities for similar businesses and for overseas expansion and replication.
Truck Alliance has already begun to change the nation’s trucking sector, and Huang is among the first to benefit. “Now I have much less downtime and can easily find loads— especially with destinations close to my home, so I can see my kids more often and spend more time with my family,” he said.
To learn more about IFC’s work in venture capital financing, visit www.ifc.org/venturecapital.
Published in May 2017