Greg Nichols explores why local fleets represent the fastest growing segment of the telematics market in North America
With the exception of the slowdown following the recent recession, the commercial telematics industry has been growing steadily in North America for the past two decades. There are now approximately four million units in service.
While large fleet operators like Yellow and Freightliner have, in the past, been the primary drivers of growth on the consumer side, the local service and delivery market is catching up. Local fleets currently represent the fastest growing segment of the telematics market in North America, and a look at why can help explain how the telematics industry itself has shifted in recent years.
Local service and delivery fleets
Local service and delivery fleets are a last frontier for fleet telematics providers because cost has been a particularly high barrier to entry. While features like driver scorecards hold obvious appeal for small- to mid-sized fleets, the economic incentive of solutions like route optimization may not seem great enough to justify a large up-front investment in telematics. (For more on fleets, see Industry insight: Fleet telematics.)
Large fleets, which often have trucks deployed throughout the continent and which may own many more trailers than cabs, have tracking challenges that local service and delivery fleets, which typically dock and refuel in the same spot every night, don’t confront. Large fleets also have more buying power than smaller fleets, and purchasing devices and services in volume drives their prices down.
But the industry has reached a tipping point. “We estimate that in 2011, the growth of the local fleet market—which is local service and delivery, government, public safety—was 15%-20%,” says Clem Driscoll, President of C.J. Driscoll and Associates, a marketing consulting and research firm that focuses on wireless location-based products. “And it’s continuing to grow this year.”
A primary reason is that hardware costs have plummeted. Major manufacturers, like KLF, are selling units to telematics suppliers for as little as $100, depending on volume and feature sets. As competition among telematics providers increases, those savings get passed on to fleet operators.
“If you go back a few years,” says Driscoll, “if you were a fleet operator and you wanted to put in a GPS tracking unit, you would expect to pay $500. Today you can expect to pay no more than $300, maybe less.” Costs associated with data plans and cellular services are also falling. (For more on data, see Industry insight: Telematics and data.)
Leading solutions have more features
At the same time, the leading solutions have more features in them today than they did a few years ago. It’s common to find solutions that integrate with Garmin and include features for dispatching and messaging. Driver scorecards, used to rate and rank drivers based on how safely they drive, are becoming standard, as are driver feedback displays, which help drivers conserve fuel. With all these options, it’s now much more likely that a local fleet will see something it can use.
Finally, marketing to fleets has changed in recent years. This is primarily due to the fact that consumer education has been overwhelmingly successful. Fleet operators are aware of telematics services, aware of the return on investment, and may go looking for these solutions themselves.
“Distribution in this market used to be principally outside direct sales,” says Driscoll. “There’s still a fair amount of that, particularly for larger fleets, but we see an increase in inside sales, the Internet, which is a lot more cost-effective. We also see distribution through a lot of indirect channels, dealers and distributors, but also through fleet leasing companies. These are companies that have access to the fleet market with other products and services, but also want to offer a GPS fleet navigation solution to their customers.”
Growth for telematics suppliers
This shift is good news for the industry, particularly as the telematics boom in the truckload carrier sector slows. Driscoll estimates that growth in that sector is now hovering at around ten percent.
“The large truckload carriers almost all have somebody’s solution in place. So your suppliers in the trucking sector have to focus on small and medium-sized fleets, of which there are many, and penetration isn’t nearly as deep.”
That means continued growth for telematics suppliers reaching the local service and supply sector. As telematics providers figure out how to appeal to smaller fleets, it could also mean new opportunities outside of North America, where fleets tend to be smaller and run by owner-operators.
Greg Nichols is a regular contributor to TU.
For more on fleets, see Industry insight: Fleet telematics.
For the latest on fleets, visit Telematics for Fleet Management Europe 2013 on March 19-20 in Amsterdam.
For all the latest telematics trends, check out Telematics India and South Asia 2013 on April 17-18 in Bangalore, India, Telematics Detroit 2013 on June 5-6, Content & Apps for Automotive Europe 2013 on June 18-19 in Munich and Telematics Russia 2013 in September in Moscow.
For exclusive telematics business analysis and insight, check out TU’s reports: In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and Smart Vehicle Technology: The Future of Insurance Telematics.