Trucking industry as real-world crypto use? How blockchain can replace system that leaves American truckers out of pocket
Truckers, whose work is vital to the world’s supply chain, struggle to get compensation due to a lack of fast and seamless payment systems. A blockchain technology startup claims to have the solution.
Trucks move over 70% of America’s goods and generate approximately $875.5 billion in gross freight revenue annually, according to the American Trucking Associations (ATA), America’s largest national trucking industry association.
ATA data also shows approximately 3.6 million professional truck drivers in the United States, with independent owner operators accounting for about 800,000 of the number.
Despite the industry’s importance, Philip Schlump, the chief commercial officer of TruckCoinSwap — a Wyoming-based fintech and shipping company — told Forkast in an interview that the way many truckers are paid is fundamentally flawed and due for a complete overhaul.
“Millions of small trucking companies in the United States make up almost the entire shipping market, and if these businesses disappeared tomorrow, every grocery store and retailer in North America would be rationing products within a week,” Schlump said.
The trucking spot market, Schlump explains, is where many companies lease freight for an unexpected surge in demand. While many shippers employ truckers on long-term contracts or have their own internal fleets, the spot market allows supply chains to quickly adapt to fluctuating needs.
While the truckers operating in this market provide essential flexibility for supply chains, their payment terms are extremely inflexible and often take up to months to process, Schlump said.
Dale Watkins, a business services manager at OIDA, a non-profit, US-based trucking advocate, said Discard that freight payment terms have been a growing problem for truckers for decades and have only gotten worse as more third-party brokers have become involved in freight leasing.
According to Watkins, when a trucker gets a job hauling a load, it’s safe to assume they won’t get paid for at least 30 to 45 days. Thus, a truck driver who accepts a long-term job may face months of operating expenses before receiving any compensation.
“In the meantime, they’re out there running fuel, they’ve got insurance, they got truck payments, and they need the money faster,” Watkins said. “And that’s where the factoring company comes in for a fee.”
Take factoring costs into account
Factoring companies and banks can act as payday lenders, buying truckers’ invoices and giving them access to their pay more quickly. However, the scheme results in truck drivers essentially selling their invoices at a discount.
Due to a lack of options, truckers are subject to interest on their invoices that can be as high as 30%, according to Watkins. Although it gets truckers paid faster, they can still wait a long time to get out of the factoring contract.
“It’s one of those deals that’s easy to get into but very hard to get out of,” Watkins said. “One of the first things a factoring company will do to a car carrier they sign with is put a lien on their accounts receivable.”
Therefore, no other company can legally pay that car carrier directly without paying the factoring company. So truckers may still have to wait for the long invoice terms to be completed before they can receive money from another factoring company or customer.
Payment terms are often set out in the contract agreed to by the trucker, but they have not been shortened, and there is no law or regulation on how quickly a broker must pay a motor carrier, Watkins added.
TruckCoinSwap’s proposed solution
Schlump’s proposed solution to the truck payment problem is a decentralized and blockchain-based marketplace where truckers can sell invoices and turn them into funds within two days.
On TruckCoinSwap’s exchange, accessible via a phone app, the collection rights on an unpaid trucker’s invoice are exchanged for its newly created TCS token based on the Polygon blockchain. TCS is currently listed on three exchanges and available in 80 countries, according to the company.
The amount of TCS token that the truck driver will receive will be equal to the expected cash value of the invoice payment. The trucking company could then immediately sell its TCS on one of TruckCoinSwap’s partner exchanges to convert it into US dollars.
“It’s essentially the same model that the banks and factoring companies use now with one extra step, and none of the fees,” Shlump said.
While Schlump expects investors to buy, sell and speculate on TCS, he says truckers will be insulated from token price volatility since the amount of tokens truckers receive is always adjusted to the cash value on the invoice. The truck driver can choose to immediately sell his TCS tokens for US dollars, thereby protecting himself against changes in value.
“Whether tokens are traded for 10 cents or US$10, it doesn’t matter to truckers as long as they are able to exchange it all for cash.”
After purchasing the invoice, TruckCoinSwap then owns the collection rights and waits for the sender to pay them.
Unlike conventional factoring agreements, Schlump says TruckCoinSwap does not require bonds or security from truckers on contracts and will not tie them to the company for more than one job.
While other blockchain companies, such as SyncFab, have advocated the use of blockchain in supply chains for traceability purposes, TruckCoinSwap appears to be one of the first companies to apply the concept of a blockchain marketplace to the issue of truck invoicing, Schlump said.
Success with TruckCoinSwap’s model, according to the company, would not only benefit truckers, but all consumers.
“Our hope is that this can put some downward pressure on freight rates and make everything a little more affordable for consumers and households,” Schlump said.
“At the end of the day, we’re all paying more at the grocery store with these trade finance costs baked into this supply chain right now, a lot of people just haven’t realized that yet.”
Would truckers accept blockchain-based markets?
TruckCoinSwap’s model is not without risk. It requires that there are enough TCS buyers for truckers to always liquidate their token payments.
“We need to have people outside the transportation industry participating and buying the token … what they do with it is their business, they might speculate, they might do arbitrage or hold.”
In the event of a lack of buyers, Schlump says TruckCoinSwap would also act as a buyer of Truckers tokens on the other side of the exchange.
However, questions also remain as to whether such a long-standing and traditional industry as trucking is ready to trust new technologies such as blockchain and crypto.
According to Rachel Premack, editorial director of FreightWaves, a global supply chain intelligence firm, the trucking industry can be slow to adopt new technology.
“Five or 10 years ago, trucking was still running on fax machines, phone calls and paper,” Premack said. “A big reason for that is how decentralized and disaggregated the whole industry is.”
That’s why a number of tech companies, such as Convoy, started by two former Amazon executives, and Uber with its trucking arm Uber Freight, have made recent moves into the trucking invoice business, trying to automate the entire process, Premack said.
“However, many of these technology companies are finding that the brokerage space is more challenging to automate than they first expected, and are entering the world of factoring instead,” she added.
Any increase in transparency, speed or efficiency that new technology can provide is significant, according to Premack. However, better factoring options still require a fee from truckers and more time and steps between them and payment day.
“Even a few extra days or weeks of waiting to get paid adds more stress, more cash flow issues, and that’s the last thing a lot of truckers need right now as fuel prices are sky high and payment rates are pretty low compared to a year or two ago.”
Premack adds that the trucking industry’s reliance on the spot market became especially important during Covid-19 when shipping became unpredictable and as American consumers’ increasingly widespread “just in time” online shopping culture.
With American companies relying on small independent truckers to get their products out as quickly as possible, the way these frontline workers are paid could also be due for an upgrade.
