Uber announces $2bn expansion of Freight unit in Chicago
Uber will spend at least $2bn over the next decade to expand its freight business, as it announced the unit’s new headquarters in Chicago, Illinois.
The ride-hailing company said on Monday it planned to hire 2,000 Uber Freight employees in the US city over the next three years and it has leased the Old Chicago Main Post Office building.
Uber Freight, which launched two years ago, says that it connects customers including large companies such as Nestlé, Colgate-Palmolive and Anheuser-Busch InBev to a network of 400,000 drivers across the US, many of whom work for small logistics companies, who can choose their routes and cargoes.
As a broker, Uber takes a commission from the companies wanting to ship goods.
For example, a delivery for which a shipper is willing to pay $1,000 might be posted on the Uber Freight app for $850, with Uber taking the difference.
Uber said it took the risk if the eventual cost of the job was higher than the original customer was willing to pay. “It’s possible for us on any given load to make money or lose money,” said Eric Berdinis, group product manager for Uber Freight. “That’s the nature of a brokerage business.”
Rivalling Uber Freight, ecommerce behemoth Amazon launched its own trucking brokerage this year, which is currently available in five US states. Like Uber, Amazon said it picked up any additional costs of a shipment and its network was available 24 hours a day.
On Monday, Amazon disputed suggestions that it had priced its freight services deliberately low to undercut rivals.
Uber’s expansion into the $700bn US road freight industry comes as the lossmaking company tries to diversify from its core ride-hailing business.
After launching Freight in 2017, Uber rolled out electric bikes and scooters in 2018. It has also offered an on-demand food delivery service, Uber Eats, since 2014.
The company said Freight was one of the “fastest-growing logistics companies in US history” and was among its fastest-growing divisions.
In the six months to June 30, Uber’s “Other Bets” sales — which come predominantly from Uber Freight but also include revenues from bike and scooter rentals — jumped 206 per cent year on year to $340m, still a small share of Uber’s total revenue for the period, which was $6.27bn, up 17 per cent year-on-year.
Angelo Zino, analyst at CFRA Research, said he expected Other Bets revenue to comprise about 14 per cent of total Uber sales by 2021, up from about 5 per cent in the first half of 2019, driven “substantially” by Freight.
“It’s going to be a significant high-growth business,” he added. “It’s a big opportunity as they evolve towards more enterprise-oriented offerings.”
Uber’s algorithms suggest time- and energy-efficient routes to delivery companies, and help Uber predict prices in advance.
Although enterprise customers can choose how frequently Uber bills them, drivers are always paid within two days. The company said revenue from its core ride-sharing business helped ensure it could do this without running out of cash.
While Uber started life as a consumer-facing company, the enterprise space was “really where potential is in terms of getting towards profitability”, said Mr Zino — both through Freight and corporate ride sharing. The shipping business specialises in large loads, and does not facilitate consumer deliveries.
Freight is not profitable, however. Uber declined to say when it expected the division to break even, but said it was confident this would occur after the initial investment phase had ended.
Uber said Chicago was “the heart of America’s transportation and logistics industry” with an “exceptional talent pool”. Freight operates in 48 US states, Germany and the Netherlands.