Tokenization at the crossroads of the trucking industry could have positive implications for payments.

Key points: 

• Some trucking organizations aim to bring tokenization and decentralized finance (DeFI) into the freight sector to power their payment systems.
• The CCO of TruckCoinSwap (trucking and fintech company) explained that TCS is replacing factoring companies with a token-based billing service that allows trucking companies to be paid at face value within a few days.
• Meanwhile, trucking companies have successfully implemented blockchain without cryptocurrencies. Such as Smart EIR (a blockchain-based container management system), which uses the Antelope blockchain network (formerly EOSIO) to record the history of containers.

The trucking industry is one of the most important industries in the world. According to the latest statistics, the global freight market is worth more than 2.7 trillion US dollars in 2021. In addition, it was found that millions of people with commercial driver's licenses are employed by trucking companies in the United States, a market responsible for 70% of all shipments.

Given these statistics, it's no surprise that technology has become a key component in the evolution of the freight industry. But while GPS tracking, autonomous driving, and other mainstream technologies may be obvious, some organizations aim to bring tokenization and decentralized finance (DeFI) into the freight sector to power their payment systems.

Faster and fairer payments for trucking companies

Philip Schlump, chief commercial officer and lead developer at TruckCoinSwap (TCS), a Wyoming-based fintech and trucking company, told that more than a million trucking and outbound logistics companies in the US rely on banks to pay their bills. Schlump, also a former truck driver, explained that this is already the case because of the way payment systems in the vehicle industry work. He explained:

“When a truck picks up a full load of potatoes, for instance, a bill of lading is generated. This is essentially proof that the trucker and the trucking company are responsible for the potatoes during the shipment period. Once the potatoes are delivered, the bill of lading becomes account receivable, yet it often takes a net 30 to 180 days for trucking companies to receive payments.”

While Schlump notes that smaller FTL companies tend to have better payment terms, it takes truck drivers an average of 45 days in the U.S. to get paid. As a result, trucking companies rely on factoring companies to help truck drivers receive payments faster, as these companies ensure payments are made within 10 to 14 days.

However, Schlump found that this alternative can eat into driver salaries. “Factors typically charge 3% gross per invoice, offering 20-25% APR over the entire term. These banks charge up to 90% net per load simply because most Shippers can't wait for the industry standard 30 to 180 days for direct payment from shippers," he noted.

Schlump believes that tokenization could potentially solve this problem. For example, Schlump explained that TCS is replacing factoring companies with a token-based billing service that allows trucking companies to be paid at face value within a few days. To ensure this, Schlump explained that TCS launched its “TCS token” on the cryptocurrency exchange CrossTower in September of this year. TCS will then work directly with shipping companies to use the tokens to purchase bills of lading. He says:

“We are swapping the bill of lading for tokens. We are now able to pay trucking companies at the face value for their bill of lading, and they get instant liquidity in return by selling TCS Tokens.” 

While the process may sound complicated, Schlump believes such a model could generate $20,000 to $60,000 in increased income for truck drivers. "We're currently beta testing this model and working with trucking companies to make sure it works," he said.

TCS is not the only company using tokenization to improve truck payment systems. Myron Manuirirangi, a founder of Truckonomics, an organization focused on fair pay for truckers, told that he also believes that cryptocurrencies combined with blockchain technology can be very beneficial to truckers.

Like Schlump, Manuirirangi is a former truck driver. Through this experience, Manuirirangi became aware of a global truck driver shortage. "I started looking into why this was happening and came to the conclusion that there was a shortage of truck drivers because of the lack of wages."

To put this in perspective, a 2018 FrieghtWaves article noted that a truck driver earned an average of $38,618 in 1980. In 2018, nearly 40 years later, they made about $41,000.

“The driver shortage is not a problem, but a symptom of a larger problem that Truckonomics aims to solve with a token-based model,” Manuirirangi said.

He explained that Truckonimics has created a digital token called “GDPC” that freight and shipping companies can use as a payment method. In addition, the GDPC will be linked to all activities that occur during transportation, using blockchain technology to create transparency and a single source of truth between carriers, retailers, and consumers. “We are building this model on the Avalanche blockchain. We will then build our own blockchain platform to facilitate transactions and transactions using GDPC tokens.”

By linking GDPC to freight, Manuirirangi believes this will add intrinsic value to Truckonomic’s token. “The more truckers use the GDPC, the more the price is affected.” In turn, truckers can receive payments faster and at higher rates — as long as the token is used and implemented on a cryptocurrency exchange. Meanwhile, Manuirirangi believes that blockchain components will help advance the infrastructure of the freight industry.

“The trucking industry has needed blockchain for a while, but no one has figured out how to properly implement the technology. The GDPC token associated with Truckonomics can help cover the high costs associated with blockchain implementation while providing transparency for trucking, Thereby modernizing the industry," he said.

Is the freight industry ready for DeFi?

While tokenization and DeFi concepts have the potential to revolutionize payments in the trucking industry, many challenges remain.

First, getting truck companies and drivers involved in this business model can be difficult, as cryptocurrencies are still misunderstood by many. However, Schlump is bullish, noting that 21% of Americans are familiar with using cryptocurrencies. He added that TCS conducted an internal survey and found that 17 percent of truck drivers are willing to accept crypto payments. He says:

“It becomes less challenging when there are a million trucking companies and you only need to work with about 500 to be successful. In terms of value, this can add thousands of dollars per year to trucker drivers’ salaries, so this generates positive attention as well.” 

From a regulatory perspective, Schlump further mentioned that the TCS token is not an investment as it is a fixed-supply commodity. Additionally, he mentioned that TCS is a Wyoming-based company, a factor that helped TCS gain regulatory clarity due to the state’s crypto-friendly stance.

Manuirirangi also noted that Truckonomic’s GDPC token has been Howey tested to prove that it is not an investment vehicle. “It’s a decentralized native token with smart contract capabilities,” he said.

While these points are noteworthy, some industry experts believe that corporate and institutional adoption of DeFi will be slow as the industry is still evolving. For example, Mike Belshe previously told that while he believes DeFi will surpass traditional financial institutions, it will take at least two to three years for real progress to be made.

Still, there are real-world use cases for tokenization to help accelerate adoption. “Unlike many crypto-based projects, we have a real-world use case. TCS is targeting a $500 billion-a-year market when truck drivers process payments through our clearing service,” Schlump said.

Meanwhile, trucking companies have successfully implemented blockchain without cryptocurrencies. For example, Xavier Fernandez, CTO and head of technology at Smart EIR (a blockchain-based container management system), told that Smart EIR uses the Antelope blockchain network (formerly EOSIO) to record the history of containers.

"We're focused on device swap sheets, which are tables that are created every time a container goes from one swap point to another." According to Fernandez, photo data from these containers is stored on a private IPFS network, while metadata stored on The Antelope blockchain network is preserved.

While Fernandez mentioned this use case as useful for dispute resolution, the cryptocurrency element was not touched upon: “Cryptocurrency volatility and regulatory issues cause too much controversy. We only use blockchain as a ledger and a single source of truth, in the ecosystem to establish trust."