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How Telematics and IoT Devices are Driving Digital Change in the Transportation Industry

04 Jan
2019
IoT devices

What is telematics?

Telematics – a portmanteau of telecommunications and informatics – refers to the use of telecommunications to transfer information. Telematics is an interdisciplinary technology field that provides the infrastructure backbone for IoT devices to transmit data. In this article, we will use the conventional definition: we mean vehicle telematics when we use the term telematics. Vehicle telematics has a broad range of applications from asset (vehicle, bike, scooter, container, etc.) tracking using GPS, to fleet management and even car insurance. It has facilitated the development of new markets like car and rideshare, and it is one of the building blocks of Intelligent Vehicle Technologies.

IoT devices help improve maintenance and repairs, fuel efficiency, security, road safety, communication, and navigation. IoT also plays an important role in the implementation of new regulations such as the electronic logging of service hours.

Global Telematics Market Size

Several McKinsey reports highlight the growth potential of telematics as well as the monetary value of the ecosystem that is developing around car-data monetization. McKinsey’s model estimates that the car-data monetization value pool could be as large as $750 billion in 2030. In this model, the McKinsey consultants estimate the growth and value proposition of the consumer telematics-driven ecosystem. For this article, we have used a more traditional approach, and we estimate a CAGR of 22 percent and a Global Telematics market size of $201 billion in 2025, in line with a recent report from KBV Research that estimates a $152 billion market size in 2024 and a CAGR of 23 percent for the next five years. The KBV report mentions safety and security concerns, improved driving characteristics, and online vehicle diagnostics and maintenance alerts as major factors driving the telematics growth.

Telematics Market Segments

The commercial telematics market and the consumer telematics market are the two largest market segments. The commercial telematics market is the largest of the two. The global market size was $29 billion in 2018, but it has the lowest CAGR of 18 percent. The consumer telematics market size was $16.5 billion in 2018, but it has tremendous potential as indicated by a CAGR of 31 percent.

The Hexa Research market report covers the commercial telematics market development during the 2014–2025 timeframe. Hexa Research sees a market boost due to technological advancements such as real-time engine diagnostics, GPS tracking, fatigue alert and drive lane assist that are fundamentally changing the driving experience. Technavio released a Commercial Vehicle Telematics Market report in 2018 and identified a growing need for fleet management solutions. According to their analysis, the logistics sector has been the largest contributor to fleet management services in the telematics industry. The demand for telematics in the logistics sector is driven by the need to reduce fuel expenses. The report estimates empty runs (trips without any goods) account for 25-30 percent of the total runs made by a global fleet. The use of telematics in fleet management helps reduce the number of empty runs, thereby reducing the overall fuel costs. This has led to increased use of telematics fleet management solutions by fleet owners.

The commercial telematics market covers the following fleet management segments: trailer tracking, trucking fleets, long-haul trucking fleets, short-haul and LTL trucking fleets, local delivery fleets, utility and service fleets, municipal and government fleets, emergency services fleets, public transportation fleets, private transportation fleets, and industrial equipment fleets.

The consumer telematics market is the smaller of the two major telematics market segments. The IndustryARC report provides a detailed analysis of the consumer telematics market and a forecast of the market development during the next five years. Their analysis indicates that the consumer telematics market is dominated by insurance telematics, followed by infotainment, navigation, and telehealth. It is no surprise that insurance telematics is so dominant; the usage-based car insurance business model has gained a lot of traction in the personal auto and the commercial fleet auto insurance segments. Also, there is a well-developed vehicle telematics and telehealth market segment. But the telehealth market includes more than just the vehicle telematics-driven market segment. A separate report by Transparency Market Research estimated the global telehealth market at $6 billion 2016 growing at a CAGR of 13 percent to $19.65 billion in 2025.

North America accounts for the largest market share of the overall commercial vehicle telematics market and dominates the consumer telematics market due to the extensive research and development taking place in the NA region.

The Telematics Market in 2019

The digital transformation of the commercial and consumer vehicle transportation industry is driven by telematics and by IoT devices. This technology is providing fleets, drivers, and companies with an abundance of real-time data that was previously not available. In 2019, we can expect more insights from predictive analytics integrated in telematics platforms, a continuing focus on cybersecurity to protect sensitive business or private information, and we can expect an increased integration of the telematics platforms with other business systems leading to better business intelligence.

Vehicle telematics brings a range of additional benefits to individuals, corporations, and governments beyond insurance and road safety improvements. This will ensure that commercial and consumer telematics will again be one of the fastest growing markets in 2019.