• Uber is betting $200 million on its trucking division.
  • Uber Freight , which is a freight-brokerage technology for truck drivers and shippers, is establishing a new headquarters in the Old Main Post Office in Chicago. Uber will hire 2,000 new employees in that location.
  • It shows that Uber is serious about its trucking business even though it's just as unprofitable as the rest of the company.
  • Visit Business Insider's homepage for more stories.

Uber is betting big on the world's $3.8 trillion trucking industry.

On Monday, the tech giant announced that it would invest $200 million in Uber Freight its logistics division whose chief product is a trucking brokerage app that matches truck drivers to new jobs. Launched in 2017, Uber Freight has more than 400,000 truck drivers on its platform and more than 1,000 shippers, including Fortune 500 names like Land O'Lakes and ABInBev.

The $200 million investment will go toward establishing an Uber Freight headquarters in the historic Old Main Post Office in Chicago. Uber Freight plans to hire 2,000 additional employees in engineering, sales, and account-management roles.

"Trucking represents an enormous opportunity for Uber, and this milestone is a testament to our long-term commitment to our Freight business," said Uber CEO Dara Khosrowshahi in a statement.

Uber isn't the only techie trying to cash in on trucking

The investment shows that Uber leadership believes that profitability can be found by disrupting trucking. Uber as a whole is losing serious cash more than $5 billion in second quarter of 2019.

And it's just one of the tech players trying to cash in on the process in which trucking companies (called carriers) and retailers or manufacturers (called shippers) match up to move loads. Amazon and a slew of startups including Convoy, NEXT Trucking, and Transfix are also in the freight-brokerage space.

See also: Apply here to attend IGNITION: Transportation, an event focused on the future of transportation, in San Francisco on October 22 .

Logistics incumbents like J.B. Hunt, XPO Logistics, and C.H. Robinson, also are developing brokerage technologies.

These techies argue that trucking is riddled with inefficiencies."It can take several hours, sometimes days, for shippers to find a truck and driver for shipments, with most of the process conducted over the phone or by fax," Uber wrote in its S-1 in April .

To remedy that, new freight technologies seek to automate how shippers and carriers match.

Read more: A longtime Etsy engineering VP just joined one of trucking's hottest startups and it shows how the $700 billion trucking industry is becoming a tech darling

Uber Freight has profitability issues despite breakneck growth

Uber Freight has gobbled up an impressive amount of market share since it launched in 2017. Its $359 million in bookings last year makes it one of the 30 biggest brokerage firms in the US . (On the other hand, that's only 0.1% of the entire brokerage industry.)

Despite that growth, Uber Freight is losing hundreds of millions of dollars.

The division of Uber that includes its new trucking venture lost $193 million in the first half of 2019, according to the "Other Bets" portion of Uber's latest earnings report. Last year, when the trucking industry was flourishing, that division lost $48 million.

Analysts say Uber Freight's pricing structure passes much of its revenue onto truck drivers. While a traditional truck brokerage keeps 15-20% of every job it arranges, Uber Freight keeps just 1%,Morgan Stanley analyst Brian Nowak wrote in June. And Uber Freight will only be able to progress to keeping 3% of earnings by 2023, Nowak said.

Digital freight brokers like Convoy and Uber Freight have a much lower profit margin than traditional brokers. Bart De Muynck, vice president of research at Gartner, told Business Insider that these new apps are underpricing traditional brokers to gain market share, but they're generating revenue at a loss.

Others say the issue isn't that these startups are charging too little it's that they still haven't automated the freight brokering process. Once that's executed, these companies will be able to pay fewer brokers and instead have algorithms match truckers with shippers.

Morgan Stanley analyst Ravi Shanker specified to Business Insider these companies will be profitable once they achieve the "holy grail" of automating 90% of its loads 90% of the time.

Uber Freight's head said scaling is key and profitability will follow

Lior Ron, who is the head of Uber Freight, told Business Insider that the logistics division doesn't have a "specific timeline" for when Uber Freight will be profitable.

"We're focusing on always scaling, making sure that we have all the services that our customers, the shippers, we can support," Ron said. "As we do that, we keep improving and iterating on the end-to-end business model.

"We want to guide the growth with sustainability, but it's less about this day versus this day," he added. "Let's do the right thing for the customer first and then good things will happen on our side as well. It's less about being super prescriptive."

To that extent, Uber Freight has a suite of services aimed at improving truckers' lives including facility ratings that allow truckers to rate the retailers and warehouses they work with . That functionality is important as truck drivers often spend hours at warehouses unpaid; being able to rank the retailers who are making truckers wait the longest could provide an impetus for improvement.

Read more: Uber Freight is helping combat a $1.3 billion problem that the trucking industry has ignored for years

Along with doing right by America's 1.8 million truck drivers, Ron said building scale in Uber Freight will drive profits down the line. Ron was the cofounder of Otto, a self-driving truck company later acquired by Uber, and was a product lead at companies like Google, Motorola, and Yahoo!.

"Scale allows you to change things across the industry," Ron said. "Scale allows you to actually unite a very fragmented industry instead of driving efficiencies across the supply chain. You need scale."

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