Uber Freight, the division of Uber that matches shippers with truckers, said on Monday that it would open a new headquarters in Chicago and hire “thousands” of new employees in the region.
The company plans to invest over $200 million annually in the region, a major commitment that it undoubtedly hopes will win it goodwill despite its parent company’s reputation for running roughshod over local governments. According to Uber Freight head Lior Ron, Chicago’s history as a shipping and logistics hub played a role in choosing the location.
The new headquarters will be located in Chicago’s Old Main Post Office, which is experiencing a revitalization after standing empty for decades. Operations at the new Freight headquarters will be focused on engineering, sales, and account management, according to Uber.
While Chicago will benefit from the new jobs and spending, Uber investors will be focused on whether the Freight unit can make money. There is growing skepticism that Uber’s primary ride-hailing business can ever be profitable, and its now publicly-traded stock has fallen a gut-wrenching 29% from its initial public offering price just four months ago—a price that was already considered conservative by some analysts.
The Freight unit featured heavily in Uber’s IPO filing, with the expansion of Uber Freight listed as one of nine elements of Uber’s overall growth strategy. But for now it appears to share the loss-heavy financial profile of the rest of the company.
Uber’s most recent quarterly report—its first as a public company—groups Freight under “Other Bets,” along with Uber’s much smaller bike-rental and scooter operations. Uber reported 206% year-over-year revenue growth for “Other Bets,” which brought in $340 million in gross revenue for the six-month period ending in June of this year. However, like most of Uber’s business lines, “Other Bets” saw net losses grow faster than revenue, from $48 million in 2018 to $193 million in 2019 for the six months ending in June—a 349% increase.
Uber Freight has been in operation for about two and a half years. Ron says the app is now used by over 400,000 truckers. Major shippers using the platform include AB Inbev, Ocean Spray, and Land O’Lakes.
The premise of the Uber Freight operation is that trucking, not unlike the taxi business that Uber has already upended, needs a smarter, centralized marketplace to streamline its fragmented landscape.
According to the Federal Motor Carrier Association, 28% of all freight trucks in the U.S. are operated by carrier firms with less than 100 trucks, and more than 450,000 trucking companies have fewer than six trucks. That includes 350,000 to 400,000 owner-operators with just one truck, according to the Owner-Operator Independent Drivers Association.
The process of finding loads to carry has long been labor-intensive, involving email or phone negotiations that can be particularly onerous for solo operators or small carriers. That leads to broader inefficiency: as many as 25% of all trucks on the road at any moment are empty, both in the U.S. and Europe. Uber Freight announced in March that it would expand into Europe.
At the same time, American truck divers are aging dramatically, with the average American trucker now 55-years old. For years, trucking companies and industry groups have warned that a shortage of drivers is pushing up freight prices. Ron believes that his company can help mitigate both of those problems by providing better matching between loads and drivers and helping them sell underutilized cargo space.
There are dozens of competitors for that smart-middleman role, though. They include Loadsmart, which just completed a $19 million Series B funding round; Transfix, which has raised a total of $79 million in funding; Convoy, which is now valued at over $1 billion; and Truckerpath, whose Truckloads marketplace is used by 100,000 carrier companies.
Many of those competitors were founded before Uber Freight, and many have been described as—yes—‘Uber for Trucking.’ They’re competing for a piece of a freight brokerage market estimated at $72 billion annually in the U.S. alone.
It remains to be seen whether Uber can fight off those challengers, while also competing with full-service logistics companies such as C.H. Robinson and DHL. Uber has said its size and diversity of businesses allow it to create better technology, and it certainly has brand recognition.
But that presents its own risks. For example, truckers may shy away from a company that has been known to cut driver pay for its passenger service without much warning, triggering sporadic strikes and other protests.
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