Guest Blog Post: David Broering, Senior Vice President – Integrated Solutions
For several years now, there has been a lot of PR and momentum around the concept of “Uber for brokerage.” Over that time more than 100 companies have formed, all trying to disrupt the freight brokerage market with technology. Over these past few years, there are a few companies that have made news at times – typically for a company getting additional investment – but nothing that would give many in the industry the belief they are a real threat for true “disruption.” Over the past few months; however, several large names have made it clear they are going to be entering our marketplace – Uber and Amazon (speculated). While the fundamentals of the challenge that Digital Freight Marketplace (DFM) providers face in disrupting the brokerage market has not changed, it is clear that this concept is here to stay and there are companies that are determined to make it work. Here are few reasons why this concept is challenging for the market, and what a company can do to prepare for the inevitable revolution that is coming for our market as this concept evolves.
First, let’s start with the definition of a DFM company: A technology company looking to match shipper demand with carrier capacity via digital platforms, most often an app for drivers / shippers, but it can be cloud software. Examples of these businesses today are Convoy, Cargomatic, Transfix, Uber Freight, and many others. The idea is that brokers take a large margin (in general) without providing a ton of value, and a company that creates an app / tool can connect the supply and the demand for a small fee and cut out the middle man (traditional brokerage) – saving the shipper money.
The DFM concept is challenging to execute overall for quite a few reasons. Many believe that the freight brokerage market is ripe to be disrupted via technology because they draw parallels to the taxi industry, and what Uber has done to completely change that market. However, there are some very big differences between the taxi industry and the trucking industry that are worth exploring when really digging into the concept of DFM and disruption of the brokerage marketplace. First, with Uber (and others) the driver in the car is the decision maker on whether to pickup a passenger, and in our industry the truck driver typically is not the decision maker on whether to take a load or not. On the other side of the transaction, the Uber user is ready to manage their own transaction with the driver, where brokers have been playing a valuable role as liaisons managing the entire transaction for several decades. Lastly, Uber and other ride-sharing applications are creating more bandwidth in their market by creating drivers from people who weren’t taxi drivers before; this will not be the case with the trucking market, where there are finite resources.
The decision to take the load does not reside with the driver, and thus makes this a more challenging concept. There are roughly 4 million truck drivers in the United States, and only 10% of them are owner operators – drivers who would be in charge of their own destiny1. This leaves nearly 90% of the overall driver market that is counting on a dispatcher / driver manager of some sort to plan their next load. The concept of the connection between Uber and the DFM in providing immediate access to a multitude of shipments is somewhat disjointed as a result of this disconnection in decision-making. That said, there are still ways in which DFMs will be working to connect shippers and carriers without brokers, and it will be through their technology. By connecting more meaningfully with the large and medium carriers, they will still be able to provide a degree of value to the people actually making the decision (the load planner) via their technology. Past that group of owner operators, the disruption will take longer because that connectivity will be challenging with the smaller carriers, and will take time to add value beyond a broker in the layer in between the decision maker (dispatcher, owner) and the driver.
Freight brokerages have been providing a valuable service to the shipping / carrier community for 3 decades. Ever since the transportation market was deregulated in the early 80’s, freight brokerages have existed and thrived en masse to where there are over 15,000 registered freight brokerages in the U.S. today. Over that past 10-15 years, freight brokerage has really accelerated, becoming a vital cog in the overall transportation of goods in the North America. Much of this connects to the ability for the freight brokerages to provide connectivity and value in software and data that shippers / carriers didn’t have access to. Freight brokers in the U.S. will generate over $40 billion dollars of revenue this year! While many see brokers as merely connectors of shippers and carriers, they are often providing additional valuable bandwidth to both sides of the transaction. Brokerages do extra work on each shipment allowing the customer and the carrier to focus on other things each business day. Whether it is scheduling appointments, handling additional work like lumpers, or managing exceptions, a broker adds a lot of value in the little things they do each day as a part of the overall service to the shipper and carrier. The major challenge with a DFM is a vast majority of them are looking to merely make the connection technologically, and are not planning on managing the operations of the shipment. That means that a shipper who decides to use this service would have to take on any additional work they might have left with the broker previously. Many small-to-medium sized shippers use brokers as the way to get extra bandwidth out of their own staff, and the DFM would require them to use personnel bandwidth they currently have allocated to other work in their business. While there are certainly some DFMs out there that have light operational resources, few are planning the sort of bench strength in operations like a traditional broker, which puts the burden of the work on the shipper and carrier. The value in the disruption the DFM brings to the market is the lower cost for just connecting, and taking on this operational burden will not allow them to offer their service at a very low price.
Uber and other ride sharing applications have created bandwidth by bringing new drivers to their markets, while that will not happen in the trucking industry. Drivers have long been the scarce commodity of the trucking industry, and many talk about the impending driver shortage in the market as one of the single biggest drivers of capacity constraints and increasing costs to the market. While any person with a registered vehicle and insurance can sign up to be a driver for a ride-sharing service and be in the road in a matter of days, that will not be the case in the trucking community. Whether it is the training required, the certification from the federal government, or the requirements for experience by individual carriers, DFMs will not be creating any additional capacity in the existing marketplace with their services. This means that DFMs will be vying for the same capacity that other brokers and shippers do today. While there may be value that the carrier receives from the DFM in swifter pay terms or other benefits, the rate of adoption of these tools will be directly correlated to the ecosystem they are capable of creating. As the market tightens up over time, the likelihood of the carrier gravitating towards what they have always known is very likely, and that will be where they are comfortable working. The relative infancy of the DFM revolution will challenge many of them to be relevant to the carrier community, and that will stifle the rate of adoption overall by shippers without that capacity.
While all of the above are reasons why DFMs are going to struggle to get things going, it is still likely that several of these companies are going to figure out how to make a meaningful impact on the market and begin to take a share of the overall brokerage marketplace. Fundamentally, the true value of brokerage is the relationships we create, not just the connections we are providing, so being efficient but still operationally connected will be the key to staying relevant during any shift in the marketplace.
Digital Freight Marketplaces have not yet begun to meaningfully erode the overall position or share of the market that brokerages have, but it is inevitable that those days are coming in the next few years. Companies like Amazon and Uber have the sort of capital, density, and technological skill to throw at a concept like this, making it probable that some version of this business model will make a material impact on our market, it is just a matter of what that model will look like, and what sort of adoption they see.