- After reports of Amazon's digital freight brokerage platform surfaced this week, XPO Logistics CEO Brad Jacobs fielded questions from analysts on the company's first-quarter earnings call about the impact of such a player entering the brokerage space. Jacobs, while avoiding the specific subject of Amazon, laid out his view of where the growing digital freight brokerage field is headed.
- The future of freight brokerage looks like a small number of players who have made serious investments in technology, Jacobs said.
- Technology will lead to leaner operations and lower operational costs for brokers, he said. "Long-term I think as costs come out of the way brokers do business, a good chunk of that cost savings is going to get passed along to customers and that's going to degrade margins,"Jacobs said. He added, lower margins on more business "can still be a beautiful thing."
XPOoffers brokerage services through its digital visibility platform XPO Connect. Revenue from the service was up 9% in the first quarter. "We're leveraging XPOConnect, our digital freight marketplace, to source capacity at lower rates. And due to automation, we're producing greater results with fewer people," said Jacobs.
He went on to tout XPO's growth in digital brokerage, adding that the XPO Connect platform had more downloads in the first quarter than in all of 2018 — now totaling 18,000 users.
"If you look at that digital platform we've got, we have a user retention rate of about 80%, which is significantly high for that kind of a product. So the market has spoken. XPO Connect is winning," said Jacobs, seemingly unconcerned about Amazon's entry into the space.
Jacobs' comments fit with those of Drew McElroy, CEO of digital broker Transfix — the real battle is not among digital brokers, but rather digital versus traditional brokerage.
In what could be seen as a confirmation of this view, C.H. Robinson saw a more than 10% drop in share price in the days after the reports.
"We have actually assumed or known Amazon to be in the space for quite some time, as they work to optimize their internal network. So I would look at this as another step in what has been a rapid change in the competitive landscape over the last several years,"C.H. Robinson COO Bob Biesterfeld said in an earnings call Wednesday.