Digital freight brokerage: a crowded field that could have many winners
Digital freight brokerage isn’t a winner-take-all game. Just ask its biggest fan.
Mark Young, director of transport procurement for Anheuser-Busch, doesn’t just work with one or two digital freight brokerages — he works with nearly all of them.
“I see the tech-enabled carrier space as something that provides transformational value,” Young told Supply Chain Dive. We work with them all very similarly and see the benefits they can provide.”
Companies like Convoy, Transfix, Uber Freight and Loadsmart use algorithms to match carriers and loads based on origin, destination, type of load, price and timing. Frost & Sullivan estimates the digital freight brokerage market will reach $54.2 billion by 2025.
The benefits Young spoke of aren’t just booking speed — booking a load with Transfix, for example, takes one-quarter of the time of conventional booking, according to CEO Drew McElroy — but also data and insights about where the friction is in his supply chains.
With a traditional broker, explained Young, delays or issues with a shipment are often recorded, but they are hard to analyze in aggregate. With digital freight booking, the brokerage has a detailed record of every load, minute by minute in some cases, which can allow Young to find pain points previously difficult to see.
"You start to get collaborative and you start to build that transparency," he said. The data provided by digital brokerages has allowed him to view his KPIs in a new light and reevaluate which measures are valuable and which are not.
Old school vs. new school
It’s easy to rank all these players — by number of drivers, number of shippers or app downloads — to try to pick a winner. But Young doesn’t see the point.
“Someone asked me to rank them and I couldn’t and I wouldn’t,” said Young. The more important comparison is to traditional brokers, he said.
Young works with multiple digital brokerages because he believes in the concept and the value they provide. Plus, he has plenty of volume to spread around. And McElroy said that working with multiple digital players, even if not Transfix, is actually a benefit to his startup, too.
"If one of those companies wins a new customer, and I’ve never talked to that customer, then that’s a positive for us because as long as they don’t screw it up, that customer is going to then begin to clearly see the benefits of digital freight," McElroy said. "And they’re going to ask: 'how do I get more digital freight in my portfolio?'"
A year or two ago, McElroy said he might have worried that one bad experience would send shippers running from the category, but at this point, the space is entering a new phase of maturity and growth where that is less of a concern.
Digital freight players are, however, competing for drivers. But even that race is not as cut-throat as one might expect, McElroy said.
“I actually don’t want [drivers] to be exclusive because I don’t ever want to inhibit your ability to do what's best for you,” he said. “But the reality is, if we are thinking about your business and your life and your experience holistically and saying it’s not about rate per mile, it’s not about this load, it’s about the totality of the week, the month." In the best-case scenario, the shipper gets a lower price, but a driver's income increases because he drives fewer empty miles and more miles total.
To keep drivers happy — and revenue growing — Transfix obsessively monitors transactions per representative and per day to make sure the business remains efficient and scalable.
"By and large if you look at our curve it is going straight down," McElroy said. "We still have some processing costs mainly associated with exceptions."
A better algorithm that gets loads accepted faster and an efficient system for dealing with exceptions is what will allow digital freight brokerages to do more with fewer resources than analog players — as long as they can recruit the volume.
“If you look at the paradigm before mobile and the proliferation of data, you have very large brokers that are effectively running into diseconomies of scale," McElroy said. "They have so much volume that they actually can’t handle it and that’s why they have offices all over the place and their offices are fighting over the same truck and it’s not really working."
Both Young and McElroy agreed that there won’t be one or two winners here since shippers never put all of their freight in one basket. But there will be leaders, and those may be determined not by who recruits the most drivers or books the most freight — but by mergers and acquisitions deals among players.
So what does the future hold for these startups and how will that affect early adopters like Anheuser-Busch?
Whether it comes from entrenched players or other startups, consolidation is on the way, McElroy predicts.
Some traditional players have gotten into the digital space. J.B. Hunt has its Carrier 360 platform and C.H. Robinson has Navisphere. But if algorithmic freight matching is as inevitable as McElroy and Young seem to think, any traditional brokerage may choose to buy this technology rather than build it in house.
“There is going to be pretty dramatic consolidation. It’s a not a winner-take-all market, but I think at the end of the day for the majority of brokerage, I think there are going to be three, four, five winners — old school and new school,” said McElroy.
Young, for one, is ambivalent about the possibility of M&A in the space.
“I would hope that if they were acquired it would be for the right reasons,” he said, calling the prospect “concerning.” He added, however, that any event that gets more shippers using these kinds of services is better for the entire industry.
“I see us having a very wide set of players and I actually see a lot of the other carriers starting to adopt these technological capabilities. Today, no one carrier has more than 10% of our business," he said, "even the largest one."
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