Digital Freight Matching: The Race is On

Digital Freight Matching: The Race is On

17 Dec 2017

In these days of ever-increasing technological innovation, the advances being made in logistics and supply chain are certainly gaining the attention of the Silicon Valley elite. And perhaps nowhere is that more apparent than in the proliferation of app-based—or on-demand—trucking providers, a quickly emerging area that’s receiving a significant amount of attention and investment.

While signs are pointing to higher truckload rates and continued capacity tightness, new options for securing loads for shippers are expanding on the brokerage side through well-funded start-ups and established logistics services stalwarts. Many believe that they’re taking the technological steps required to not only enter the market, but to succeed in this business where margins are already razor-thin.

In an effort to put this well-hyped trend into better perspective, Logistics Management welcomes John Larkin, managing director, transportation and logistics, at Stifel Equity ResearchChris Cunnane, senior analyst on the supply chain and logistics team at ARC Advisory Group; and Evan Armstrong, president of third-party logistics provider (3PL) analyst firm Armstrong & Associates.

Logistics Management (LM): How would you best define this on-demand or app-based approach to freight transportation?

Chris Cunnane: Most people refer to this model as the “Uberization of freight.” However, it’s more of a digital freight matching service. Simplified, it means that drivers can use a mobile app to match their available truck with a pending load. The driver will get an alert for a pick-up and can choose to accept the load if the price and timing are right.

There are two main markets that can be served in this model—long-haul trucking and last-mile deliveries. When you look at long haul, this market can be segmented into two distinct areas—committed and the spot market. However, the last-mile side has more opportunity for growth.

Evan Armstrong: Like Chris, we simply describe them as digital freight matching companies. For the most part, they aim to match shipper demand for transportation with carrier truck capacity through digital or mobile-based platforms, usually in the form of apps.

LM: Who are some of the key players that are moving into this space and what is the true impact of Uber on this market?

Cunnane: There are hundreds of millions of dollars pouring into the market, on both the long-haul and last-mile side. Uber and Amazon are both developing apps to become the “leader” of the digital freight matching space, since they have the capital and they have the contacts. Other key players include Cargomatic, Convoy and CargoX, among others. However, this is more on the long-haul side of the market. For last-mile, more than $500 million of funding has been raised by start-ups, and this looks like the more viable option, with companies like Instacart and Deliv proving their business model.

Armstrong: In terms of “Uber-like” companies, at this point the impact seems minimal because many are small to mid-sized freight brokers with app and online interfaces. We would put Uber, Transfix, uShip Pro, Convoy, Load Express, and Next Trucking into this category. They tend to be very small in comparison to domestic transportation management leaders C.H. Robinson, Hub Group, XPO Logistics, Coyote Logistics, and TQL—each of which has over $2 billion in revenue in the $62 billion domestic transportation management market segment.

John Larkin: Most of the big brokers already have apps for facilitating communication. My sense, however, is that Bill Driegert at Uber has a different plan than most of the others. He wants to eliminate phone calls from the process of matching a load with an empty. The match will be made with the help of data analytics based algorithms, in seconds.

On top of that, the people at Uber will be compensated with salary and bonus rather than a commission based on volume or the spread between the buy and the sell on capacity. This will enable them to focus on service excellence and customer penetration.

We also know that Uber has a lot of resources to bring to the party, not the least of which is a management team with a lot of experience in freight brokerage, access to hundreds of data scientists, access to the underlying code that drives the Uber passenger app, and a deep pocketed corporate parent that places a higher priority on growth than on profitability, at least initially.

Source: Logistics Management

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