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Real Stories of Supply Chain Agility – Part 11

Mahesh Rajasekharan
What Will Happen to the Freight Brokerage industry?

Every day, on calls with Cleo customers, I am learning first-hand how leading supply chain-driven businesses are adjusting to the COVID-19 pandemic. In this blog series I share insights about how companies in various industries are responding. Their agility is remarkable, and something we can all learn from. Hope this helps everyone think differently.

Winning in the Era of Amazon Brokerage and Uber Freight – Blog #11

Recently I spoke with one of our customers, a mid-market freight brokerage company, specializing in truck load, less-than-truckload (LTL) freight, expedited ground and air, as well as software solutions for handling spot pricing and carrier bid management. What caught my attention the most was how this company is focused on competing differently by enhancing its technology platform and customer experience despite growing competition from digital freight brokerages such as Amazon brokerage and, despite recent cutbacks, Uber Freight.

While the larger third-party logistics (3PL) providers such as C.H. Robinson and XPO have outlined long-term capital investment strategies for technology deployments to compete with digital freight brokerages, it is hard for smaller companies to match such investments. For example, C.H. Robinson has committed $1 billion in technology investments largely in hiring data scientists and developers to build out its technology platform. And XPO has increased capital investments by $150 million totaling $650 million a year on its technology platform.

However, such massive investments are economically infeasible for most mid-market freight brokerages. And that’s why instead, our customer has pursued an impressive three-pronged strategy in the midst of freight brokerage wars to survive and win. Those three steps are:

1. Pursuing differentiated freight loads that digital brokers can’t easily handle

2. Fostering deep customer relationships

3. Investing in ecosystem integration technology

The final step, investing in ecosystem integration technology, is certainly the most valuable step the company has taken. Ecosystem integration technology has allowed it to connect and integrate across shippers and carriers as well as leverage the various third-party visibility platforms available in the market to provide efficiencies similar to digital freight brokerages while optimizing its internal investments to drive growth and profitability.

Transforming the Freight Brokerage Segment

Amazon founder Jeff Bezos has indicated that he wants to control 10% of the $9 trillion logistics market by 2025. Trucking represents about 43% of that estimate, and Amazon and Uber are difficult to compete against on high-density lanes. Those companies have the technology to optimize tedious processes and the access to capital to invest over long periods of time. These digital freight brokers as well as other venture-capital-funded companies such as Convoy and uShip are using data to eliminate price discovery in negotiations to compress margins and drive market share growth. They have set their sights on capturing a large percentage of the $72 billion U.S. freight brokerage industry, one that is ripe for disruption.

What are Amazon and Uber Freight Doing Differently?

While both Amazon and Uber Freight are focused on technology solutions in automating freight brokerage and compressing market rates, they have adopted different business strategies.

Amazon is investing billions of dollars into its distribution network, having discovered that carrier capacity is a limiting factor in its growth. Hence, Amazon is focused on locking up capacity by giving carriers dedicated loads and offering any excess capacity to shippers through its brokerage at both spot and contract rates.

Conversely, Uber Freight, while they may be facing a current struggle themselves, is bringing technology solutions to the mid-level and smaller carriers who previously struggled to get access to demand from larger shippers. This was because the smaller carriers could not provide real-time load tracking information that larger carriers were able to do due to the ELD mandate, which they could do now with the Uber Freight app.

Essentially, Uber Freight is primarily focused on locking up mom-and-pop carriers while Amazon is focused on locking up trucking capacity.

What Will Happen to the Freight Brokerage industry?

There are two competing schools of thought as to what the future of the freight brokerage industry looks like.

The first theory is that digital freight brokerages will disintermediate traditional freight brokerages who are primarily focused on people investments to navigate freight transport complexities with less focus on technology.

The second thought is that because transporting freight is complex -- it’s heavily regulated, inherently multi-modal in nature given the necessary coordination among different counterparts, and always changing due to ever-evolving shipper expectations -- it will prove difficult for pure technology-based platforms to win in the long run against traditional freight brokerages. Replicating the functions performed by an independent freight brokerage entirely via software will be difficult, not least because of the large number of people working in traditional freight brokerage who understand shippers’ needs, and work as intermediaries between shippers and carriers.

Hence, I believe we will be seeing a progressive blending of the two models.

On one hand, the digital freight brokerages will be adding multi-modal capabilities and customer service functions. On the other hand, the traditional freight brokerages will be investing in ecosystem integration to provide web-based visibility and real-time scorecards for shippers. This is the business strategy adopted by our customer in carving a niche between the digital freight brokerages on one end and the larger traditional freight brokerages at the other.

A Three-Pronged Strategy to Compete and Win

By leveraging a three-pronged strategy, our customer is well positioned to survive and thrive the freight brokerage wars, despite its mid-range size.

1. Pursuing Differentiated Freight

Realizing that by solely pursuing easily commoditized full-truckload freight it couldn’t compete with Amazon and Uber Freight, our customer instead focused on a blend of cold temperature-controlled freight and dry freight, truck load and LTR, and added expedited and dedicated services. This strategy has really helped it in the face of COVID-19 where transporting food and beverage perishables has given its business a significant lift even while industrial and automotive distribution demands have considerably slowed down.

2. Fostering Deep Customer Relationships

Despite the squeeze on market rates with the advent of digital freight brokerages, our customer realized that shippers can pay a premium for one-stop transportation solutions that combine efficiently matching carriers with shippers, as well as international, air freight, and freight-forwarding services based on a shipper’s unique transportation needs. Such customer relationships cannot be replicated purely by the no-touch, highly efficient technology solutions provided by digital freight brokerages.

3. Investing in Ecosystem Integration

As a smaller logistics firm, this company realized that what would be better than hiring data scientists and engineers to develop its technology stack so it could keep up with the digital and larger freight brokerages, would be CREATING competitive differentiation by partnering with technology vendors that can provide state-of-the-art, off-the-shelf software.

As a first step, the company is investing in an ecosystem integration platform that provides the foundation for connectivity and integration to various load-tracking and freight-matching software programs, as well as their internal transportation management system (TMS). Plus, the ecosystem integration platform allows it to enable EDI and API based integration, launch web-based visibility services, and onboard new shippers and carriers at a rapid pace to drive long term growth and profitability.

Bottom line

COVID-19 has shed light on the digital shortcomings, the various investment strategies, and the creative opportunities that are currently redefining the freight brokerage industry. Without question, this sector of our economy will look a lot different 12-18 months from now, but I’d wager it will be an even more efficient market than it is today.

Time will tell.

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