In the future of freight, relationships will become far less important

 Data and speed will rule the future of freight 

Data and speed will rule the future of freight 

Historically, revenue volumes in the freight industry have been driven by the strength of the relationships between carriers and shippers. The sales reps for the carriers that had the strongest relationships with the shippers would win a substantial amount of volume. Price might be in play, but if a carrier were off on pricing, they would be given the deets on what to charge and where to ensure their place in the routing guide. This is the reason that aggressive 3PLs with mature sales operations hire recruiters to go out and find the reps with the biggest books.

To protect their high-performing reps, brokers and carriers would use non-compete agreements to ensure that the book of business did not leave the company if the rep were to leave. Many freight companies have built their businesses through raiding talent of larger companies, hoping that with the sales rep comes a large customer win. No judgement here. In fact, I know of at least one $100M broker that has two primary customers that were acquired simply by raiding front-line customer service folks of a much larger trucking company.

Recently some of the investor pitch decks for the digital brokers have been floating around that brag about how efficient the company is in its sales process. Stats like our sales reps generate $6M/person become big points of pride, when in fact the stat itself is meaningless. No mention of what the margins are in that book or what the revenue per employee for the whole company is overall. As a point of comparison, many of the largest for-hire carriers have sales reps that do an average of over $30M each in revenue and often from only a few select shippers.

Since when did top-line revenue become such an important stat in freight pitch decks? Isn’t the metric supposed to be gross margins or net revenues?

The reason for this is simple- Silicon Valley investors have encouraged it. By pumping hundreds of millions of dollars into our industry, they have encouraged startups to grow top-line at all cost without consideration of what their margins would be. Never mind that we’ve never had a substantial exit in freight that has been based on top-line revenue. The traditional buyers of logistics companies are far more disciplined and intelligent than anyone on Sand Hill road gives them credit for.


But rather than completely dismissing venture capital investors as drunk sailors at port with a fist-full of dollars, we should examine why they are bidding up these companies. They see something far more powerful and promising that even the most seasoned freight executive would recognize. The rules are changing.

Soon, we will enter the next generation of freight companies, where the personal relationship between the company and the carrier is meaningless. In this world, the strength of the relationship is entirely predicated by the speed of execution and the ability for the carrier to provide instant pricing and universal tracking. The color of the truck or name on the trailer will not matter to the shipper in this next evolutionary phase.

Investors that invested in Uberization will discover that CH Robinson was the original Uber and no mobile-based broker is going to destroy them. But what will change their model and the entire industry will be actionable data and the ability to create value from these data-streams. In a post relationship world, the highest paid roles will not be sales reps, but rather data-scientists. The ability to compete in RFPs will be predicated by how fast a company can guarantee capacity at a predictable price.

Blockchain will become a key component in shipper RFPs. We are already seeing this, in-fact. One major retailer has been asking carriers to describe their blockchain strategy as part of their RFP answer. This same shipper has a history of using technology to optimize their supply-chain.

Price and capacity discovery will all be based on data and less on gut or negotiation. Shippers will demand to know where their freight is at all times and who is behind the wheel. Carriers will be forced to comply with shipper requirements, not just to check the box in an RFP, but because there will be an entire forensics history of compliance.

Much like Michael Lewis described the impact of speed of information in capital markets in his best-selling book Flash Boys, the victors in the future of freight will be companies that use machine learning, large data sets, and blockchain to speed up freight execution.

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