Commentary
As digital freight brokerage apps learn to concentrate on driving user engagement and building dynamic marketplaces that adapt to user behavior, they will start to resemble social media networks like Facebook, Twitter, Snapchat and Tinder.
Apps like Uber Freight, Convoy, Transfix, J.B. Hunt 360, C.H. Robinson’s Navisphere and EchoShip/Drive were designed to cover loads much more efficiently than voice brokers. The idea was that a digital brokerage’s network could scale volume in an exponential relationship to headcount rather than a linear one, allowing the company to take home higher net earnings on narrower gross margins. Charging the shipper less and paying the carrier more would generate loyalty and density over time, accelerating the flywheel.
This digital transformation of freight brokerage remains incomplete. Too-frequent exceptions drag down overall rates of automation. Digital brokers bid on shippers’ lanes during RFP season like every other broker, instead of building true marketplaces where shippers automatically upload all of their freight. Perhaps most tellingly, digital brokerages still measure themselves like traditional freight brokers, reporting top line revenue, net margin and load volume.
By thinking like traditional voice brokers, the apps have not been able to differentiate themselves and build moats around their platforms, learn enough about their users’ behavior, or achieve the scale necessary to reap the earnings and multiples of technology companies.
On-stage at Transparency19 last month during a panel on digital brokerage, Geoff Turner, the president and CEO of Choptank Transport, a $300 million Maryland-based brokerage, said some intriguing things about Choptank’s evolving app strategy.
“For us, it’s about thinking about the carrier experience and how much better we can make their life on the road, meaning, almost like a lifestyle app,” Turner said.
Daily active users, time-to-cover, revenue per user and conversion rate will become more important to evaluating the performance of digital brokerages’ mobile apps as those products seek to define their user experience against that of their competitors.
One of Twitter’s (NYSE: TWTR) most important KPIs is daily active users, which measures Twitter’s audience and helps price its advertising services. The real-time size of the network – how many people log into Twitter on any given day – is much more interesting than a metric like total downloads.
Yet that is where many digital brokerages are stuck, because the companies running those apps report numbers like total number of carriers ‘on the platform’ without information about activity and engagement. To truly contribute to asset utilization and the elimination of empty miles, digital brokerage apps need highly engaged carriers who can run most if not all of their network within the app. In other words, if a carrier liked running from Atlanta to St. Louis to Dallas and back to Atlanta, the app would find consistent freight for each of those legs. If the digital brokers were able to do that, they could ensure carrier loyalty and perhaps even gain an edge in pricing power.
User engagement, broadly defined as actions a user takes in a platform such as clicking on a link or button or navigating to a page, typing a search, ‘liking’ a post, bidding on a load, etc. can generate value even before it generates revenue. Facebook (NASDAQ: FB) mines the chats sent through its Messenger application for information related to security and operations, but it also uses the data to target ads. One of the reasons that Facebook has had trouble generating revenue from WhatsApp is that WhatsApp has end-to-end encrypted chat by default, so, in theory at least, the content of those text messages cannot be mined.
Carriers or shippers who happen to be nearby one another but may not have done business yet should be given the chance to chat and exchange text messages through a digital brokerage app, similar to Match’s (NASDAQ: MTCH) new ‘What If’ feature designed to enable serendipitous matches. Algorithms mining those conversations could learn about projected volumes, capacity availability and rate sentiment from both sides of the marketplace. Even while a carrier and a shipper are just getting to know each other or already working toward a deal, the app would be learning how better to match supply and demand.
We already know that some digital brokerage apps are mining carriers’ searches for information about their interest in lanes they may not have formally registered with the brokerage. But visibility into real-time conversations between carriers or between carriers and shippers would go even further toward enabling the app to adjust pricing on the fly and maintain liquidity in the marketplace.
Directly connecting shippers and carriers is anathema to a traditional voice broker who builds his margins on information asymmetry and market inefficiency, but it’s worth reminding ourselves how Facebook uses data from messages. Products, places and life experiences mentioned in chat can be used to target ads more precisely, resulting in higher click-through rates. The more relevant an ad is to a user, the more likely the user is to click on the ad, which makes it more valuable to the advertiser.
Digital brokers should remember that manually negotiating through text messages is inherently inefficient and cannot scale up to be a credible threat to an automated platform. But by allowing carriers and shippers to chat if they want to do so, the app can gather information that will allow it to present more relevant, more attractive freight to carriers and capacity to shippers, shortening the time-to-cover per load (analogous to a clickthrough rate).
Those text chats, while inefficient on a transactional basis, could be a rich, nuanced dataset for digital brokerages. What’s more, those conversations are already happening on Facebook in groups like Rate Per Mile Masters and Trucking: Rates and Lanes. Thousands of carriers are talking among themselves about freight markets, and Facebook is not in a position to properly capture or monetize the data. Facebook might know that the users in the group tend to be owner-operator truck drivers, but the social media network cannot leverage the data to facilitate transactions or help its users. An app like Convoy or J.B. Hunt 360 could.
In the first quarter of 2019, Match Group brand Tinder rolled out some new features that digital freight brokerages could learn from. ‘Spring Break Mode’ and ‘Festival Mode’ allow Tinder users bound for the same destination to connect with each other ahead of their trips. By integrating with shippers’ enterprise resource planning systems and leveraging customers’ historical data, digital brokerages could proactively and predictively identify demand surges and hot markets, and start the process of repositioning capacity even before the loads were tendered. An app might help refrigerated carriers connect with agricultural shippers in the Salinas Valley ahead of produce season or encourage a Northeastern shipper to raise its rates in advance of a winter weather event.
Social media is a highly competitive segment of the tech industry that so far has tended to produce just a few dominant winners that don’t directly compete with each other – Facebook, Twitter, LinkedIn and Snapchat have different purposes and styles. More importantly, the same person logs into each platform to access a different use case. It doesn’t hurt Facebook if one of its users decides to send a tweet.
Freight brokerage is different, though; Uber Freight loses if one of its carriers decides to accept a load from Transfix. The current state of social media, with users switching seamlessly from platform to platform, is actually the worst-case outcome for digital freight brokerage. Both shippers and carriers will exploit arbitrage opportunities between the apps and compress brokerage margins to a razor’s edge. If digital brokers cannot automatically rely on capacity to serve their customers, they will have to continue on-boarding carriers and the cost-to-cover a load will stay stubbornly high.
Therefore I believe that the next iteration of digital brokerage apps will reflect a ferocious competition for shipper and carrier attention, intending to suck them into the platform and encourage them to stay by whatever means necessary. Eventually digital brokerages will be like Snapchat (NYSE: SNAP) and know exactly how many seconds the average user engages with their latest features and product offerings. Brokerages will need that level of precision to measure how they’re doing in the coming war for market share.
Matt Stubbs
Interesting commentary. Without incentive to be 100% faithful to a specific application what’s to keep carriers from bouncing between multiple apps to find the best rate? It will be interesting to see how the digital freight brokers compete for loyalty.