In recent years, the global transportation industry has been actively catching up with other industries by digitizing its core function — assigning a shipper’s freight to the right carrier for the job, something that some logistics companies in 2021 still conduct manually, using spreadsheets and phone calls.
Without fully understanding digital freight networks, many industry veterans fear that the technology revolution happening within the industry will eradicate jobs and the value of human relationships.
There’s still pervasive misunderstanding about digital freight networks — how they operate and differentiate from asset-based carriers and the traditional freight brokerage model.
“Technology rarely eliminates the need for human capital,” said Zach Strickland, director of freight market intelligence at FreightWaves. “It more often increases the efficiency of it. Looking at the U.S. economy over the past 30 years is a perfect example of this. Technology has improved vastly and jobs have increased.”
Whether digital, human or some combination — shippers need intermediaries to locate capacity for their freight, a fact that became more obvious over the past year with the unprecedented disruptions of the COVID-19 global pandemic.
In April 2020, Gartner published a report defining the digital freight network as a new kind of freight partner, one that offers shippers real-time pricing and guaranteed capacity. The report called the digital freight network “an open, fully connected marketplace that uses machine learning, automation and other software services to efficiently connect shippers and carriers.”
Through machine learning, the digital freight network automatically evaluates billions of load combinations to match shipments with the right carriers, and consolidate shipments, which provides a better experience for both shippers and carriers by tackling a huge industry problem with inefficiency
Reimagining the industry status quo of pricing and securing capacity
For decades, RFPs have been the cornerstone of the freight procurement process, yet they take months to complete and cost millions in operational overhead. During the COVID-19 demand surges, shippers couldn’t rely on those primary contracts and needed reliable backup and spot options. While the majority of shippers’ freight is under contract with chosen carriers, when demand increases and/or capacity is tight, carriers often reject those contracted loads in favor of higher rates on the spot market. This often leaves shippers in a lurch, forcing them to scramble to secure capacity on the spot market and pay higher rates. Most recently, disruptions caused by the COVID-19 global pandemic caused the tender rejection rates to spike (in blue) to over 26%.
The Home Depot found an alternate solution to contract rates with Convoy’s Guaranteed Primary program, which uses a predictive pricing algorithm to provide shippers with a predicted rate based on a low fixed margin, and full visibility into the truck cost. By eliminating the need to manage rejected tenders, operational costs decrease and shippers are ensured capacity in tight markets, and also reap the benefits of lower rates in a soft market.
Drop-and-hook freight has traditionally been reserved for big-name asset-based carriers that can afford large fleets. British multinational consumer goods company Unilever, found added capacity in Convoy’s reimagined drop-and-hook service, Convoy Go, which allows carriers of all sizes, including safety-vetted owner-operators, to access a shared pool of smart trailers.
Shippers can also leverage data insights from digital freight networks, since they amass an enormous amount of data across millions of pickups and deliveries. By curating data reports that provide shippers with actionable insights, digital freight networks are able to reveal what’s impacting efficiency and driving up the cost across shippers’ supply chains. Shippers can then learn from past disruptions to and drive a smarter and more efficient future.
Leveling the playing field: how digital freight networks differentiate from traditional freight providers
Shippers have historically gravitated toward asset-based carriers for their reliability and pricing consistency. However, the industry has operated as a zero-sum game: When capacity is tight, carriers have the pricing power over shippers, and as capacity increases, that power shifts back to shippers. This constant volatility makes it difficult for shippers to secure reliable capacity and pricing.
“When the market gets tight, carrier compliance efficiency drops and shippers bid rates higher in an attempt to secure capacity, leading to further imbalance as carriers are now managing revenue and volume versus simply volume,” added Strickland.
Because digital freight networks use an automated brokering process, they were able to quickly adapt to those same market changes. According to Gartner’s report, “Digital freight networks are helping shippers overcome COVID-19 challenges by delivering the reliability of an asset-based carrier and the flexibility of a broker.”
Furthermore, maintaining relationships with multiple brokers was the only way for carriers to gain visibility of available loads. But that visibility was always limited, no matter how many broker relationships a carrier maintained. But digital freight networks also disrupt that historical framework by democratizing access to all freight for all carriers. As more shippers and carriers join the network, the algorithms become more efficient at connecting the right loads to the right carriers.
A digital freight network operates similarly to social networks in that the benefits increase as more parties join. As more shippers join the network, carriers gain more load options and experience fewer empty miles and shorter dwell times, providing carriers the opportunity to optimize revenue. As more carriers join, capacity increases and shippers enjoy better levels of service and lower costs. “Shippers want optimal service at a low price while carriers want increased utilization,” said Strickland. “If carriers can reduce non-revenue movements consistently, that will lower their costs, which will influence their rates to the shipper.”
By automating the process of matching loads to trucks, digital freight networks also notably reduce the labor cost and the time those manual efforts require. This increased efficiency translates into lower prices for shippers, and helping carriers to earn more as well.
Finding a load on an app also levels the playing field for underrepresented minorities across the carrier base — women, people of color and truckers whose first language is not English — who may not have the established broker relationships and may not have always felt comfortable negotiating over the phone for every single load. They are now able to access shipments and bid on loads through an app without having to negotiate with a person.
“Automation in freight is not about removing the human element when it comes to working with Shippers,” said Ryan Gavin, Convoy’s CMO, in an interview with FreightWaves. “We can create a better experience for shippers in terms of cost and quality, as well as for carriers in terms of access to consistent, reliable freight to keep their trucks full. Because a digital freight network automates the challenging and time consuming tasks of pricing, matching, and scheduling, we can reserve our customer service team to focus on the truly complex unique customer problems that drive more return for their business.”
Not all digital freight networks take the same approach
Not all digital freight networks take the same approach to the same industry problems. While some focus on simply putting a digital face (like an app) on a traditional process , others have been using machine learning to provide dynamic pricing and guaranteed capacity, as well as sustainability solutions.
Sustainability is a huge focus for Convoy. “We’re at a tipping point where the largest shippers are really demanding that the supply chain no longer be divorced from sustainability,” said Ryan Gavin, Convoy’s CMO. “Consumers are voting with their feet and increasingly want to be associated with brands that represent a commitment to reducing carbon emissions…inclusive of sustainable shipping.”
Automating the matching of shipments to carriers not only benefits shippers and carriers, but also the environment. Transportation has a huge environmental impact: 35% of all miles are still driven by empty trucks. Batching shipments and automatically identifying backhaul opportunities for carriers reduces empty miles, which reduces carbon emissions.
Anheuser-Busch (A-B), the world’s largest brewer, is one of those brands, with sustainability goals for 2025 that include a 25% reduction in carbon emissions across the company’s supply chain. This goal required visibility into the company’s Scope 3 emissions — the indirect emissions created from suppliers and transportation partners. By leveraging Convoy’s Automated Reloads program, which uses the platform’s visibility to batch round-trip routes and book headhaul and backhaul loads simultaneously, A-B can keep asset utilization high.