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Digital freight brokerage growth to accelerate sharply over next five years

(Photo: Uber Freight)
( Photo: Uber Freight )

The business consulting firm Frost & Sullivan released the results of its new study of trucking-as-a-service (TaaS) and digital freight brokerage this week. From an estimated current size of $11.2 billion, Frost & Sullivan expects TaaS to grow to $79.4 billion by 2025. Digital freight brokerage will account for the lion’s share of this market—Frost & Sullivan said that segment had 2025 potential revenues of $54.2 billion. Telematics is projected to triple, from 25.7 million devices in 2018 to more than 73.1 million in 2025.

According to a September 2018 report by Goldman Sachs transportation equities analyst Matt Reustle, third-party logistics providers (3PLs) and freight brokerages handle 23% of all loads moved in the United States, a share that has grown 5x since 2000.

“New entrants (Convoy, Uber Freight, uShip) are trying to gain market share by offering price transparency, online load boards, and freight marketplaces (akin to shopping for a flight on Expedia) for booking freight all via mobile applications, with the goal of disintermediating human interaction in the freight booking and payment process,” Reustle wrote.

FreightWaves estimates that the two leading ‘pure’ digital freight brokerages, Convoy and Uber Freight, are on a combined $1.3 billion revenue run rate. Incumbent technology platforms such as C.H. Robinson’s (NASDAQ: CHRW) Navisphere and J.B. Hunt’s (NASDAQ: JBHT) Carrier 360 are also highly automated and handle billions of dollars worth of freight.

Neither Convoy nor Uber Freight yet possesses even 1% market share of the truckload brokerage industry, and more than 60% of industry is composed of relatively small players, presenting an opportunity for technology disruption and consolidation that has been catnip for venture capitalists, who poured nearly $3 billion dollars into freight tech companies last year.

“Lack of instant load and rate visibility, frequently delayed payments and operating cash crunches are creating a huge market for digital brokerage solutions, as in the very least they enable faster brokerage, instant electronic upload of proof of delivery as well as electronic payment terms,” said Silpa Paul, Frost & Sullivan’s Industry Analyst, Mobility.

“Autonomous driving technology is fostering services such as platooning, which are expected to deliver fuel savings of 4 percent to 11 percent per truck,” Paul continued.

Frost & Sullivan is more bullish on platooning than recent FreightWaves analyses: in our view, the complexity of managing hours-of-service and linking trucks together exceeds the potential fuel savings—and enterprise truckload carriers have already neutralized their exposure to diesel prices. If a truck has to wait more than a few minutes for a platooning truck to catch up, or if the rear truck has to drive above 65 mph to catch up to its lead truck, cost savings are destroyed. We think that inter-carrier platooning, where trucks from any carrier can platoon behind trucks from any other carrier, is the best way for the technology to realize its potential to increase fuel efficiency (apart from safety improvements).

The low-hanging fruit for digital freight brokerage has already been picked: increasingly, load-matching and realtime pricing are available from both new entrants and incumbents. The challenge—and the reason why Convoy and Uber Freight still have brokerage floors—remains in operations and exception management. Technology integration is still incomplete, and, indeed lagging in drayage and final mile.

Telematics’ increasing penetration will help 3PLs solve higher-order problems in the near future. This technology was invented to answer a simple question—“where’s my freight?”—but now that visibility solution providers have installed hundreds of thousands of devices and apps on trucks, more sophisticated analytics products are being built on top of those data streams. That data will enable 3PLs to help shippers optimize shipment schedules with regard to cost and help carriers utilize their assets more efficiently.

In this way, increased market transparency will mean that high-tech 3PLs can offer premium data-driven services to both sides of the market, rather than simply being disintermediated as many analysts expected just a few years ago.

One Comment

  1. HB Broker

    Where does this leave the largest freight brokerage firms? CHR, TQL, Echo, Coyote, etc. Especially when it comes to larger customers who have established relationships with reliable brokerage firms. How can said digital brokerage options integrate with high volume customers in a way that understands the nuances that come with handling their freight. Many of these customers don’t have sophisticated enough software and systems that tech companies can share vital information with. While Convoy and Uber can offer competitive pricing ,they can’t successfully deal with the human error that is inherently prevalent in the industry. From drivers to dock workers to production, inventory mgmt etc. There are so many factors that are too complex and unpredictable to use algorithms to solve. I’m by no means an expert, but to me it seems that digitized freight would be a much more difficult process than automation of the passenger vehicle because digital freight transportation won’t succeed without supply chains that are equally optimized through technology. Not only would all components of a supply chain need to have sophisticated and reactive software that can provide synergy between each segment of a supply chain from start to finish, but also these outside digital vendors would need to know how to help companies improve operations to achieve optimal efficiency. Furthermore, when supply chain/logistics companies try to offer comprehensive services they often become less competitive in specific portions of supply chain. I think it’s more likely that smaller tech companies can innovate specific portions of supply chain and prove their value to a point of sustainable profitability, which will lead to niche market dominance, acquisition from a larger industry player, or expansion into supply chain segments where they aren’t as successful. Many of the largest brokerage firms do the same thing now. They try to expand and offer too many services where markets are already saturated and growth is unlikely, but they do so with the expectation that it will lead to a larger market share and more long term profitability. Whether or not market share will pay off in the long run is hard to judge because freight is an industry surrounded by uncertainty. There’s a variety of factors that create the uncertainty and volatility that drive the brokerage industry. Those components, in my opinion, will be harder to mitigate than the companies that offer digital brokerage services
    who highlight futuristic innovations like autonomous vehicles, predict and advertise to their investors. Brokerage firms that keep up with the tech industry can thrive by offering both the integration of technology that optimizes supply chains with the necessary problem solving that (good) brokers do now to maintain and build their customer base. I don’t mean to pick on one company in particular, but Uber is the perfect example. Their ability to dominate the personal auto transportation industry has been incredibly easy compared to the freight market. In their main market they’ve primarily only faced roadblocks that consist of governance attributed to largely unsuccessful lobbying by the taxi industry, some minor municipal regulations, and bad press. They have tremendous market share in personal transportation, but a microscopic presence in freight. Why is this? I believe there are two main factors: the complex process of freight is more integral into the consumer market which drives customers towards proven and reliable sources, and many companies with large freight needs don’t operate with as much technology because it would be incredibly difficult to implement and it’s not seen as a great need. Desirable commodity manufacturers don’t need high-end, expensive software systems to create large margins on their desirable goods. They often don’t employ highly educated individuals who will adapt rapidly to the changes that come with adopting technologically based services. They can manage as is and remain profitable until their goods lose market demand. Additionally, people exaggerate the need for carrier optimization. The trucks, from owner ops to large fleets, will grow and diminish in correlation with consumer demand and profitability. This is where the volatility creates a market for brokering. As the economy and freight market fluctuate there will be opportunities for large profit that will cause surges in capacity that will then dissipate when profitability pushes trucks out of profitability. Right now we are working towards a tight market as demand keeps growing yet the people hauling freight aren’t profitable enough and new carriers aren’t entering the industry to meet demand. We are in a loose market now, but that won’t last and it’ll be more profitable for drivers to work with brokers over asset based companies. Due to demand the drivers will have the leverage to choose where they get work from. I believe the market will continue shifting more and more to brokers as they create a market purely driven on demand. Technology will decrease margins as data on pricing will be more available, but well structured brokerage firms will gain market share in their specialties and those that focus their resources on technology and specialization will thrive. It’s a very interesting time to work with freight, and I think that brokers who understand where the industry is going are positioned well for the future of the industry

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John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.