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Key takeaways from Stifel’s logistics panel

End-to-end visibility at the SKU level is next

Convoy: digital brokerage margins will expand as cost falls faster than price, then eventually compress

Stifel’s equities analyst Bruce Chan moderated a panel on logistics at the company’s Transport and Logistics conference in Miami Beach Wednesday morning, February 13. Participants included: Tom Fiorita, CEO and founder of Point Pickup Technologies; Dan Lewis, CEO and co-founder of Convoy; Ken Heller, executive vice president of Transportation at DSC Logistics; and Michael Byrne, managing director at Toll Group.

The conversation was balanced between asset-light technology executives (Fiorita and Lewis) and asset-heavy transportation providers (Heller and Byrne). Point Pickup Technologies is an automated, API-based platform for same-day and last-mile moves, including drayage and e-commerce; Convoy is a digital freight marketplace; DSC Logistics is in warehousing (60 percent of revenue) and transportation (40 percent of revenue); and the Toll Group is an international asset-heavy provider based in Australia that serves Asia and the Trans-Pacific with planes, helicopters, ships, landing craft and 16,000 trucks.

The panelists started by characterizing the position of their companies at the present moment.

Byrne remarked on the difficulties of sourcing workers in Asia, where labor markets appear to be as tight, if not tighter, than in the United States. He cited an unemployment rate of 2.2 percent in Japan, and said that even in a relatively underdeveloped country like Vietnam it was difficult to find young people who wanted to drive trucks. Workers in India are getting 10 percent wage increases every six months – but that did not stop Toll from being able to grow revenue in the mid-single digits last year.

Lewis said that the extraordinary tightness of the U.S. truckload market, which made it difficult for many transportation providers to live up to their commitments, represented a big opportunity for Convoy and companies like it, because shippers are open-minded about new solutions to their problems.

“Convoy is not coming to shippers with the same story” focused on price competition, Lewis said. “We ask what is the data that we have, from our network of connected trucks, to understand how your business is working? How you should tender better, do appointment optimization better? Why is this facility better than this one, why aren’t you as competitive in this market? That’s our primary story. Customers are looking for transport providers to push more information and guidance and advice to them.”

Fiorita said that Point Pickup experienced explosive growth in 2018, being a young company, and that he thinks about the future not so much in terms of revenue but as the ever-more-intimate collaboration and coordination between third-party logistics providers (3PLs), transportation companies and shippers.

Heller said that DSC Logistics had an advantage when it came to providing information and visibility because it owns both warehouses and trucks.

“We deal with fairly sophisticated shippers; they do have a lot of technology, hardware and data, and what they’re looking for is end-to-end supply chain visibility at the SKU level, which is the easiest sentence to say, hardest thing to deliver,” Heller said. “It’s not only knowing where the truck is, but where on the truck the product is so it can be unloaded efficiently.”

Toll Group is two years into a $400 million information technology (IT) upgrade, Byrne explained. The legacy business is a roll-up conglomerate that operates roughly 550 different IT systems; about 400 of those will be turned off.

“But you can’t have people and depreciation,” Byrne said. Toll Group will eliminate about 1,000 jobs after its technology upgrade is over: about 700 accounting and 300 IT positions will disappear.

“The main problem with a lot of the IT adoption is the talent – people still want to use Excel,” Byrne said. “It’s about changing how the management and the people use the tools, and moving them along quickly so they’re not still using old frameworks – that is much more difficult than putting in an IT system.”

Fiorita said that he tried to convince shippers to rip out their old IT architectures and build new processes from scratch, arguing that a standardized platform across the industry would be most efficient, but Lewis said that Convoy doesn’t really sell technology so much as try to answer problems its customers face.

Chan asked the million-dollar question: if increased visibility and market transparency shine a light on freight brokerage and 3PL operations, will margins expand or compress?

Lewis said that there will be a short- to mid-term period when margins expand for companies like Convoy. He said that price would continue to be set by the requirements of the least efficient operators, and that as costs went down, more automated companies would enjoy margin expansion. Later, after most participants in the supply chain have adopted technology and a lower cost structure, margins would again compress. Lewis stressed that the impacts to margin will be unevenly distributed.

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.