Uber Freight has been getting a lot of attention over the past six weeks. First, the announcement that Uber’s Autonomous trucking unit was being separated from the Uber Freight operations, then the return of Otto founder Lior Ron and the establishment of Uber Freight as an independent business unit, to the launch of their platform for shippers that FreightWaves reported on yesterday.
Now reports out of Silicon Valley’s insider newsletter, The Information, are showing the pure scale of Uber Freight in the market. According to a post on the site, Uber Freight is running at a $40 million a month gross revenue run-rate.
Our market sources have told us that Uber Freight has doubled revenues in 2018 and could potentially double over the next six months, making Uber Freight one of the largest freight brokers in the market. The business is losing money as it scales up and is expected to do so for the foreseeable future. Uber principals have told FreightWaves Uber plans to double the investment in their freight operations over next year. An investment of that magnitude could further accelerate the momentum of the freight brokerage.
This growth is super-fast, but not surprising. For companies where operating profits are not important, the pure size of the freight market will enable companies to grow as fast as they can fund their operations. The key for Uber Freight, like all digital brokers, is to convert the business that has been funded by investor capital into sustainable and profitable clients as the business scales.
Uber Freight’s shipper platform rollout suggests that they are going after long-tail clients (small shippers), giving away shipper planning system, in return for volume. It’s a brilliant move. If they can get shippers to depend on their cloud-based technology offering for self-booking, they will become less concerned about price shopping. Uber Freight also tout’s their market condition based pricing which is supposed to provide market transparency to shippers. This should encourage self-service from shippers without the concern about getting screwed.
The idea that Uber Freight is “eliminating brokers” is laughable, however. A quote from IHS’ Trucking analyst, Antti Lindstrom, that Uber Freight is going to eliminate brokers is incorrect. Uber Freight is a freight broker. At the end of the day, Uber Freight is doing what every other broker does, except using near-time data and a better user experience to process the freight transactions. As a $500M freight broker, they would be in the top 20 in gross freight volume, but unlikely to be in the top 50 if they were measured by gross margins.
We are hearing that another major digital broker, Convoy, is out raising a large round of capital on the back of rapid growth and improving margins. Convoy is on a run-rate greater than $300M, but doing this independent of the resources that Uber enjoys is remarkable.
We do not think of Uber Freight or Convoy as going after each other. Our view is that the digital brokers will eat the more than 16,000 freight brokers in the market before worrying about each-other. One respected source in the Valley suggested that Convoy and Uber Freight should merge and declare dominance over the market. Personally, we would hate to see that. We like these two companies innovating in different ways.