There may be no private truck fleet in the U.S. with as much heft as PepsiCo's. Each day, about 19,000 Pepsi trucks hit the road carrying such well-known brands as Pepsi, Doritos, Quaker Oats, and Gatorade. But as with other private fleets, what Pepsi lacks, after its drivers deliver their loads, is a steady flow of return-haul traffic for those trucks.
That's where a company called 10-4 Systems Inc. comes in. Through its IT network, Boulder, Colo.-based 10-4 searches for, identifies, and notifies Pepsi of regional backhaul opportunities matching its drivers' locations. Pepsi's labor costs are already sunk as its drivers are paid for round-trips anyway, so the revenue from the return hauls is gravy. Pepsi functions like a motor carrier, making its network available to fellow shippers. "Pepsi wants to deal with other shippers because they are like-minded people," said Travis Rhyan, 10-4's co-founder and president.
10-4 is not a traditional broker. It does not hold operating authority from the Department of Transportation, even though Rhyan said 10-4 could generate substantial business if the company had a license (he said 10-4 doesn't want the responsibility that accompanies it). Rather, 10-4 considers itself a source of capacity on behalf of fleets of six to 25 trucks, the backbone of the country's fleet. The Pepsi arrangement may not seem like a traditional brokerage arrangement. However, 10-4's technology matches trucks with shipper loads that Pepsi might otherwise be unaware of, a service that could be provided by a traditional broker.
About 1,000 miles to the west in Venice Beach, Calif., a company called Cargomatic plies its trade in a somewhat different way. Though a self-styled "technology" concern, it also holds a brokerage license, believing the authority serves as an asset in attracting business. Like Rhyan, Brett Parker, Cargomatic's co-founder and COO, has an extensive transportation and logistics background. About a quarter of Cargomatic's business is done through traditional brokers, and it has no plans to cut brokers out of the equation. But unlike 10-4, which works with both short- and long-haul traffic, Cargomatic focuses exclusively on short-hauls of less than 200 miles. Parker said local trucking markets are inefficient, fragmented, and underserved, and as such, are ripe for Cargomatic's uniform technology platform that aggregates and rationalizes capacity. A recent estimate from research firm I/B/E/S pegs the market for local trucking services—hauls of less than 150 miles—at about $77 billion a year.
Cargomatic launched last June in Southern California, with a focus on Los Angeles. As of the end of January, it was pilot-testing operations in the New York area. It plans to roll out its service in select U.S. cities during 2015, and is eyeing Canada and Mexico as well, Parker said.
Across the country in New York City, Roseanne Stanzione runs a company called "BoxSmart" (her branded name is "Lane Honey"). Compared with Rhyan and Parker, Stanzione has limited transportation experience. Instead, she is a professional disintermediator, scouring industry after industry looking for traditional models to disrupt. Stanzione said she chose to hang her hat in trucking because she found it fascinating in its lack of pricing dynamism. She also found it potentially super-lucrative. According to several estimates, the U.S. truckload market amounts to between $550 billion and $650 billion annually. But Stanzione insisted the total figure undercounts the large number of locally sourced loads—which can fetch as much as $6 per mile—that are either waiting for a truck or can't find one at all because local networks are too scrambled and inefficient to respond to the need. Based on her research, for every one load that moves, there are between 11 and 16 loads that don't; virtually all of the non-moves are in short-hauls, which Stanzione defines as trips of less than 500 miles.
Those unmoved loads inflate the total truckload market to more than $2 trillion a year, according to her estimates. Stanzione said her company arrived at the estimate by crunching 2 million data points a day (she said her methodology is proprietary) and running her numbers past two providers of transportation management systems (TMS)—whom she wouldn't identify—that agreed with her.
Stanzione said her model strips away the veneer of present-day third-party pricing, an opaque process that results in rate distortions as brokers manipulate local and regional markets in their quest for the biggest markups. "Brokers misrepresent supply and demand," she said. Using her IT platform to present a clear picture of the supply-demand landscape will lead to improved service levels and asset utilization, she said. As of the end of January, Stanzione said BoxSmart was in pilots with two large unidentified customers and expects to expand the pilots during the next two months with three more customers. The company plans to be operational in April, she said.
SHARE THE ROAD AND RIDE
Three companies do not a cottage industry make. However, they provide a glimpse into how the so-called sharing model popularized by ride-sharing provider Uber Technologies and home-sharing company Airbnb Inc. could apply to freight transport. Another example surfaced on Jan. 27, when an Atlanta-based company named Roadie Inc., which matches available cargo with individual drivers and cars to move the loads, launched operations with backing from Google Inc. Chairman Eric Schmidt and from UPS Inc., among others. Two weeks before that, Lalamove, a Hong Kong-based "Uber-like" service that serves six Asian markets by hiring anyone with a car and valid driver's license to be a driver, raised $10 million in capital from various firms to further penetrate China (it now serves Guangzhou and Shenzhen) and expand into more Southeast Asian markets. On Jan. 29, Cargomatic announced it had raised an additional $8 million in venture capital, bringing its initial kitty to $10.6 million.
But referring to 10-4, Cargomatic, and BoxSmart simply as "Uber-brokers" looking to "app" traditional brokers out of existence by enabling shippers to find carriers on their own misses the nuance. None of the models seeks to totally circumvent brokers. BoxSmart comes the closest, but even Stanzione's model envisions a benefit for traditional brokers because brokers will migrate to the more transparent and efficient shorter-haul segment, thinning out the crowded longer-haul category, where many brokers make their money due to the lengths of haul. Cargomatic, the most broker-friendly of the trio, will help traditional folks find local capacity for their shipper clients and free them to focus more on the long-haul business. Rhyan of 10-4 called brokers "important assets." However, he acknowledged that many shippers view them as necessary evils. Rhyan said the legacy brokerage model is already being challenged as truck giants like J.B. Hunt Transport Services Inc., Werner Enterprises Inc., and Knight Transportation Inc. establish their own brokerage networks to get a piece of the action. Bringing new players like 10-4 into the game may only amplify the upheaval. "I imagine over the next three to four years, there will be some interesting discussions between brokers and 10-4," he said.
For their part, two of the more high-profile brokers aren't talking. C.H. Robinson Worldwide Inc., the nation's largest broker and a big third-party logistics service provider, and XPO Logistics Inc., whose acquisition-fueled strategy combined with organic expansion has put it at number two, declined requests for interviews. Evan Armstrong, president of Armstrong & Associates, a consultancy that specializes in the third-party logistics industry, said that while an Uber-type app for commercial transport might work for less-than-truckload (LTL) or small-package services that have well-defined operating networks, it "would be hard to have confidence in an application as limited as Uber" for truckload transportation. "You need somebody who can executionally work out exceptions such as truck breakdowns, and I don't see it being done in an Uber app without some additional functionality and human support," Armstrong said in an e-mail.
An executive of another national broker, who asked not to be identified, said the new players would find it tough to compete across a wide geography because they lack the traffic density of the big boys. However, the executive said, such a model is a great fit for local markets, "and those markets are huge."
The three new companies share other common ground. They will work almost exclusively with small truckers, which handle about 80 percent of local deliveries. And they will endeavor to pay drivers within a one- to three-day period of the invoice's being cut. However, Rhyan breaks from Parker and Stanzione by not entirely casting his lot with the short-haul market. He said a "sharing" model can succeed on a national scale, claiming it has relevance wherever there's a need to match capacity—especially on the backhaul—with available loads. Referring to a certain well-known national and regional LTL carrier, Rhyan said, "YRC has 4.4 million empty miles [over-the-road and intermodal trailers] in its network each month."