UberFreight steps up efforts to expand into brokerage sector

The freight unit of ride-hailing pioneer Uber Technologies Inc. has opened a full-service brokerage office in Chicago, is considering a second in San Francisco, and is hiring up to 90 brokers to support its digital platform, according to a person familiar with the company's strategy.

UberFreight, which would not control the trucks it relies upon to move customers' freight, is building in only a 5-percent average margin for its net revenue per transaction, according to another person familiar with the matter. On average, net revenue, defined as the revenue a broker generates after its cost of purchased transportation, is around three times that for established brokers. UberFreight's other costs would then be subtracted from its net revenue threshold, leaving the brokerage business either to operate at break-even levels or be a loss leader for the San Francisco-based parent.

UberFreight's parent has a record of undercutting taxi fares with its model of using citizen drivers as de facto cabbies; a similar approach to freight brokerage could narrow broker profits, especially if UberFreight's deep-pocketed parent, which has raised nearly $13 billion since its launch in 2010, decides it wants to sacrifice margins for market share.

Uber's pricing strategy, if executed in the manner described by the person, would further roil a brokerage sector already concerned about the effect of digital processes on its margins. A slew of startups lumped together under the "Uber for Trucking" moniker have claimed that the existing brokerage model is inefficient, and that all parties—especially shippers—would benefit by introducing sophisticated technology to provide an effective matching of shipper loads with truck capacity, without the back-and-forth of phone calls, faxes, and e-mails

The broker recruitment effort is designed to demonstrate that UberFreight would function as more than a digital conduit between shippers and carriers, according to one of the people. For all of the automation that has been brought to bear on the brokerage business, it is still dependent on people to secure capacity for their customers' loads, and to manage the transactional process from beginning to end. Traditional brokers contend that load matching just scratches the surface of the value-added services they provide to shippers and carriers. Some newer entrants also embrace the value of having brokers augment the digital operations.

The UberFreight division is headed by William Driegert, who took the job in September after his prior employer, the autonomous vehicle firm Otto, was acquired by Uber for $680 million.

Driegert previously was director of planning and innovation at Amazon.com Inc., the Seattle-based e-tailer. Before that, he was chief innovation officer at Coyote Logistics, the Chicago-based broker acquired in August 2015 by Atlanta-based UPS Inc. for $1.8 billion.

Uber executives were either unavailable for comment or didn't return requests for comment.