Brokers shrug at impact of new rivals, but load-matchers may need to take heed

It's said that what doesn't kill you makes you stronger. The freight brokerage industry has become the transport industry's poster child for the proverb. Newbies with whiz-bang IT platforms are flooding the segment, looking to radically change a model that for decades has generated fat margins from price markups on matching a shipper's load to an available truck. Players like San Francisco-based Uber Technologies Inc. and Seattle-based Amazon.com Inc. have access to buckets of capital to execute their plans.

Virtually no legacy broker has such deep pots of dough. However, the industry is comprised of sharp, clear-eyed, and resilient businesspeople who have long prospered in a highly competitive climate. They don't appear to view Uber as a threat, despite the publicity surrounding the company's application of its ride-hailing platform to the brokerage business. An informal poll of attendees at this month's Transportation Intermediaries Association (TIA) annual meeting in Las Vegas found that most considered Uber to be "just another broker."

"Uber will not displace brokers," said Lance Healy, co-founder and president of Cleveland-based IT provider Banyan Technology, at a panel at the NASSTRAC annual shipper conference in Orlando held just after the TIA conference. "In fact, Uber borrowed (its model) from the logistics industry and brought it into the taxicab industry."

A brokerage executive at the TIA conference said the industry should be more concerned about Amazon because it has a large and growing list of logistics customers and is already far advanced in building a formidable transportation network. Uber, by contrast, is just scratching the surface in competing for logistics share, the executive said.

"Uber is very, very late to the game," said the executive, who asked not to be identified. "The real threat is Amazon, and I don't think that's sunk in here yet."

Jeffrey G. Tucker, CEO of Tucker Company Worldwide Inc., a family-owned broker based in Haddonfield, N.J., said Uber might be better off working with brokers to be some type of IT backbone, rather than as an industry competitor. This way, Uber could effectively take a piece of every brokerage transaction in the same way that Visa, Master Card, and American Express collect a small percentage of each transaction that involves their cards, Tucker said.

"Does Uber want to be as big as C.H. Robinson?" said Tucker, referring to the nation's largest broker and a large third-party logistics provider (3PL), which reported $13.6 billion in 2016 gross revenues, or revenues before the costs of purchased transportation. "Or does it want to get a piece of every transaction in a $200 billion industry?" said Tucker, referring to the size of the brokerage and 3PL industry. Tucker's rhetorical question implied that, if it chose the latter, Uber could reap a financial bonanza to dwarf its potential success as a broker.

As if to re-affirm his point, Tucker told the NASSTRAC conference that "technology companies can do a lot better than to be a broker."

If anything, brokers should look at the encroachment of new players as an opportunity to step up their game. Just a few years ago, the prevailing wisdom was that brokerage would permanently bifurcate into two camps: The transactional, a world of price-sensitive services where a 2-cent-a-kilo underbid could get you the business, and the strategic, where value would be added daily through solutions that went beyond finding a truck to cover a load.

But the surge of new entrants, all with sophisticated software, has altered the dynamic. The new players aren't as focused on relationships as they are on winning share with lower rates. This has the dual effect of compressing everyone's margins—a secular trend that's well underway—and pressuring established transactional brokers, whose cost structure makes them vulnerable to underpricing by more efficient digital models.

According to Tucker, today's brokerage world leaves little room for companies content to just do "load matching," a necessary service but one that's become more commoditized than ever. Brokers can flourish only if they can keep current on their IT investments and leverage those tools, along with a deep knowledge of their shippers' problems, to remain valued partners rather than just arbitrageurs, he said.

For example, Tucker designed for a customer a "drop-trailer pool" system where trailers are pre-loaded in the customer's DC and ready for the driver. This was a departure from the shipper's traditional practice of "live loading," where the goods wouldn't be loaded until the driver arrived. The latter approach led to costly delays even if drivers arrived on time, and about $100,000 in annual demurrage charges for detaining drivers longer than the allotted "free time" period.

Armed with data—and a fair amount of persistence—Tucker officials showed how the shift could be made without compromising the shipper's security and temperature-control procedures. Demurrage costs have been eliminated, labor costs are in balance, and the DC runs more smoothly, Tucker said.

Brokers must accept the fact that shippers are unwilling to pay more for these services beyond the basic cost of the transport charges, Tucker said. "Just about 100 percent of the work we do, internal to the customer or in support of the customer with their vendors or their customers, is 'included' in the cost of arranging freight," he said. Although it might be painful, brokers need to understand that this level of involvement is expected in order to keep and grow shipper business, Tucker said.

"Today's brokerage isn't about load matching," he said.