Online truck brokerage Convoy has rolled out the latest version of a software product that helps shippers avoid booking their freight through the volatile and expensive spot market by generating a real-time index of carriers with available capacity, the firm said July 31.
Seattle-based Convoy has been testing its Dynamic Backup product through pilot projects with several shippers and is now unveiling the platform for public use, ConvoySenior Product Manager Himani Jain said in an interview.
The launch is the latest effort by Convoy to use technology to disrupt the traditional brokerage model by automating many steps in the process of matching loads and carriers. Investors have powered that growing "Uber for trucking" sector by funding startup firms with capital such as the $62 million Convoy raised in 2017, just weeks after rival freight marketplace Transfix raised $42 million.
Convoy has timed the release of its Dynamic Backup product as shippers struggle with some of the tightest capacity conditions and fastest rising rates in freight industry history. "In conversations with shippers, we kept hearing that the process of managing routing guides is pretty painful," Jain said.
Despite those challenging business conditions, shippers are still using traditional, decades-old methods for finding capacity, Jain said. Shippers issue requests for proposals (RFPs) to carriers and brokers, then rank the replies by metrics including price and on-time performance. But since the bids are often seen as handshake agreements, many carriers reject the loads they had pledged to carry, she said.
"Shippers usually get 70 to 80 percent compliance, but it can be much lower. The market is dynamic and volatile, so either [carriers] don't have the capacity or they don't have that capacity at the rate agreed." And if enough carriers reject a load, shippers are forced to rely on the spot market, which is more expensive and less predictable, she said.
As an alternative to that scenario, Convoy says its Dynamic Backup platform builds routing guides from real-time, guaranteed prices for contractual freight, instead of using data generated from static bids that quickly become outdated as volatile market conditions change, Jain said in a recent blog post.
Convoy generates its revenue by "baking in" a transactional percentage fee that is attached to the truck rates it generates, she said. Other technology providers could theoretically provide a similar service, but they would have to recreate two of the critical software tools that Convoy uses to manage the process, she said: A real-time pricing data model that determines the current market price, and a relevance model that finds the best available truck for the job.
Convoy says it is in talks with three transportation management system (TMS) providers to offer its service through those platforms, although shippers can currently use Dynamic Backup by extracting information from their own software systems.
Supporting a connection to shippers' TMS platforms through integrations with application programming interfaces (APIs) will be key to the product's success, said Jesse Gates, a principal consultant with the Carmel, Ind.-based consulting firm Envista LLC, specializing in transportation systems strategy and network design.
To help shippers identify current market conditions, a lot of TMS vendors and service providers like load board provider DAT Solutions LLC currently offer benchmark rates to help shippers understand early in the routing guide process whether the spot market is the place they want to be, Gates said.
If it can build those data connections, Convoy's product could be valuable as long as tight capacity conditions persist and spot market rates remain significantly higher than contract prices. The product could also find a market among smaller shippers that lack access to the benchmark rates and reverse auctions that big players use to identify the lowest rates each day, he said.