Digitally focused startups believe there is much low-hanging fruit in traditional brokerage operations. But the fruit picking has taken an unexpected turn.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The CEO and founder of digital startup Trucker Tools, Prasad Gollapalli, did not launch his company in 2009 with the mission to disintermediate traditional freight brokers. The Trucker Tools model was developed instead with a goal that some startups might today find counterintuitive: to help the broker.
The Reston, Va.-based company boasts that brokers can use its technology to book truck capacity several days before the next load actually needs to move. The software provides brokers with real-time visibility of loads booked through a transportation management system (TMS) or a Trucker Tools app, the trucks currently hauling their loads, and all the trucks controlled by brokers' preferred carriers but that aren't being used to haul freight for another Trucker Tools customer at that moment.
According to Gollapalli, the technology, called "Smart Capacity," offers several advantages for the broker: First, it expands a broker's universe of carriers. Second, because no one else can see which trucks are moving a broker's load, that broker has first dibs on booking the next load with the same carrier if the circumstances warrant. That is important because brokers aren't generally fond of sharing their carriers, he said.
What's more, the tracking information fed into the brokers' platforms allows them to see days ahead of time when the load will arrive. This gives brokers a jump on their future booking needs, according to Gollapalli. "Predictive capacity" technology, as it has been dubbed, has become a valuable tool in a constrained market where, in some cases, shippers desperate for capacity assurance have resorted to buying a truck's backhaul move even if they have no freight to fill it.
A CHANGE IN ATTITUDE
Gollapalli's model is designed—with apologies to Shakespeare—to "praise the broker, not to bury it." In his view, his company succeeds only if the brokers do. That attitude runs counter to the mantras of many newbies, however. If their external messaging over the past three to four years is taken at face value, they view traditional brokerage as slow-footed, inefficient, and ripe for "disruption" because its markup margins of 15 to 30 percent can be compressed by converting antiquated manual processes like phone calls and faxes to digital technology.
But a funny thing happened on the way to disruption. Digital brokers discovered that shippers wanted more from a relationship than just load-matching services that were the core of the startups' value propositions. Many of the new players thus found themselves becoming the businesses they looked to upend. This put them right in the traditional broker's wheelhouse. Meanwhile, they discovered that the digitalization of transactions was so effective at margin compression that it was squeezing them as well.
One of the more well-known digital brokers, Seattle-based Convoy, has a profit margin of about 2 percent, according to a person familiar with the privately held company's financial situation. (Convoy CEO Dan Lewis was unavailable to comment.) Other startups like New York-based Transfix and San Francisco-based Uber Freight are struggling to gain profitable traction. The companies holding themselves out as "digital marketplaces" have combined annual revenue of $450 million, according to the person. That is a fraction of share in a business estimated by consultancy Armstrong & Associates at $167 billion a year in revenue. "Right now, everyone is making nothing," said the person.
An exception is Greenwich, Conn.-based XPO Logistics Inc., which started life as a broker and could be considered a newbie because it is just seven years old. XPO has been making money hand over fist over the past couple of years, and it invested massive amounts of upfront money in information technology (IT). But all that technology wasn't put in place to disintermediate incumbent brokers, according to Troy Cooper, XPO's president. "The key with digital solutions is to give customers [the] confidence in choosing the company behind the technology," he said in an e-mail.
Gollapalli of Trucker Tools hints that startups may have perceived brokerage as an industry lost in the IT wilderness. "A digital broker is no different than a traditional broker using IT," he said.
TECH HAVES AND HAVE-NOTS
In an industry populated with companies of all sizes, not everyone can afford or feels they need the latest technology. Many brokers still rely heavily on manual processes and thus lack access to real-time data needed to find a qualified and available carrier and to secure capacity quickly.
The large legacy brokers, though, are certainly IT-savvy. J.B. Hunt Transport Services Inc., the Lowell, Ark.-based giant that operates four divisions including brokerage, utilizes a platform known as "J.B. Hunt 360" that is "years ahead of others" in terms of transparency, scale, and the richness and precision of information, according to C. Thomas Barnes, president of project44, a Chicago-based logistics IT provider. Project44 recently signed an agreement to be Hunt's backbone for an application programming interface (API). API integrations allow shippers, carriers, and third-party logistics service providers (3PLs) to exchange data through a format that directly links their databases rather than exchanging information through a neutral format like electronic data interchange (EDI).
Some companies that were IT providers and brokers have since parted ways with their brokerage license. Cargo Chief, a Millbrae, Calif.-based company founded in 2012, relinquished its brokerage license in January 2017 (all brokers must be licensed by the Federal Motor Carrier Safety Administration) to focus on IT services. Kyle Wilson, one of Cargo Chief's co-founders, said it decided to go the IT route after hearing from brokers and 3PLs that its technology was superior to anything they could find elsewhere.
Another factor, Wilson said, was a potential conflict of interest with brokers. "If we remained a broker, our clients would never fully trust or engage with us for fear of us taking their carriers," he said.
A BOON TO THE INDUSTRY?
Abtin Hamidi, a Cargo Chief co-founder and now vice president at Los Angeles-based broker and IT firm Cargomatic Inc., said digital brokers have been a boon to the industry at large because they have introduced tools that help everyone improve their processes and drive out costs. According to Hamidi, the new players have succeeded in identifying the top two or three pain points in moving a load—for example, the human cost of acquiring a customer. Hamidi estimates that it costs, on average, $4,300 for a broker to acquire one customer that promises one load; he arrives at that data point by dividing salesforce wages and benefits by the number of customers. Digital brokers have said they could reduce that expense by 85 percent, on average, he said.
Digital brokers have also been instrumental in aligning the best interests of all stakeholders, according to Hamidi. Large shippers are notorious for "beating up" their brokers by tendering more loads and expecting lower rates, a practice that many big brokers have long resented, he said. A digital broker operating at a lower cost structure is more willing to take that business at the rate the shipper wants, he added. The large broker sheds low-yielding business, and the shipper gets coverage at a better price, he said.
Hamidi said that digital brokers didn't set up shop to steal business from legacy brokers, adding that established players have appreciated their contributions. "We've had a wonderful reaction" from the legacy players to Cargomatic's efforts, he maintained.
Barnes of project44, who worked in the brokerage trenches for years, doesn't buy the kumbaya moment. As he sees it, the startups that focus on digitalization and are also licensed brokers are, in reality, working as brokers that want to capture market share from the established companies. He acknowledged, however, that the new players have served a purpose by calling attention to the industry's digital shortcomings. "They are pushing everyone to be better," he said.
Gollapalli of Trucker Tools echoed that sentiment. "They have created an awareness throughout the industry that the status quo is not great," he said.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.