Written by Matt Kropp, co-founder and chief executive officer of FR8Star.com. This is one in a series of periodic guest columns by industry thought leaders.
A technology transformation of the trucking industry is well underway.
A mandate that went into effect last month requiring trucks to be outfitted with electronic logging devices, or ELDs, has established a connected network of trucks.
These devices record real-time location data to enhance transparency of truckers’ driving hours. ELDs are meant to enforce the hours-of-service rule that limits the hours truckers spend behind the wheel.
But they also set a foundation for the next layer of digital services to be implemented by freight companies.
An ecosystem for platforms such as load matching, logistics planning and predictive maintenance will only continue to grow. This digital evolution – or revolution – will help drivers and truck operators become more profitable as they access more customers, increase earning potential, and run more efficiently.
On-Demand Freight Matching
There are over 12,000 brokers in the U.S. For more than 50 years, loads have been primarily booked through traditional brokers via phone, fax and email. This antiquated broker system is fragmented and inefficient. The process for finding and booking loads is tedious and can take a lot of time. After all, there are only so many relationships and only so many calls a broker can make. A new breed of broker is disrupting the industry.
Online freight marketplaces replace the need for brokers and serve as a central clearing house to speed up shipper-carrier transactions by increasing the ease of finding, booking and shipping freight. Basically, shippers visit a site or app to post their loads. Carriers post their capacity. Then both are matched.
Load boards initially were intended to serve as a marketplace but lack several key characteristics. They do not have a mechanism for price discovery; they do not allow for closing the transaction; and there is no exclusivity since the load may be posted simultaneously elsewhere. Moreover, load boards are overwhelmingly the domain of brokers, so carriers have little chance to find loads directly from shippers.
Freight marketplaces are licensed broker exchanges that connect carriers directly with shippers and let them bid and book load. Companies like Uber Freight and Convoy focus on dry van and refrigerated freight, while FR8Star serves the equipment-hauling, legal flatbed and oversize/overweight market.
Using this type of connected platform service has compelling advantages – especially for small to mid-sized freight companies. That’s because they receive updates on available new truck loads that match their fleet are instantly paid upon drop-off.
A New Wave of Transparency
Looking at the market currently served by brokers, they facilitate about $100 billion a year in freight fees. A broker typically captures 15 to 20 percent of these fees, or over $15 billion in profits per year.
The traditional broker model is inherently biased against transparency. Brokers make money getting the shipper to pay more and the carrier to take less. The less information the broker transmits from the shipper to carrier, the more leverage there is in the transaction.
Online freight marketplaces flip the paradigm. The shipper is charged a transparent flat fee – often 10 percent. The carriers bid on freight and get paid 100 percent of their quote, regaining a large chunk of their margin that was formerly paid to a middleman.
Communication also is transparent, which breeds trust. No loads are hidden from the carriers and no quotes are hidden from the shipper. Shippers appreciate knowing that all the information and specifications they provided is sent to their matched qualified carrier. They know the carrier has been notified when they need to show up, that there will be charges if they’re late and are assured their load will be handled correctly.
Solving Pain Points for Carriers
Advances in technology have also unlocked opportunities to create value for carriers.
Digital marketplaces provide tools to operate more efficiently. For instance, most offer rate calculators. FR8Star services oversize and overweight loads. Our tool estimates linehaul rates given route and trailer requirements, and details regulatory and state-by-state itemizations for all third-party costs including permits, pilot cars and police escorts.
Some brokers delay payments to carriers in order to manage cash flow Now, many online freight marketplaces provide carriers with fuel advances and instant payment upon proof of delivery.
Managing the logistics of a small trucking fleet can be complicated and time consuming. Since marketplaces handle all the paperwork, payments, permits and freight coordination, truck operators can spend more time focusing on other parts of their business.
More than just a platform
In the former broker world, reputation didn’t count for much. With so many small brokers focused on only the next transaction, there wasn’t much incentive for taking care of the carriers. But by creating a central hub under a respected brand, online freight marketplaces benefit by cultivating lasting, trusted relationships for both carriers and shippers.
As thousands of qualified carriers and shippers join, it’s the marketplace’s responsibility to ensure that expectations are met and loads are delivered properly. Although the marketplaces live online, many provide expert logistics support by phone, text or email to ensure seamless execution.
Increased regulatory requirements and escalating cost pressures are forcing the freight industry to adjust logistics strategies. Embracing new technology and adapting new ways of conducting business is never easy. However, once that leap has been made to harness the power of new online marketplaces, operators will not only enhance their competitiveness, but experience a significant boost in revenue.