Why “Uber for Trucks” Will Never Destroy Traditional Freight Brokers | Red Arrow Logistics Transportation and Freight Forwarding

Why “Uber for Trucks” Will Never Destroy Traditional Freight Brokers

When Silicon Valley startups set their sights on trucking and freight brokerage, they promised to “disrupt” the industry, employing the familiar, utopian condescension with which tech companies have promised to solve all the world’s problems. (The heading of Convoy’s website reads: “Transporting the World with Endless Capacity and Zero Waste.”) Yet in the short time these apps have been on the market, their developers have learned what seasoned brokers already knew: that freight brokerage as a system is vast, complex, and frequently resistant to change. That’s not to say that legacy brokers don’t have anything to learn from the new arrivals, but anyone who expected that load-matching apps would put brokers out of business overnight has failed to grasp some fundamentals of the industry.

There is a giant crop of brokerage apps (up to 75, by JOC’s estimate), but the field and the conversation are dominated by Convoy and Uber Freight, both of which are backed by hundreds of millions of dollars in investor capital. This enables them to offer shippers below-market rates to lure them to their platforms. It’s the same strategy Uber successfully employed to undercut taxi companies and drive them out of business, and it’s predicated on the apps being able to lose money for years while they attract users. However, when these apps attempt to increase rates, they’re going to learn how fickle shippers can be when chasing down the cheapest bid, and that shippers won’t hesitate to flee from a company with which they have no personal relationship. A writer for Freightwaves made the shrewd observation that most digital brokers are less “Ubers of Trucking” than “Groupons of Trucking:” attracting price-conscious customers who will abandon ship as soon as the price goes up.

There’s no denying that many of the features provided by digital brokers are appealing to both shippers and drivers. Real-time visibility of trucks is a helpful feature, as is market condition-based pricing, which adjusts rates based on demand, but there are significant blind spots as well. Broker apps can’t accommodate over-dimensional or permitted cargo, for example. They also can’t account for drivers’ hours of service or mandatory breaks, without which they can’t provide guaranteed transit times.

To the extent that digital brokers are able to make inroads in the freight market, it will be in specific niches. In urban areas and the drayage market, the large number of available trucks makes sense for the apps and their instantaneous bidding process, but remote areas will never be able to rely on drivers being nearby when they need a pickup. Both Convoy and Uber Freight have indicated that they are primarily targeting small shippers and small carriers. Carriers with small fleets, or single owner-operators stand to make the most use of the independence offered by the apps. One Uber Freight customer was quoted in JOC praising this flexibility, saying: “They were able to aggregate single trucks and very small companies to provide supply chain at less captive pricing.” This approach is less effective in wooing small “long-tail” shippers, however, since acquiring them is cost and labor-intensive and they frequently lack the resources to take on digitalization.

The reason so many developers and entrepreneurs have taken an interest in trucking stems from the (correct) observation that existing systems are rife with inefficiency and frequently leave capacity on the table. There’s no reason for truckers to be driving around with empty trailers during a driver shortage. But far from rendering traditional brokers obsolete, digital services may be the push many need to update their own processes. Dynamic scheduling, pricing, and increased visibility should be industry norms (and indeed most brokers and 3PL firms have been working on similar digitalization initiatives for years). Out-of-the-box innovations, like shared trailer pools that enable truckers to drop their cargo without waiting for unloading, can inspire the industry to come up with more creative solutions for our stubbornest problems.

The brokers who are forced out of business by the new competition will be the ones who stubbornly cling to manual processes, but these are the exception, not the rule. As the startups are learning, traditional brokers have a thing or two to learn from tech companies, but they have even more to learn from us.