Forget Uberization, Trucking is Due for its Airbnb Moment
Uberization has received a lot of attention over the past couple of years. They have been a significant number of investments in the space, most of which have or will fail. We have described these companies as “Groupons” in past articles, a phenomenon to describe a number of the digital brokerage startups that were pursuing revenue for the sake of revenue and not building traction in a sustainable business model.
Companies like Cargomatic and Cargo Chief are among the biggest venture digital brokerage blowouts. There will be many more that meet the same fate. Both companies are still around, albeit under completely different go-to market plans. The big digital brokers that raised gobbles of cash, Convoy, Transfix, and Uber Freight appear to be investing in the platform and gaining traction along the way. They have the success of major Silicon Valley investors behind them that can tolerate substantial losses- so long as they show organic traction in their digital environments.
A lot of negative press has been pointed at Uber, but the ethics and aggressive business practices which has plagued the corporate brand have not have entered the freight side of things. In fact, Uber Freight’s positioning of making the independent driver more successful seems promising and we applaud it. It helps to hire smart. Bill Driegert is the real deal. A product of MIT and Coyote, he knows the business and understands the cycles.
Convoy is not the same type of company, with non logistics and freight people running it. But they are bring fresh thinking to how freight works, or should work. Think Silicon Valley CEO and Dan Lewis would easily fit the bill. No he isn’t a trucker by trade, but the guy is super smart and has a vision on how to change the industry for the better. Unlike some of the digital brokers, Convoy does not pretend to be experienced in the world of freight movement. They actually embrace their outsider status. To get large venture investors to get comfortable with trucking- they must first become comfortable with a CEO that is driving the company. But a logistics company that is funded by Jeff Bezos should not be ignored. After all, Bezos’ has been called the greatest logistician of all time.
And there is Transfix. Reports suggest they are gaining great market traction, but their innovations appear to be in the long tail – i.e. finding efficient ways to bring on small and medium sized shippers in a cost effective manner. They also appear to be finding ways to create more stickiness with the driver- knowing that retaining capacity is imperative in this environment.
All three show promising starts and have positioning their businesses differently. We applaud the differentiation. These three do not deserve the Groupon mark, but most others in the digital brokerage space do.
The downside of being a digital broker, is that you are still a broker at the end of the day. And your business model is more evolutionary than revolutionary. Certainly, you are doing amazing things with the business, but you are not overhauling the operating model of our industry.
It is time our industry stopped chasing Uberization and created an Airbnb model. In trucking, Uberization is still transactional brokerage. There are key differences in the personal transport versus the freight market.
The first being that the industry already has 16,000+ intermediaries that provide the role that Uber plays in the personal transport business (i.e. ease of dispatch, collections, payment, sourcing of opportunities, etc). We know them as freight brokers or 3PLs. The majority of freight brokers still are “voice-based”, meaning the success of the broker is almost entirely based on their ability to negotiate over a phone. Soon enough, the vast majority of the voice brokers will collapse and with it a new world order of made up of digital brokers and project-based voice brokers will emerge.
But none of this solves the capacity problem that plagues our industry, nor does it fundamentally change how our industry deals with its most important asset- the driver. Changing how drivers are paid is the first step, but the view that blockchain based percentage pay will solve all aspects of the pay problem like this article suggests is short-sighted. Blockchain is the perfect solution for company drivers of commercial fleets, but it still doesn’t solve the issue for owner operators or fleet owners.
What we need is a pay-per-day model that allows for short-term dedicated capacity, rather than long term dedicated contracts. The dedicated fleet business is a large part of the mega fleet operators. They trade dedicated capacity at fixed prices for contracts with consistent payment relationships. Fleets love them because they provide a consistent cash-flow stream and shippers adore these relationships because they can have the advantages of a private fleet, without the issues that are caused by running one. Fleets that do it for a living tend to be far better than most, but not all, private fleets.
Currently, in the freight market we have a few sub markets. Dedicated, contract, and contract.
Contract is usually a soft commitment by a shipper to provide consistent loads to a fleet, in return for fixed prices and fixed capacity. Anyone that has been around the industry long-enough knows that most of those commitments are non-binding and almost meaningless. How the term “contract” became the description for that type of business is beyond the scope of this article, but the term should be abandoned altogether because beyond a fixed rate and shipper/carrier agreement that deals with indemnity and liability, there is nothing contractual about it. Either party can get out of the deal at any moment in time.
Last, there is spot. Spot is a term that gets thrown around a lot as well and it means different things to different people. The safest definition is a load that is quoted and then subsequently tendered with a seven day time frame. Getting our industry to use consistent terms would go along way in helping solve some of the issues- as it be easy to differentiate between one shipper’s tender pattern over another.
So what is left? A pop-up fleet that is offered by a carrier to provide a short-term committed capacity, that pays all miles and dispatch decisions are at the discretion of the shipper. Pop up fleets are usually priced on a floating rate, up to the discretion of the fleet. They will agree to a fixed daily rate, in return for a short-term commitment. Large fleets have been offering this type of capacity for some time, usually to help during surge or project markets. Postal runs, holiday peak capacity, and expedited capacity are all the types of situations that you see these types of environment.
There are two major fundamental problems with these arrangements in that there is no market index to help carriers price the capacity to maximize their opportunity. They typically look at their current daily yield on a truck, add some margin, and quote a price. The second and more troublesome part of it, is that there is nothing binding to hold the shipper accountable for actually delivering the loads.
Yes, carriers (and major ones at that) have paid a dear price for expecting pop-up opportunities, only to have a shipper reneg at the last moment. Beyond a couple of angry emails and talk amongst industry players, there is little recourse. Potentially, they could sue them for having something in writing that failed to come through, but most fleet executives get physically ill at the thought of going to court against the largest companies in the business. And frankly, most of these agreements are done within the normal course of business anyways, so there are tons of outs.
But imagine a better structure. A place where fleets could put their daily capacity on a blockchain based token, use a central order book for trading tokens between counter parties, and then sell their capacity off on an auction basis to the highest bidder. Blockchain based tokens would enable a shipper to pluck a truck from the forward market and the because the capacity was sold on an exchange basis, the pricing would be transparent to all parties and set against the broader market.
Fleets become enormous victors in the process, because they get binding rates set from the market, loads from shippers that are guaranteed to payout and shippers gain in having consistent capacity that is available to them.
Yes, trucking is due its AirBnb moment. BiTA members are discussing it and I am sure that other entities are pursuing similar strategies in a go it alone way. Hopefully, they will raise enough capital to be successful or partner with distribution partners that can help them along the way.
(Originally published on Freight Waves. It’s a good read about changing trends and since we are driven to give our readers a complete perspective with global insights, we wanted to take this article written by Matt Wimberly and spread it forward.)