Blockchain continues to make incremental inroads in freight payment, evidenced by a new partnership between the startup technology provider Fr8 Network and the payroll services provider PayMachine.
The partnership is intended to allow drivers using Fr8’s application marketplace to be paid quicker while avoiding the use of factoring companies. Factoring is a type of financial transaction where a company sells its invoices to a third party to collect the payment due on its behalf. The third party charges a fee for the service — from as low as a fraction of 1 percent to the double digits percentage-wise — in exchange for paying the company holding the invoice more quickly.
The practice is widespread in trucking, particularly among small carriers and independent owner-operators that require quick payment for cash-flow purposes and also don’t have the revenue to support a back office accounts receivable and payable department.
Truckers not selling their invoices to factoring often must wait 30-90 days to be paid by shippers or brokers depending on payment terms.
Fr8 has built blockchain protocols designed to underpin freight movement applications. Blockchain, also known as distributed ledger technology, is a decentralized and highly encrypted database designed to increase trust in associated transactions. It does so by making such databases tamper-evident, thus allowing for more robust audit trails than traditional databases.
Advocates for the technology believe it is perfectly suited for use in logistics, where multiple enterprises need to contribute data and also rely on the validity of data for core processes, such as freight invoicing, audit, and payment. Public interest in the technology has cooled a bit in 2019 after a year of intense hype in 2018. But investors in the technology have told JOC.com that the technology is getting enterprise-level traction in more discrete applications; the difference is that enterprises this year aren’t making bold public proclamations of their piloting of such projects.
Fr8 said that using blockchain-enabled proof of delivery confirmation (among other digitized data points) would enable PayMachine to essentially replace the role factoring companies play in the payment process. The theory is that having blockchain-backed freight visibility and proof of delivery data minimizes risk for financiers such as PayMachine.
“Most truckers have come to expect that working with digital-first brokerages means they get paid fast,” Fr8 Network CEO Sloane Brakeville said in a statement. “PayMachine helps us ... pay truckers immediately upon delivery.”
Trucking companies on the Fr8 marketplace would be “exposed to tools that record the major transactions in a shipment,” the company said. “As designed, receipts of bills of lading, digital proofs of delivery, and real-time [Internet of Things] data from trucks are available to financiers.
This rich data set allows PayMachine and other financiers to make confident decisions on the likelihood of the invoice being paid on time — or if an exception will occur and delay the settlement.”
San Francisco-based Fr8 is not the only technology startup attempting to use blockchain to change the freight payment paradigm. Omaha-based BasicBlock is designing a factoring marketplace intended to also get truckers paid faster while helping factoring companies mitigate the default risk associated with single invoices or carriers that give too much credit to single shippers.
Brakeville is a former founding member of IBM Blockchain Labs. IBM has been an active proponent of blockchain solutions, including in the logistics industry, most notably through the TradeLens platform it jointly developed with Maersk for ocean shipping documentation and visibility.
Fr8’s initial solution is a carrier lookup feature designed to help shippers and brokers find carriers.