Freight marketplaces hinge on spot rate adoption

Freight marketplaces hinge on spot rate adoption

JB Hunt says on-time performance of loads booked through its online brokerage surpasses all other segments outside of dedicated. Photo credit: Shutterstock.com.

Broader use of freight matching technology will come only when spot market buying becomes a strategic tool in a shipper's arsenal, rather than an act of desperation, multiple freight brokers said this week at the eyefortransport Third-party Logistics (3PL) and Supply Chain Summit in Atlanta.

That fits into larger questions about the role technology will play in potentially reshaping procurement. Whatever skepticism remains about the viability of digital freight matching, also called freight marketplaces, largely boils down to a simple issue: shippers’ perception of buying on the spot market.

“Spot has a bad name,” Eric McGee, executive vice president of highway services at JB Hunt, said at the event. “A shipper will go to the spot market at 4 p.m. on a Friday, but not at 10 a.m. on a Tuesday. But if you go and find the best price and best truck at any time, that is the true market.”

JB Hunt operates a $1.5 billion brokerage business alongside its contract and dedicated fleets, and McGee said loads booked through the company’s broker marketplace have the second-best service levels — 95 percent on-time — in the company after its dedicated volume. About $1.1 billion of that brokerage volume is booked digitally, he added.

“When a carrier comes into the marketplace, you’re allowing the market to find the right truck at the right cost and then we can pass the efficiencies back to the carrier,” McGee said. “There’s definitely a place for the routing guide and having relationships, but if you think about the flexibility when you have access to find capacity, it allows you the ability to recover.

“Things go wrong more often in brokerage, but I don’t have the finite resources in brokerage that I have in the truck line, so I have more ways to solve those problems.”

Kate Kaufman, director of account management at Uber Freight, told JOC.com in a briefing this week that her company is attempting to redefine perception of the spot market among freight buyers, a goal shared by other digital brokers — whether newer entrants, such as Transfix and Convoy, or established players, such as JB Hunt.

Changing perception of spot

“Spot is still a bad word,” Kaufman said. “Spot should be a choice. Right now, it means you screwed up, but optimization [of freight procurement] forces dynamic networks. [Shippers’] customers are pushing them away from contracts.”

That push is coming through increased demand on shippers; think, for instance, of Walmart’s on-time in-full (OTIF) mandate for suppliers.

“Digital freight matching allows you to be more efficient on pricing,” said McGee. “When you think about a contract term, a 12-month contract stabilizes shipping expenses to a certain degree. But when you have disruptions in the market, and the routing guide fails,” you still need to be able to move freight cost-effectively.

At its core, digital freight matching is about more efficiently connecting sources of freight with sources of capacity that would otherwise have no way to find one another. Inevitably, that means tapping into pools of capacity from small carriers who are now connected via driver smartphone apps, electronic logging devices (ELDs), and GPS location technology. As McGee noted, “83 percent of drivers live in a small carrier. There are more than 100,000 shippers in the US. A digital platform allows them access without having to know 60,000 carriers and their locations.”

While every broker employs some level of technology, not all are providing a marketplace.

“Digital freight matching is subjective to the user,” said Billy Banning, president of the freight broker Trinity Logistics, which merged with fellow broker Burris Logistics in March. “To us, it means utilization, integration, and automation to eliminate manual and menial processes.

“We were drug into the tech business kicking and screaming. It’s been an evolution for us. About four to five years ago, we looked at the horizon, and since then, it’s been an aggressive evolution. We’ve quadrupled our technology spend in that time as a percentage of total gross sales. We joke that we have more tech meetings than sales meetings. We have a homegrown system and — where applicable — work with tech companies that we can bolt on through integrations.”

Abtin Hamidi, a veteran of Echo Global Logistics and several brokerage startups, including Cargo Chief and most recently Cargomatic, said there are several different versions of digital freight matching. Hamidi recently founded his own brokerage, Torch.

“For us, it’s more of an internal facing platform,” he said. “I’m not trying to put this in the hands of shippers and carriers. Some are through a marketplace. The interesting philosophical question is whether digital freight matching is an open or closed thing.” In other words, is the marketplace completely open to all buyers or sellers, or is it managed in some way by a broker or other third party?

“We’re all trying to get to the point where there’s liquidity in our networks and digital freight matching is a shortcut to get there. My goal is to hack the traditional way to getting to that liquidity, whether in a specific lane or region.”

Empowering small carriers

For carriers, it’s not just about engendering a new environment where shippers are more amenable to the spot market. Digital freight matching, in theory, enables brokers to use historical data to point carriers to loads they’re more likely to want, and allows carriers to differentiate themselves through performance.

“We encourage small trucking companies to join freight marketplaces because it empowers them,” said Lidia Yan, CEO of NEXT Trucking, a Los Angeles-based broker that focuses on drayage and truckload routes to and from California tied to imports. “We work on the small carriers’ needs. We formed a virtual fleet and study driver behavior and offer the right loads to the right drivers. They also have the right to take it.

“And it’s not just about knowing where the asset is. We track the drivers who pick up on time and deliver on time and provide [proof of delivery] to empower them in the market.”

Meanwhile, Hamidi said engaging shippers on the merits of digital freight matching is much less difficult if you provide an immediate solution to a problem you highlight through technology.

“I don’t want to cause a change in their day-to-day life,” he said. “I want to inject myself in without disrupting. We use a series of algorithms to find whether there are inconsistencies in the marketplace. The first time they’re hearing from me, there’s a problem identified and there’s a solution to solve it or we’re presenting an opportunity for them they didn’t realize before.”

Uber Freight, Convoy, Transfix, Loadsmart, and NEXT compete with incumbents such as C.H. Robinson, Echo Global Logistics, XPO Logistics, and GlobalTranz, all of which provide some variant of a digital load matching product or process to their customers. And then there’s Amazon. The e-commerce giant is building its own brokerage, which for now serves its own retail marketplace sellers.

McGee said it’s important to look at who has the capital to invest in technology — and the ability to sell shippers on using the spot market — to succeed long term.

“There are 17,000 brokers in the US and not everyone has the capital and understanding to survive in a digital world. And there are a lot of digital entrants that understand what it takes to connect. There will be consolidation.”

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.

Comments

I'm still skeptical of how applicable these services are to certain types of shippers. For shippers with strict requirements for carriers for various reasons, these services seem very dangerous or unworkable. That always seems to get glossed over. How do you really ensure that the carriers are going to provide the right kind of service if they're taking mere seconds to accept a load they see pop up on their screen?

The spot rates are not only getting more attention for road freight but definitely also on the air and ocean freight modes. We are seeing many large enterprises move towards the spot buy a market, however only with their preferred and private pool of providers. In their opinion, the open digital marketplaces are too price focused and forget the service level aspect.