Will Uber take control of the market for Freight Matching Services?

Freight matching services or “freight exchanges” have become one of the hottest topics in Freight Transportation over the past few years. Venture capital funds, private investors and others have poured at least $200 million — and potentially substantially more — into dozens of on-demand freight start-ups, including Flexport, Transfix, Loadsmart, Convoy, Doft, Cargo Chief, TugForce, HaulHound, Parade, Ship Lync, Load Surfer, FreightCenter, Freight Finder, Freightera, Freightcom, Pickmyload and others. There are new companies entering this space on a nearly daily basis.

Uber, the controversial but successful online taxi app, has recently announced that it is entering the freight matching arena. What is the attraction?

A brief history of freight matching services

DAT (which is an abbreviation for Dial-A-Truck) was the original load board in North America that was created in 1978. TruckersEdge was founded after DAT and was acquired by TransCore in 1992, another internet pioneer in load board services. Truckstop.com and Getloaded.com were launched in the early 2000s. In 2001, DAT was purchased by TransCore. In 2004, TransCore was acquired by Roper Technologies. In 2014, TransCore DAT became DAT Solutions. For four decades, this group of companies has been offering, for a fee, a process for shippers and brokers to post loads that need to be moved and for carriers to highlight available capacity.

In addition to load searching and truck posting, these services may provide broker credit scores and days to pay details, fuel tax reporting, mileage and routing information, alarm match notification, back-haul links, toll information, phone-in posting and searching, rate index and access from virtually any smart phone. When loads and trucks are posted to freight matching boards, these postings are compared to load/shipment and truck availability in that system. If a match is found, one or both parties are notified so they can contact each other to make shipping arrangements. Sometimes notification takes place immediately on the website; other sites provide notification by e-mail, fax, or text message.

The new cloud-based digital freight matching services

The latest freight matching services use cloud-based digital platforms to match a shipper's freight with available carrier capacity. The goal is to better utilize motor carrier capacity by offering a convenient, digital app to connect shippers and carriers. Digital freight matching or DFM apps include some of the functionality popularized by Uber – algorithmic pricing, API map integration, track-and-trace, and mobile transactions – along with features specific to trucking, such as trip planning, digital document storage, and TMS integration. When freight matching meets big data Online retailers are using “big data” to predict consumer product needs and preferences. To an extent, the same could be said for Internet-based freight matching services.

The basics of freight matching have not changed. Carriers still search for loads that meet their specific criteria for origins, destinations and equipment types. But some sites can now suggest loads and routes to users that they may otherwise not have considered to help maximize profits. In a 2013 article, Aaron Huff, Senior Editor of Commercial Carrier Journal outlined the following.

Round-trip pricing

DAT is offering RateView, a new subscription tool for benchmarking spot and contract rates. RateView is designed to give small carriers the same type of complex lane and pricing analysis tools that large carriers use to make routing decisions. With RateView, carriers select lanes to view pricing information on. A chosen lane from Atlanta to Dallas, for instance, would show the contract and spot-market rates as well as recommended backhaul options. Carriers see the two-way pricing they should expect to be able to negotiate to cover their costs for the round trip. RateView has direct integration with DAT’s Power load board so that carriers can contact shippers and brokers that have loads in lanes they have identified using these pricing and route analysis tools. With a mouse click, DAT users can call the contacts directly using Skype integration.

Private optimization

Third party logistics providers often use private load boards to expedite the freight matching process with their pre-qualified carriers. These platforms use a very targeted approach for suggesting loads to carriers to get a quick-response. Transplace, a 3PL used by approximately 60 shippers, awards lanes to carriers through a strategic bid process. With the lane awards Transplace builds routing guides to minimize the rate spread among carriers should instances arise where additional capacity is needed in certain lanes. Transplace uses a private load board, or carrier portal, to present loads that typically have a short lead time. The carriers have the option to automatically accept the load at the contracted lane rate or to respond with a bid increase or decrease. This freight selection process can run as fast as every 15 minutes, though the cycle is typically one hour.

Where to bid?

Logistical Labs has created a new cloud-based pricing platform, Load Dex, for shippers and third party logistics providers. The platform includes an intermodal freight matching service. With more shippers and 3PLs looking to convert over-the-road shipments to rail for the cost savings and environmental benefits, carriers are following suit. Load Dex has three main components. A big data algorithm simplifies lane pricing and analysis for shippers. Then, social collaboration tools help to speed the quote-to-load conversion process by removing unstructured email and verbal communications with carriers–like “what’s your rate from Atlanta to Dallas?” It does this by linking communications to shipment data.

Third, an intermodal exchange helps identify opportunities for road-to-rail conversion. The algorithms used by freight matching services to suggest loads might not be as complex as those used by online retailers to encourage more spending, but at least they can increase profits.

Start-ups aren’t the only ones enticed by the prospect of disrupting the $700 billion U.S. freight industry. Uber Technologies is moving into the business through its Uber Freight division, though the company won’t discuss current operations or plans. Amazon is reportedly working on an on-demand freight service that could launch as soon as this summer as part of a broader strategy to gain more control over its delivery channels.

What impact will Uber have on Freight Matching?

The appeal of the freight transportation sector for Uber is easy to understand. Empty miles estimates range from 10-23% while e-commerce fulfillment costs are increasing. The natural response is to improve inefficiencies in the trucking industry with an Uber-like solution. After all, Uber addresses a similar problem (underutilized capacity in taxis) with a similar solution (a mobile app matching demand and supply). But as Armstrong & Associates points out in a recent report, freight transportation is not as simple as hailing a cab.

One of the key components of Uber's model is the commodity-like nature of the ride-hailing service, it points out. North American freight transportation is not a simple commodity. There are specialized equipment types, shipments transported via multiple modes, currency, customs clearance, and handling service issues such as equipment breakdowns. Shipments are high-value and time sensitive. Placing an Uber-like app atop a complex industry doesn't truly address the problem.

In fact, Armstrong & Associates found that most digital freight matching companies aren't simply mimicking the Uber model. Many even adamantly reject the term "Uber for Trucking." Some see the company’s entrance into the freight business setting off a price war. “Their stated claim that they would be happy with margins at one-third that of competitors is the point of concern,” said John Larkin, a logistics analyst at Stifel Financial Corp. “Those skinny margins would eventually expand due to their potential access to the inexpensive capacity.”

Larkin also questioned how well the Uber model will work for the trucking industry. “We do not think that applying the Uber matching technology, used to displace the taxi industry, works well in the freight world,” he said. “Underutilized capacity isn't just ‘sitting around’ as it is in the automobile world, and each load of freight is a little different than every other load as there are somewhere between 40 and 70 different factors that need to be considered in most truckload brokerage transactions.”

It would be foolish to underestimate the talents of Uber. Nevertheless, their Freight Division will have to “raise its game” considerably to gain a significant foothold in this far more complex market.

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