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Digitising Freight – one truck at a time | A Frost & Sullivan perspective on the emerging digital freight brokerage systems


Dec 22, 2016

truck.jpgBy Ananth Srinivasan, Senior Consultant,  and Franck Leveque, Partner

Logistics, quite simple as the definition – "the commercial activity of transporting goods from one place to another" – may sound, is an extremely complex industry. The future of global logistics industry, spending of which is estimated to reach ~€10.6 trillion  by 2020, is characterised by key technological developments that include internet of things, big data, autonomous delivery, augmented reality and digital freight management.

The logistics industry itself is diverse and encompasses air, sea and land based transport. This article will focus on on-road transportation, and in particular on the long-haul heavy-duty trucking segment.

The idea of "More Truck per Truck" remains at the core of on-road transportation businesses’ quest for profits. The trucking industry today continues to face two fundamental challenges that have plagued it since the beginning – empty runs and utilisation. Almost 1 in every 4 trucks on the road is plying empty , both in the US and EU (refer figure 1). Further, within the trucks that are not empty, the utilisation rates are 56 percent and 54 percent in US and EU respectively (refer figure 2). In other words, during more than half the time these trucks are on the road – no load is carried, no money is earned. Furthermore, a truck waits idle at numerous instances – to get loaded/ unloaded, at toll gates, during driver rest periods and when stuck in traffic.

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The issues at hand may be many but the essential solution is one – transparency. Transparent flow of information across multiple points in the value chain will drive efficient decision-making, and this decision-making naturally will have waste elimination as its central objective. "Digitization" which enables the real-time data flow, is thus a necessary condition for efficient logistics.

The intent of this article is to analyse the evolution of freight brokerage as it embraces the wave of digitization engulfing the industry today.

Road freight is a $725 billion market in US, and  €395 billion market in EU . The industry is highly fragmented, top five logistics firms in the US earn less than 20 percent of the total revenue, and hence brokerage forms an integral part of this network. In US, freight brokerage is estimated to be worth $130 billion, while in EU the respective figure is €86 billion for the year 2015.

The central value proposition of a "brokerage" firm is to connect the shipper with the carrier (or) the load with the capacity. Traditional brokerage firms charge a commission that ranges from 5 to 30 percent, and given the opaqueness in the system can find a pricier carrier for the shipment to extract higher net commission. The advent of internet gave rise to online loadboards that became a marketplace for shippers to find capacity and truckers to find loads. Loadboards have their advantages, but have failed to challenge the supremacy of traditional brokerage firms which continue to dominate the brokerage market in both regions today.

Mass proliferation of high-performance mobile phones and advancements in connectivity technologies are two of the key factors that have led to the rise of "automated on-demand freight brokerage solutions". Although these automated matching solutions need not always be mobile-based, they tend to have a mobile-centric approach towards freight matching. This automated on-demand freight brokerage solution, typically a mobile-phone based application platform, marks the next logical evolution of freight matching wherein there is a seamless, transparent, objective matching of load with capacity. Every process, from finding the load/ capacity, negotiating prices, agreement, insurance, fleet management, track and trace to final payment can be performed via the platform - at lower cost, higher speed and with full transparency.

Over the last 3 years start-up activity in this space has accelerated with scores of firms commencing operations both in the US and Europe. Frost & Sullivan scanned the entire freight brokerage market, more than 100 firms, with numerous interesting and fast-growing companies such as TG Matrix, LoadSmart, Freightos, Transfix, Chronotruck, and Quicargo to name a few. Each of them have their unique value proposition, adopt a slightly different business model, have been successful at varying levels in attracting investments and have diverse growth plans. That said, the few innovative firms are reshaping the market as we know it. For instance, TG Matrix with an industry-leading algorithm to objectively match shippers and carriers could potentially be a trendsetter in the industry. By ensuring transparency, improving efficiency of decision-making and considering aspects such as total carbon footprint required for fulfilment TG Matrix has added the much needed intelligence in the freight matching process. Another firm, Freightos with its multi-modal focus, an industry-leading online marketplace and data-driven transparent pricing mechanism has also grown at a significant pace this year. It is clear that competition is intensifying in this digital freight brokerage market which is expected to be a ~$11.5 billion industry by year 2025  in US and EU combined. The traditional firms, such as XPO, are not lagging behind the start-ups and have increasingly adopted digital solutions to strengthen their portfolio. Competition is only expected to go north, and the start-ups of the future should be prepared to shine in this increasingly crowded market.

Frost & Sullivan’s research also involved multiple discussions with select shippers and carriers who had both positive and negative feedback on these automated brokerage solutions. Shippers observed that the gains in efficiency, cost savings and reduction of complexity were advantageous; however the quality of carriers matched via the platform could sometimes be a challenge. For the carriers while increased revenue, greater asset utilisation and access to connectivity and fleet management solutions were all beneficial; the only major concern was whether these solutions which are competitively priced today might not be so in the future, when the market matures.

In the year 2016, trucks went digital. From vehicle manufacturers to freight brokerage firms, multiple stakeholders have taken definitive steps to accelerate connectivity and digitization within their products, services and solutions. As we move towards a future which involves larger number of asset-light business models, increased autonomous delivery solutions, greater need for transparency and the continued quest for maximum efficiency; it is clear that technologies such as automated freight management are here to stay. The digitization of freight supply and transport capacity brings significant opportunities for both cost reduction and margin optimisation through better utilisation of the existing asset. Of course we will experience challenges, such as compliance complications, as this market evolves but the emergence of challenges is no reason for not adopting such technologies.

The future of freight is a self-orchestrated supply chain , with the connected truck acting as the digital mobile node in the internet of freight that will embed a real-time data exchange and seamlessly connect every individual in the network, thus driving complete transparency and trust.

[1] Frost & Sullivan research, NF8A – Future of Logistics, September 2016
[2] Frost & Sullivan research indicates that for heavy-duty long haul trucks, empty runs are 25 percent in US and 27% in EU.
[3] Frost & Sullivan research indicates that in 2015, road freight market, in US = $725 billion, in EU = €395 billion
[4] Exchange rate used, 1 EUR = 1.0617 USD
[5] Refer Future Of Logistics: Five Technologies That Will Self-Orchestrate The Supply Chain, by Sarwant Singh Forbes, September 2016, Forbes.com.



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