How “Uber for Freight” Apps seek to Transform the Industry

There have been several articles published on the trucking industry that describe the money flowing into startup firms that are looking to disrupt the freight industry the way that Uber disrupted the taxi industry.

Here’s some excerpts from a Wall Street Journal article:  “Investors are pouring millions of dollars into startups hoping to disrupt the $700 billion (US) trucking industry, the latest example of Silicon Valley’s efforts to upend the traditional economy.”

“A series of startups are vying to become an Uber of trucking,’ leveraging truck drivers’ smartphones to quickly connect them with nearby companies looking to ship goods. The upstarts aim to reinvent a fragmented U.S. trucking industry that has long relied on third-party brokers, essentially travel agents for trucking who connect truckers with customers.”

Actually, the startups are not looking to disrupt just trucking, there are startups focused on other modes of transportation as well. Further, they are not just focused on the North American freight market; CargoX, for example, is focused on Brazil.

But the authors are not wrong about the venture capital. An analysis of CrunchBase, an online database for investors and companies seeking funding, shows over $170 million invested since the beginning of 2015 in tech startups focused on longer haul freight moves; and well over half a billion dollars invested in last mile type solutions (The Uberization of Last Mile Freight).

Company Investment Details
Cargo Chief $10 million, September, 2015.
Cargomatic $8 million, January 2015. 50% of workforce laid off in 2016.
CargoX Focused on the Brazilian market.   $4 million January 2016; $10 million July 2016.
Convoy $2.5 million, October 2015, $16 million in March, 2016.
Fleet $2.5 million, September 2015, $4 million April 2016.
Flexport $20 million, August 2015.
FourKites $1.3 million, June 2015. They have subsequently received additional funding, but in the meantime they have shifted away from a focus on transportation execution.
Freightera $2.1 million, July 2016
Freightos $14 million, September 2015
Haven $3 million, March 2015; $11 million May, 2016.
iContainers $1.4 million, April 2015; $6.7 million, June 2016.
Transfix $12 million, November 2015; $22 million, July 2016.
TruckerPath $20 million, June 2015. Currently a load board with other mobile applications useful to truckers, but with the goal of transitioning into a marketplace.

Select venture investments since January 1, 2015 in long haul freight technology startups

And the Wall Street Journal article makes it clear there are some big name investors: “funding from investors including Amazon.com Inc. founder Jeff Bezos, Salesforce.com Inc. founder Marc Benioff, eBay Inc. founder Pierre Omidyar and Uber Technologies Inc. co-founder Garrett Camp.”

But there is an opposing view; ARC recently published a market study on the transportation execution market and largely discounted the impact the startups will have on this market for the next few years.  In short, there are those that believe the opportunity is not nearly as big as the venture capital community thinks it is.

Here are several reasons why.

First of all, there are already solutions for transportation that are more expansive than what the startups are offering. Many of the startup firms are offering transportation execution marketplace solutions; these solutions allow shippers to tender to carriers, and then book and pay for the shipment. One problem is that there are already some well-established freight marketplaces out there: INTTRA and GT Nexus in Ocean and AXIT or Transporeon for European ground transportation. It is true, there is no marketplace covers trucking in North America to the extent Transporeon and AXIT cover Europe.

cargo weight

Secondly, when it comes to the different modes by which freight can be moved, not all modes are well suited for new marketplace solutions. Parcel and rail, for example, have a relatively small number of big carriers; this makes price discovery, a core advantage of marketplaces for buyers, a much less important feature.

Thirdly, saving money in transportation is not just about discovering a low price from a reputable carrier, it is also about optimization. Transportation management systems (TMS), for example, allow loads to be cleverly combined so that freight travels via lower cost modes on the most efficient route possible. The savings from optimization can greatly exceed price discovery features.  Or shippers can work with a 3PL supplier that offers managed transportation services. The 3PL uses an advanced TMS and combines it with advanced transportation consulting that can provide even greater savings.

When it comes to trucking, where most of the action has been, there is the fact that Uber style functionality will most affect a relatively small portion of the trucking industry, the spot market. Larger shippers sign long term contracts with select carriers after going through detailed procurement engagements. They tend to work with carriers that are large and can be reliably counted on to be available when loads need to ship. The Uber style solutions make the most sense for shippers that have a shipment going to an unusual location. The carriers that will be most likely to find value from an Uber style application will be owner operators and very small carriers.

However, Zvi Schreiber, the CEO of Freightos, makes the point that in international freight these VC investments can make more sense. A higher proportion of freight is transacted in the spot market for international freight; This is even more true for air than for ocean. Further, in a recent survey Freightos ran that was taken by senior logistics executives at forwarders, almost 40% said they were seeing an increase in spot quotes, compared to 22% who said they saw a decline. Most importantly, “international freight is estimated to be a one trillion dollar market. Even capturing a small portion of that market is a big opportunity.” Freightos is a marketplace for ocean and air freight.

The idea that shippers can save money if brokers are disintermediated makes much more sense in some modes than others. I talked to the founders of CoLoadX who have a startup focused on ocean. Their site is designed to ensure that freight forwarders are not disintermediated. One of the founders, Petere Miner, used to be the Director of Global Logistics Procurement at Hewlett-Packard. “Freight forwarders are necessary because shippers need service. The mistake many startups have made is looking at a freight forwarder like they are a travel agent. They aren’t. They add value. Shippers don’t want to negotiate customs in Indonesia or a trucking delivery in Ukraine.  Freight forwarders can’t be disintermediated.”  The Freightos marketplace also is based on the participation of forwarders.

Finally, until a marketplace has a sufficient number of shippers and carriers and other pertinent intermediaries, it is not useful. Scaling a marketplace presents great challenges; challenges for which startups may not be the ideally placed competitors in most cases. This is something I will return to in a future article.

In conclusion, I too am amazed by tech firms like Uber and Airbnb. And I don’t doubt that the freight industry needs better technology, or that the Uber and Airbnb models can apply to freight. I just doubt that the startups are necessarily the best companies to capitalize on these opportunities. And I don’t believe the opportunity itself is nearly as big as some in the VC community believe it is, particularly where domestic freight is concerned.  ARC recently published a market study on transportation execution marketplaces and systems, and forecast only modest growth to this market that will result because of new freight marketplaces.

 

Comments

  1. This is such an interesting article and amazing to read the $ value investments that are going into it. We likewise offer a freight spot negotiation tool (via reverse auction or just general tender) that is bringing tremendous value to a global client of ours. It really does encourage us to similarly find a big backer to exploit the opportunity, as it is there for sure. However you do need to understand how businesses procure the services, it’s not enough simply to build an app and hope it fits their process.

  2. Spot on! Many VC’s are following the herd mentality in this sector without comprehension of the fundamentals. The insane valuations for Uber must have been on the back of interesting claims as to how much of this sector can be ‘Uberised’…

  3. Hey, Steve.
    Interesting article; Uber for trucking is certainly a provocative proposition. I worked squarely in the middle of the marketplace between shipper and carrier, on the carrier side (dry van, random OTR space), for several years and can say that there will likely be persistent appetite for disruption because this marketplace is highly inefficient. I think of it as a giant doofus, in fact. For example, the annual bid process with just one shipper can take as many as 4 months from RFP to execution, and awarded volume may or may not be what is offered or accepted. In addition to the bid process being so cumbersome and taxing for both parties, I find that the subsequent transactions of freight offer and acceptance to also be highly inefficient. For example, from my experience, the majority of freight offered was rejected; empty miles percentage of 10% or so is considered pretty good, or acceptable maybe I should say. As for the solution, I believe new technology can lend a hand or be transformative by first bringing to the shipper a large, qualified fleet of carriers. Without this, there isn’t a conversation to be had in my opinion. The bid process relies heavily on the exchange of information. Contracts, lane files, multiple rounds of pricing etc. Technology that enables multiple forms of commerce has been around for awhile and can be easily imagined in this application between shipper and carrier. I agree that offer and acceptance transactions will continue to be driven by established relationships and commitments characterized by automated tendering to primary, incumbent carriers, I believe the shippers’ methods can be made much more efficient and intelligent. As I see it working out, technology that brings to the shipper this really big captured fleet will also provide visibility and access to carrier geographic positioning and HOS data in a way that the shipper offers their freight to a likely match. A likely match with the rate, accessorial arrangement etc already in place, that is. In this scenario, the shipper experiences the benefits and efficiency of a geometrically larger base of qualified carriers; the carrier experiences the benefits and efficiency of a geometrically larger base of freight.
    A free marketplace will tend to gravitate towards efficiency. It will be interesting to watch how that happens in trucking.