Last week my colleague Steve Banker published an article on digital freight brokerages from a managed transportation services (MTS) standpoint. As he is finishing up a market study and a supplier selection guide on the managed transportation service (MTS) industry, he spoke with a number of executives at MTS providers to get their input. I am currently putting the finishing touches on my transportation management systems (TMS) market study and supplier selection guide, and during the process, have spoken with executives at a number of TMS providers. One of the main topics that came up in these conversations was around the impact of COVID-19 on transportation and how the market is responding. Like Steve found out in his conversations, there is a lot of interest in TMS and digital freight.
A freight broker is an individual or company that serves as a liaison between another individual or company that needs shipping services and an authorized motor carrier. Though a freight broker plays an important role in the movement of cargo, the broker doesn’t function as a shipper or a carrier. Digital Freight brokers leverage technology to make the process of working with a broker to secure a move more automated and less time consuming. There are a few areas where TMS providers see digital freight making waves in the transportation market.
Digital Freight Opens New Doors
Digital freight brokers open new door for shippers and carriers alike. During a conversation with Keith Whalen, Vice President of Product Management at Blue Yonder, he pointed out that the company has been very aggressive expanding the marketplace connectivity and has incorporated rate shopping and optimization in a manner where dynamic rate quotes are embedded in the TMS. The point is to make the whole experience of using a digital freight brokerage more seamless.
Mr. Whalen identified three distinct areas where a digital freight matching platform can open new doors and new opportunities. According to Mr. Whalen, “carriers like the model because they get additional access to freight spend. During the COVID-19 pandemic, the need for real time capacity commitments are top of mind for certain industries such as CPG, food & beverage, grocery, and pharmaceuticals. With capacity constraints in certain lanes, customers can now examine how to move goods between private fleet, common carriers, or digital freight marketplaces.”
Mr. Whalen continued that the other two areas where digital freight matching can open new doors is for small shippers and large shippers. According to Mr. Whalen, “for smaller shippers, digital brokers provide access to better rates and service lanes, as well as flexibility when compared to a typical procurement schedule. For large shippers, there is the opportunity to extend higher volumes while meeting capacity needs, being more flexible, and saving money.”
Throughout my conversations on TMS and digital freight, one thing kept coming up: digital brokers are top of mind for customers but not where the majority of volume is going. Instead, these marketplaces help to alleviate the stress of unique shipping situations.
In another conversation, I spoke with Gregg Lanyard, Director of Product Management for Transportation Management Systems at Manhattan Associates about what is driving customers to digital brokerage. According to Mr. Lanyard, “there is indeed a rise in digital brokerage usage for freight matching. Fluctuations in available capacity and pricing are driving more shippers to this medium. However, companies are taking different approaches to the problem – some guarantee capacity while others don’t; some use sophisticated algorithms and machine learning to provide dynamic pricing while others simply automate the age-old process of matching a truck with goods to be shipped.”
According to Derek Gittoes, Vice President of Supply Chain Management Product Strategy at Oracle, “nearly every consumer goods customer is currently using one or more of the digital freight markets or, at the very least, is exploring using them. The majority of large shippers rely on contract rates, so the volume within digital freight marketplaces will be low. Most companies will only go to an outside market when they don’t have enough capacity on that lane or don’t usually ship on that lane, so it doesn’t make sense to have a contract carrier.”
The COVID-19 pandemic has changed the nature of global commerce and shipping. Travel and trade restrictions remain in place, even as economies continue to re-open around the globe. As Till Dengel, Global Head of Digital Logistics Solution Management at SAP, pointed out “trucking capacity is no longer available across borders. Contract carriers can still only go to certain places and companies need to figure out where available capacity is and how much it costs. This is where digital brokers come into play for cross-border commerce.”
Digital Freight as a Benchmarking Tool
While digital freight matching marketplaces continue to gain traction for finding capacity on seldom-used lanes, they are also being used as a benchmarking tool. Uber Freight has made a lot of noise with its real-time pricing capability. Essentially customers do not need to put out a full bid; instead, they can push out a load to one of their lanes to gage the market. Multiple TMS providers are seeing their customers use digital brokers for this very reason.
In a conversation with Carolyn Hunt, Director of Go-to-Market for TMS at Alpega Group, she pointed out how their customers are using digital brokers for benchmarking purposes. According to Ms. Hunt, “if you’re tendering once a year, anything that shifts the demand and supply can have a big impact on freight costs. Although it’s still not the norm among our clients, we are seeing an increase in spot requests. As supply chain managers are under extreme pressure around costs, they are now using more benchmarking tools or looking at e-tendering solutions – which simplify the tedious tendering process — to launch RFQs to carriers more frequently.”
The real-time nature of a lane quote allows shippers to gage whether what they are paying is on par with the market or whether they should look at alternative carriers. As part of its TMS and digital freight strategy during COVID-19, SAP has included 90 day, free of charge service to connect to Uber Freight or InstaFreight to pick up spot market carriers.
When it comes to TMS and digital freight, there is a lot of interest. More and more TMS suppliers are integrating digital marketplaces into their core TMS offering. As the supply chain world continues down its digital transformation path, digital brokers can play an integral role in easing capacity constraints, opening up new lanes, and providing a benchmarking tool for shippers. It is certainly an exciting time for the TMS market.
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