HomeTechnologyDemystifying Digital Brokers: Predicting the Future of Brokerage
Life, no matter your background, has taught all of us that when things get to be more difficult than the normal, we choose to partner with somebody more qualified than our primary.
If you visit your primary care physician and he/she tells you that you have a heart condition that they are not capable of working on, would you leave that office and go to a heart specialist or to a walk-in clinic? If not you, then where would you send somebody you love? If you almost lose control of your car and you take it to your established primary repair shop in town who does reliable work and they tell you that something is wrong, but they cannot exactly pinpoint the control problem, would you take your car to the dealer or to the high school auto shop class where they repair cars for free so that the students can learn? If you are flying on an airplane and you have to get de-iced and there will be storms along the way, would you want the pilot to be a combat veteran who could fly that plane in their sleep, or, the new student who just completed their minimum flight school hours? These examples are endless, because life has taught us that in every single situation we could possibly ever be in, that when things get to be more difficult we go to more strategic partners. Except for one – logistics. When primary motor carriers cannot cover their loads for whatever reason – capacity or complications – our industry goes transactional. We go to the walk-in clinic, auto shop class, rookie pilot and say, “here are my most complicated problems that my primary providers cannot handle, please fix them all,” partnering with transactional providers when the going gets tough.
Digital brokers are making waves and growing in our industry doing just this – employing transactional approaches to solve strategic problems. While they are popular, they are not profitable as a result of this fundamental fact that all of us know through living life: you do not solve strategic problems by providing transactional solutions. You may not use the same terminology, but you hold this truth to be self-evident: that when the going gets tough, you don’t go to the walk in clinic. So, while anybody can arbitrarily deflate market rates and win primary business to “grow” top line revenue, the point is to actually be sustainable – to be profitable at market rates that allow for a collaborative strategic partnership to thrive between shipper and carrier and broker wherein distinct partners are chosen for distinct purposes, bringing value and stability to the supply chain ecosystem that is mutually beneficial for the long term because all parties understand the business and their place in it. The point is not to clobber into rapid growth without profits, utilizing investor funds, because the business is not understood.
B2C IN A B2B ENVIRONMENT
Digital ride share absolutely disrupted the taxi industry – nobody will ever deny that. It brought the perfect technological enhancements and strategic transactional solutions to a transactional environment. This is to say, they improved a Business-to-Consumer process in a Business-to-Consumer environment so much that they disrupted the industry. It is forever changed. They made this paper’s walk-in clinic faster and the high school auto shop better. When all of us utilize a ride-share app to go somewhere, it is a relatively inconsequential transaction. If you were to commute to work every single day of the week it really would not make much of a difference if you had a different driver and different vehicle every single day of your life and never saw the same driver twice so long as a few basic requirements are met: close to on-time pick-up, personal and highway safety, delivery without delay. (These three things do not always happen, but for the sake of this conversation, let’s put that on hold.) It does not really matter what make or color the vehicle is; it does not really matter what language(s) the driver speaks; it does not really matter if they set the temp to 65 or 75; it does not really matter what time they start or finish their shift; it does not really matter how clean they keep their interior. Once you are dropped off the transaction may have been good or bad, but it is over and largely inconsequential. The fact that these factors are so inconsequential makes it possible for this process to be automated.
Digital ride share companies understand these facts and this business very well. However, they conflate the inconsequential transactional movement of people with the consequential strategic movement of valuable goods and think that the same model for automation in B2C will be equally as successful in B2B. This is to say, they do not understand the business. This is evidenced in their hundreds of millions of dollars in net operating losses. Shippers choose to partner with strategic carriers and brokers who utilize well trained and repeat drivers who are familiar with their unique business requirements because everything has a consequence. Using the examples of the passenger vehicle, in a B2B environment moving valuable goods all of these factors matter. It is consequential whether you can communicate clearly and effectively with the driver; it is consequential precisely what temperature the set-point is and range and the setting; it does matter how many hours in the day and week the driver has remaining; it does matter how clean the trailer is. Most importantly, it continues to matter immensely after the ride is over and then the product goes to market – whether to be consumed by people or animals or utilized in some other way. This product is the face, reputation, profitability, and brand of the shipper and it does matter how it was transported, by whom, in what way, and how it will be delivered to the public and in what condition. It does matter if communication takes place rather than automation. It does matter if intervention takes place rather than automation.
DIGITAL BROKERAGE VS TRADITIONAL BROKERAGE
Digital is automated transactional instances with a driver that have an extremely short life-cycle whereas traditional is strategic partnerships with repeat providers wherein there is management along the way and actual human follow through during the entire long-term life cycle. Digital is hands off whereas traditional is human intervention. Digital is automated notifications whereas traditional is a rep making a phone call to get something done. Digital is matching a truck because it is close-by (akin to online dating) whereas traditional is matching a driver because they are qualified (akin to marriage). Digital is a report whereas traditional is a relationship. Digital understands B2C whereas traditional understands B2B. Digital does not have to be profitable whereas traditional must. Digital resolves by staying away whereas traditional resolves by getting involved.
DIGITAL WILL BE LESS RELEVANT RATHER THAN MORE RELEVANT
Many opinions have been shared in recent years about the end of traditional brokerage and consolidation of the industry into a few mega digital players. I disagree on the grounds that our business requires human follow-through – not because we have lacked technology for automation but because, life, has taught us that when things become more difficult we have to get more involved. We have to put our hands on the problem and manage it. Brokers, in general, do not get load offers unless primary motor carriers cannot cover them. Therefore, by nature, when brokers get loads, they are more difficult for some reason or another. Accordingly, we hold these truths to be self-evident that when things get more difficult we do not activate the automatic process but engage with manual management.
Digital brokers hit the market utilizing three primary capabilities as a strategy to set them apart, become more efficient, and hence reduce cost, therefore eliminating competition. The first is dynamic pricing capability – in short, capability to return rates on thousands of loads within seconds. Utilizing dynamic pricing is becoming a commonplace expectation of large shippers who are helping their brokers and carriers develop this capability and integrate it into their TMS. There are many companies dynamically pricing today, along with more on the way. If a broker or motor carrier cannot develop it on their own, then one of the loadboards can provide the capability for a nominal fee. The second is digital matching. Earlier on this paper I joke that it is like online dating, but, it’s not completely a joke – it is location based matching. If you know anything about online dating, just because you are available and they are available and you both happen to be located in close physical proximity, it does not necessarily mean you are meant for each other. Also, the large loadboards are starting to offer digital matching along with most of tracking visibility platforms.
The first strategy is becoming commonplace. The second strategy is becoming commonplace. The third strategy is automation and is the gist of this paper. We hold these truths to be self-evident that brokerage requires manual intervention and human follow-through. Digital brokers price business for automation, then have to intervene manually to service business, and hence lose hundreds of millions of dollars through a lack of understanding B2C vs B2B – also known as a lack of understanding brokerage. Digital brokers are already pivoting to add drop trailers to control cost and capacity and behave more and more like traditional motor carriers. While this may or may not be viable for them to compete as motor carriers and against motor carriers – by the way, I do not think Silicon Valley intended to start a new trucking fleet – it is certainly not an indicator that brokerage as we know it is near the end.
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