Digital Freight Brokers – Should You Be Worried?

Sparknotes version: Digital freight broker mobile apps are cool, but so is talking to another human. Cutting-edge mobile app companies have a place in the freight brokering world, but they are nothing new. If you aren’t using current technology to modernize your business, you’re in the rear view mirror. Mobile app companies that mirror the Uber approach will not lead to the demise of 20,000 licensed freight brokering companies out there.

Since the dawn of mankind, we’ve experienced change after change in our daily lives.  The same goes for the transportation industry.  From the Motor Carrier Act of 1980 which deregulated the trucking industry to the ELD Mandate that required the use of electronic logs, the transportation industry continues to see evolution across the map.  One of the latest crazes has been the emergence of digital freight brokerages.

What is a digital freight broker?

In layman’s terms, digital freight brokerages are third-party organizations that intend to use technology and software to replace the “manual” freight broker processes.  The goal is to replace human tasks with efficient software that can connect shippers and carriers directly, resulting in lower costs and optimized business efficiency.  To compare these organizations to a more commonly understood process, think of the taxi industry versus Uber or Lyft.  With Uber and Lyft, a rider can connect directly with a driver using an app that finds them the best available driver with price and service options.  It removes the need to call a cab dispatcher and request a ride.  While Uber and Lyft are arguably incredible breakthroughs in the ride sharing market, digital freight brokers aren’t exactly comparable when it comes to complexity.

Companies like Uber Freight and Convoy have pumped millions of dollars into developing the software to connect shippers and carriers directly over recent years.  If you do some research on the profitability of these companies, you’ll see some drastic losses on their company earnings.  What does this mean really?  They want to get as much business onboard as cheap as possible to get the ball rolling, so the barrier to entry—initial cost–is low.  In order to stay in business, you must eventually raise the cost of your service to generate and sustain profits.  A classic example is Netflix.  Look what’s happened to their monthly cost over the years – it’s gone way up.  The same will happen with digital freight brokers.

How do they make money?

Just as brokers generate profit by paying a carrier less than they charge their customer, digital freight brokers are no different.  There is a cost associated with using this service, so they really aren’t any different.  They also must have a Motor Carrier authority to broker freight.  This literally makes them a freight broker.  So, the bottom line here is the same: someone pays for a service (to have its freight moved), and they pay a lesser amount to the entity that performs the service (a trucking company).  This is essentially the definition of a broker.  Digital freight brokers are just regular freight brokers that are masked as freight-matching software companies.

Behind the scenes

Digital freight brokers have employees just like traditional freight brokers do.  Sure, they have a larger focus on the technology side of the operation compared to a traditional freight broker, but what are you really getting?

A strong traditional freight brokerage will use state of the art software (used by a human) to get the same level of efficiency that a digital broker will.  Further, mobile apps are available for many TMS platforms to enable a user-friendly experience for the shipper, broker, and carrier.  This is nothing new.  Carriers can log into mobile apps and take a shipment from a broker.  Customers can log into mobile apps or websites to book shipments with a broker – we just call it was it is: brokering freight.  No need to add a fancy name or tell people that we are here to replace the stone-age companies that use paper and pencil.

The true value in a freight broker comes with their service.  Technology is great, and we should all be using what is available to optimize our processes, but the human factor in traditional brokers is what solves problems that a computer or app cannot.

Consider the issues that arise with appointment times, product not being ready, a change in equipment needed, additional stops, and the list goes on.  A top-notch (human) freight broker is ready for these situations and can effectively work with both parties (shipper and carrier) to resolve changes or issues that pop up during a shipment.  I’d like to see a shipper or carrier try to have their issues resolved by an app and truly feel like they are being taken care of the same way that a long-lasting human relationship would.

Bottom line

Technology is crucial, and as freight brokers we need to stay modern.  It’s easier said than done, but with the changes in technology happening so rapidly, there is a strong argument to be made that you should be investing in your technology infrastructure and staff.  Have a system that is user-friendly, efficient, and gives your (human) brokers the tools they need to provide the best service possible.  Humans are not going away, and neither is the desire to work with an actual human when you conduct certain business.

Don’t be afraid of these up and coming digital companies that seem to threaten our industry.  The freight world is a massive arena, with lots of room for all of us to play in.  There is a place for digital brokers in certain situations, but nothing will replace the human element that we provide as regular freight brokers.

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