I had the pleasure to once again join Mr. Amit Mehrota, Head of Transportation and Shipping Research, at the 2023 Deutsche Bank Transportation Conference in NYC. The annual event brings together some of the greatest minds in logistics and provides market-leading insights on global transportation markets and trends for the future.
It was an honor to be on the stage for the fireside chat to discuss transportation trends. And to recap my conversation, I’ve summarized my four main talking points below:
Nowadays most of the leading enterprise TMS’s have their own cloud-based version to offer. That’s pretty new, most launching the very first cloud instance only within the last couple of years. The enterprise shippers that were operating on a standard version of the legacy, on-premise TMS were able to migrate to the cloud in a year or two. But most extra-large shippers, with highly customized on-premise TMS systems built over many years of granular tweaks and internal integrations, have had a very tough, and time-consuming experience migrating. Some have even given up, given the size of the effort.
But staying out of the cloud is not a long term solution for any shipper. And they will, sooner or later, adopt the cloud version of the TMS - either from their current provider or joining another one. Therefore, it’s just a matter of time that all enterprise shippers will have fully integrated access to instant pricing for FTL and other modes via API. Now that more brokers are able to provide their instant price via API with at least some level of sophistication, enterprise shippers can have a proxy representation of the broader market in terms of service and rates. For example, you should find higher and lower service levels, for higher and lower price points.
Trends show that in a few years most enterprise shippers should only be operating spot transactions via API. Generating less need for internal operators, less biased tenders, and will impact how a lot of companies do business, bringing more efficiency to their system. However, this could also decrease the margin profile of enterprise spot business even further, making API transactions the only viable business model for enterprise spot brokerage.
Loadsmart realized, I believe much earlier than others, that there are diminishing returns in building fancy internal automation systems and tools for brokerage. One of the reasons is that most shippers and carriers are still operating out of integrated (or “integratable”) cloud base platforms. The highest internal costs of a brokerage are related to third-party communication and coordination. If communication automation is off the table because you can’t integrate with a shipper or a carrier, what’s left are mundane, low value tasks that do not really impact your bottom line, especially when you are using expensive engineering resources to tackle that.
The road to more efficiency relies on shippers and carriers adopting cloud operating systems for transportation. Meanwhile, brokers have to be honest with themselves about where it is worth investing technology. Most companies do a poor job at taking engineering costs into the unit economics impact of automation.
There are many reasons why a mid-size shipper would like to procure and execute their own freight. And some of them are valid. But in a large number of cases, mid-size companies are better off outsourcing procurement and execution of freight to a Managed Transportation provider.
There are three reasons to outsource freight procurement:
(1) Chances are that the Managed Transportation provider is already procuring and executing hundreds of millions of dollars in freight. Therefore, by overlapping networks and with pricing power, they quickly find efficiencies moving freight.
(2) Most sophisticated Managed Transportation providers have a plug-and-play technology suite of products that are an all-in-one solution for the shipper, eliminating the need to pay for standalone transportation systems, lengthy contract terms, need for IT support, management layers, etc.
(3) Managed Transportation providers have pricing strategy models and specialists that can forecast rates, make dynamic smart mode picks, and time a contract-vs-spot decision significantly better than individuals who have a very broad mandate inside mid-size companies.
The market is tough, but the future is bright.
On one end, I believe Loadsmart has done a good job forecasting year-end 10% spot increases, and a cycle rebound for mid 2024. Our more “down-to-earth” projections, contrary to some hopeful forecasts by others earlier this year, turned out to be right. On the other hand, it means this downturn has inflicted (and will continue to inflict) pain into our business models.
The downturned pushed us to evolve our value proposition, expanding from a single mode broker to a multi-mode offering FTL, PTL, LTL, drayage and rail. We launched our Managed Transportation department, which offers a solution of services + technology to mid-size shippers that can save 10-15% of annual freight costs on average. We expanded our software solutions to the industry by enhancing our procurement & execution solution (ShipperGuide), dock scheduling software (Opendock), and trucking management platform (CarrierTMS) to increase the value we offer our customers.
The 2024 freight rebound will help scale these offerings and provide more value shippers will need to navigate transportation trends for the future.