3PL Perspectives
Russell Jones | Cargo Chief
Information Leads to Satisfied Customers
In the history of mankind, the right information makes the difference between success and failure: finding water, where to farm, how to lay a railway, how to build a fighter jet. For today’s freight brokerages, knowing which trucking carriers do a good job and have availability for a certain lane enables that brokerage to provide high quality service and retain shipper customers. The key is knowing which of the thousands of carriers a typical brokerage has worked with in the last 12 months has done an excellent job and is available for an upcoming customer load. This information becomes even more valuable if the initially assigned carrier cancels a few hours before a designated pick up due to a reported mechanical issue, and the 3PL needs to quickly recover and present a replacement carrier.
Digitizing Dramatically Affects Floor Costs
A typical midsized freight brokerage has a floor cost (all the expenses / number of loads) of around $100 per spot load. Usually about one-third is for sales and marketing, one-sixth is overhead such as insurance and rent, etc., and one-half is the cost to find, book and manage the carrier/load. With both shippers and carriers gaining more market intelligence every year, managing floor costs for a 3PL is becoming critical to survive. By applying technology that can find, book and manage a carrier, a brokerage can dramatically improve its EBITDA (Earnings before interest, taxes, depreciation, and amortization) while impressing customers with competitive pricing.
Load Booking Automation: Where Is the Industry Now?
From talking with the leaders of successful transportation management systems (TMS), it is clear that the majority of brokerages want load booking automation to enhance service, resulting in fewer errors and reduced costs. Most brokerages feel that relationships with carriers matter, particularly in tight markets where there are more loads than usual per available truck. Brokerages believe that when the market is tight, they can leverage past business with a carrier to receive preferential treatment for scarce trucking capacity. Relationships foster trust and this is the key. Most of the popular TMS offer various degrees of load booking automation, referencing past loads, past lanes and past performance to offer a load to a past carrier. Many of the TMS, particularly those targeted for enterprise clients, are complex, listing hundreds of features to master. Experts peg the percent of our industry’s spot loads that are being executed via load booking automation at one percent to 10 percent. Given our environment with Smartphones, Google and Amazon, our industry should be modernizing faster.
It is reported that one of the largest domestic brokerages is now booking 25-30 percent of their spot loads with load booking automation.
Digitalization Wave Is Coming
Considering rumors and reports, the consensus is that digital-focused brokerages are rapidly taking the lion’s share. They have invested millions into the development of load booking automation to provide a higher level of service – readily available truck tracking as an example – and to streamline their operational costs. It is reported that one of the largest domestic brokerages is now booking 25-30 percent of their spot loads with load booking automation. One of the largest global freight forwarders is employing load booking automation for spot loads in their European operations.
At the TIA Capital Ideas Conference in April 2018, many Chicago-based members speculated that if they did not adopt digital load booking automation, they would be out of business in five years. With digitization all around, carriers are also expecting a shift to this automation. As the percentage of millennials in brokerage workforce grows, load booking automation will be rapidly accepted.
Adopt Digital Load Booking Automation
Today, freight brokerages are dealing with a record tight market. Relationships matter now more than ever. There are three keys to successfully adopting load booking automation.
First, a brokerage needs to reach out and communicate to its main carriers the desire to leverage load booking automation. This way, the carrier will be expecting this service from its customers. Many carriers will welcome this message as a way to streamline their operations and gain informational advantages.
Second, carriers’ actual and desired integration abilities vary dramatically. Some carriers regretfully will insist on EDI technology which was developed in the 1960s. Other carriers will want API integration, or flat file table exchanges, or direct integration into their TMS, or to scrape a Google share sheet, or to read a capacity email, or make a phone call, perhaps in another language.
Lastly, like in other industry examples (securities, semiconductors, air travel), standardization will accelerate adoption of digital load booking automation. TIA has committees and sub committees working on this type of standardization to help its members. TIA members are the most advanced 3PLs, and they are leading the industry toward the future.
Russell Jones is the co-founder and CEO of Cargo Chief, based in Millbrae, CA. He can be reached at [email protected] or 650-265-6100
