Freight Tech Changing 3PL Landscape

Chris Dominguez | FREIGHTPAL, INC.

Automated vehicles, drones flying out of sunroofs, digital booking and dispatch, Amazon competing with FedEx, dogs and cats living together, efficiencies galore…what a freight tech future we have in store! A swath of heavily funded and formidable companies and scrappy start-ups are all trying to address the massive opportunity that exists around automating the very manual and inefficient process of freight logistics. The technology driving the industry forward is referred to as “freight tech.”

With all the money, excitement, and hoopla in the space, freight tech is seeming more like a marathon run than a sprint. Most industry sectors seemed to be happy and willing to be transformed and automated by technology. Finance, media, entertainment, consumer goods, health care and many more, so why the resistance and lag with supply chain and logistics? It’s a combination of “late technology adopter” mentality and some very complex and hard-to-automate business problems. An industry’s ability to adapt to technology is in direct correlation to the willingness of its constituents to make technical innovation a priority.  Or said another way, freight guys like to do it the old-fashioned way. There is a tech wave coming, and many industry execs were running for shelter instead of getting out their surfboards, but all that is about to change.

The game was effectively on when C. H. Robinson acquired Freight Quote for $365  million in late 2014. Currently the freight tech valuation multiples are about 2x greater than that of the traditional business in the industry as measured by the BGSA index*

The good news is that the freight logistics business is on the precipice of technological automation which makes the sector so exciting for investors and entrepreneurs alike. Because the market is so massive (more than $3 trillion per year) and fragmented, we are still in the first phase of technical automation. There are many start-ups in the space vying to stake out a niche and some bigger entrants like Flexport and Convoy are taking a bigger swing at the ball. These start-ups will begin to consolidate; some will get traction, some will fail, some will get acquired and others will become stand-alone public companies. The landscape of freight logistics will transform itself in the next five years for the foreseeable future.

There are plenty of promising technologies and real-world solutions happening in freight tech. There are algorithms to automate prices for FTL; Loadsmart is doing some interesting and innovate work in the field to grab attention. Convoy has recently announced that they now load-match 100 percent of their loads, connecting drivers and shippers. This is an exciting step forward for FTL. Convoy has raised $265 million in capital, including an investment by Bono and The Edge of U2. Because who knows more about moving freight than a rock band on tour! Bill Gates and Jeff Bezos are in too, so the company has to transform the trucking business – right? The idea is to cut out the broker and save a big percentage of fees attributable to each shipment. Established players like JB Hunt (with their 360 products) and Echo Global Logistics are offering instant FTL pricing. Uber Freight is the Uber of freight, literally.  The ride share behemoth is taking a stab at the trucking business, which generates about 75-80 percent of logistics revenue domestically.

The start-up Shyp raised $65 million ($50 million from Kleiner Perkins in 2015 Series B) but crashed and burned in dramatic fashion inside of three years, and is now the cautionary tale of the industry. Shyp tried to figure out the consumer business with a heavy investment in assets such as warehouses and packing services. The math didn’t work to pick-up a shipment from an individual’s house, take it back to a warehouse, pack, and then ship it. Getting to a critical mass of shipments with customers who ship on an irregular and occasional basis proved to be a disaster. The consumer business is being scaled at the e-commerce integration layer with companies like ShipBob, ShipStation, and Shippo all making their mark with feed integration software and e-commerce fulfillment solutions. Some start-ups have gone for the data-only play providing data normalization and bundled API services like Project 44. Delivery Circle is chasing the last-mile business with an Uber-style app. Veho is looking at making the regional pickup and delivery system more efficient.

In the freight business, moving from EDI to API technology has been the seismic shift. It gives a company the ability to ingest or supply a data feed in real-time instead of multiple times a day. That is basically child’s play for a Silicon Valley tech guy, but that is where the simplicity ends. Amazingly enough, many major players in the shipping business have not even updated their systems to API technologies. UPS Supply Chain still does not offer a functioning API for their customers. The part of the freight business that is much harder to automate is the shipping manifest paperwork, passport and customs controls, and legacy systems. Blockchain may help to automate this in the future, but in order for blockchain to work all the stakeholders must buy in and use the technology. Good luck pushing the Chinese government into doing anything!

The goal of freight tech in my estimation would be to move freight minus the phone calls, emails, and yes – even faxes! Next is FTL, then ocean and intermodal until there is a fully automated, end-to-end solution. It is currently hard to automate everything in the supply chain, which means there needs to be a manual component to the tech platforms until the industry tech standards can catch-up.

The freight tech space has some high-flying household names and eye-popping valuations. Flexport at $1.5 billion and Convoy at $1 billion, both with massive $250 million+ capital raised. Next Trucking just raised another $97 million from some high-profile Silicon Valley Venture Capital firms, including Sequoia Capital. Flexport claims to have automated freight logistics, but aren’t they just a forwarder with a better web site and some smart use of data to create efficiencies? Is Convoy really worth more than ArcBest Corp? Can Next Trucking modernize the marketplace and win
with tech?

Freight tech is currently at a tipping point much like YouTube was in 2005, when the confluence of technology adoption, infrastructure, capital and market timing were in alignment. It will be exciting to see what 2019 brings!

Chris Dominguez is CEO of FrieghtPal, Inc. He can be reached at [email protected]

The views expressed in this article are those of the author and not of TIA.

Photo Credits:
Image courtesy of BG Strategic Advisors