Blog Pagero TMS Industry trends September 19, 2018
Some believe that there is a possibility to transform the freight industry in the same way as Uber transformed the taxi sector. In this blog article, Magnus Molin explores the necessity of change and some recent initiatives of digital transformation in the transport management sector.
Digital disruption in the freight business?
Over the last few years, there has been a lot of speculation about who will change the freight industry like Uber did with the taxi sector. Some, including Uber themselves, who managed to cut out the middlemen by creating a new model for matching customers with drivers, believe that the same feat could be achieved within freight.
“Would it be possible to digitalise the conservative transport procurement process?”
However, traction for these innovators is much slower. Perhaps due to specific challenges and inherent complexities of shipping freight long distances, as opposed to moving people in a local area. Challenges exist in the compliance area, as well as in unpredictable service level and cost, and last but not least in plain old habit. Robert Nathan, CEO and Co-founder at LoadDelivered, outlines some of these in his blog article The 5 Lies the Ubers of Trucking May Tell You.
Coordination of transport needs necessary
A while ago, I got a call from a friend who was struck by the inefficiency of the local transport sector during a trip to Saudi Arabia. If they needed to ship a few pallets, they would simply rent a truck (with a driver) that would drive the pallets to their destination, with the driver returning home afterwards. The customers had to pay for the whole shebang, including the driver’s accommodation, even though most of the time the truck was empty or, at best, half empty.
In Sweden and other developed transport markets, there are carriers that coordinate requirements and offer alternatives to FTL (full truck load) shipments. They are able to optimise the use of their own and their subcontractors’ resources so that their clients can split the costs. They also take home a margin on the added value of the coordination. The subcontractors – the haulage companies that own and drive the trucks – rent their trucks and drivers to the middlemen, with low margins, in a manner that is not all that different from the Saudi example.
Despite the coordination occurring within the freight companies, there are still way too many truck drivers burning diesel, moving air in their empty trucks around Sweden and elsewhere – an issue that is sometimes raised in the environmental debate. Freight companies often traffic the same routes, and even if there is some measure of coordination, many trips are made with empty or half empty trucks.
Regardless of whether there is no effective matching and coordination of freight requirements, like in the Saudi example, or if middlemen are optimising shipments, many companies have identified an opportunity to break into the market using new technology. Would it be possible to digitalise the conservative transport procurement process, resulting in lower costs for clients?
A supplement in the Swedish Business Daily Dagens Industri features a few examples of Swedish companies that are attempting to act as digital middlemen between haulage companies and freight purchasers, including Cargospace24. The Economist also published the article The Appy Trucker regarding similar initiatives in the US, which are now gaining speed.
It will be interesting to see if any of these – or yet others – succeed in claiming the position as the “Uber” of freight. I wonder if the existing players in this market will be as upset as the taxi alliances are in Europe. If so, this would be proof that there is scope for additional streamlining that benefits clients.
“The quest for a disruptive service will continue, most likely using innovative technology.”
Naturally, the potential effect on the haulage companies’ terms of employment must also be monitored. Will price pressure lead to worse terms, or could it even be that the improved utilisation of resources and the reduced number of middlemen will give them more scope to increase their own margins?
The quest continues
In any case, until empty loads are eliminated, and as a consequence having lowered the cost of freight and reduced the climate impact, the quest for a disruptive service will continue, most likely using innovative technology. At Pagero, we follow the trends closely in order to design our business networks and transportation management applications to support the future business models of an increasingly connected world of customers and suppliers.