Digital Freight Matching: From novelty to mainstream

As the freight transportation and logistics sectors continue to become more tech-savvy, a strong case can be made for digital freight matching (DFM) technology having a secure spot in any listing of relevant industry technologies.

When looking at current over-the-road market conditions, that should not come as a surprise. Capacity remains tight for numerous reasons and demand levels are strong—hard facts that have served as an impetus for DFM vendors to make their respective cases.

In the meantime, the DFM market is as crowded and competitive as one can imagine, as there’s a host of both legacy and new, emerging players angling for new business alike. And given these market dynamics at play, DFM technology continues to evolve in terms of market presence and technological sophistication.

To provide Logistics Management (LM) readers with the current state of the DFM market and where things could be headed, we recently spoke with three industry analysts who have been keeping a close eye on this exciting corner of the market.

Joining LM for this roundtable are Bart De Muynck, Gartner’s research vice president of transportation technology; Evan Armstrong, president of Armstrong & Associates; and Ben Gordon, managing partner of Cambridge Capital and also managing partner of BGSA Holdings.

Logistics Management (LM): From your perspective, how far has DFM technology come over the last few years?

Bart De Muynck: DFM as a digital model has gone from a novelty to becoming mainstream in the sense that it has become an additional way for shippers to get access to capacity and real-time rates. That said, it has been mainly successful in dry van, full truckload and has seen good traction in North America and Asia, especially China and India. In other places around the world, the adoption has been much slower.

We see, however, that shippers use this only for a very small percentage of their overall freight moves. The shippers using DFM the most also use several vendors and have not picked a single DFM partner. Another important note is that we have seen a growing number of DFM vendors partner with the leading transportation management system [TMS] vendors to get access to the freight under management inside the TMS.

Ben Gordon: Indeed, DFM has evolved from an app to a reality. Five years ago, we saw hundreds of business plans that sought to “Uberize” their industries. Today, DFM is the basis for standalone, successful companies like Convoy. It’s also being integrated into larger logistics companies like Echo Global Logistics. This is because the technology has matured, but also because customers have become more willing to adopt new technology.

Evan Armstrong: I agree that DFM has come a long way since we coined the term in 2016 to describe the process of automatically matching carriers to shipments using machine learning/AI algorithms. Now, off-the-shelf TMS providers and 3PLs building their own TMS in-house boast some form of digital freight matching capability to automatically match carriers to truckload shipments and drive the auto-booking of spot market loads.

Of course, DFM functionality is inherent to the TMS developed by digital freight brokers such as Convoy, Uber Freight, and Transfix, which have been the catalyst for a lot of the industry change. In addition, traditional load boards such as DAT and Truckstop have come a long way with integrating into TMS via application program interfaces [APIs] and automating carrier matching and bookings.

LM: How is it working and what are some of the most pertinent trends and themes you’re seeing evolve?

De Muynck: Keep in mind that a digital freight model is an open, fully connected freight marketplace that uses machine learning, automation and other software services to efficiently connect shippers and carriers. Digitized freight models provide an alternative to traditional brokers, load boards and the spot market, which remain time-consuming and collect information from carriers and shippers, but often don’t support true collaboration.

We’re seeing a few trends, including the movement to more contracted freight rather than a focus on one-off rates where they competed with spot rates. We’re seeing increased partnerships with the TMS vendors—mainly Oracle, MercuryGate, BluJay by E2Open, SAP, Blue Yonder. And we’re even seeing some DFM models get into providing assets, especially trailers.

Armstrong: We’re seeing that fully automated instant quoting and booking for shippers of spot market truckload shipments is now a reality for approximately a dozen 3PLs, including C.H. Robinson, Convoy, Coyote, Transfix, and Uber Freight, while leading freight brokers have APIs to the shipper’s TMS. The shipper sends them a rate quote request, the broker TMS provides an instant price, and then the shipper’s TMS selects the broker/carrier and tenders the load. This is the near-term future state for mid-sized to large shippers.

API automation reduces the transactional friction between the shipper and transportation provider. In this case, the marketplace has been fully automated, and price and operational execution is the differentiator. APIs between shipper, freight broker, and carrier systems reduce quoting and tendering friction and increase operational efficiency and service performance.

Gordon: Last year, from a business perspective, we saw a lot of “DFM tourists.” Many of the business plans cited the same three to five customers. So, this illustrated that there was a lot of exploration, but very little adoption. Today, we’re seeing real revenue growth, and this reflects the growing traction of DFM.

LM: Given the proliferation of entrants into this market, what will separate the long-term, successful players from the ones that don’t take off?

De Muynck: For a DFM to be successful, and for the technology behind it to be successful, it needs a large network of shippers and carriers. This network of will bring enough freight data in for the machine learning to predict capacity and rates. The carrier network is needed to be able to provide the capacity needed by the shippers, and the network will also allow the successful collaboration that will improve load percentages, remove empty miles and improve the carrier’s fleet utilization rates.

So size matters for these solutions, especially for dry van, full truckload, unless you play in a niche market like hazardous materials transportation in bulk containers or heavy oversized loads on flatbed trucks. Where we see many vendors all vying for a piece of that multi-trillion-dollar transport market, the market will only sustain so many.

In the United States, we see dozens of players, whereas China has three of four main players that all have multi-billion-dollar investments. Similar to e-commerce, the digital transportation market needs an eBay size platform that
connects all buyers and sellers of transportation.

Gordon: The winners will be the companies that figure out how to make both the technology and the unit economics compelling. On the technology side, outstanding DFM requires that you map companies’ workflow and highlight how you can automate it. On the unit economics side, winners figure out how to price at a discount to comparable gross margins, while at the same time generating enough network density to ensure they can consistently cover loads.

LM: What types of stakeholders are making the move into this segment and why?

De Muynck: Shippers are moving closer to it because they need more ways to access capacity and real-time rates. Carriers have a choice with whom they work and are picking partners that are easy to work with, pay on time and treat drivers well. DFMs can provide some of these factors to be better positioned versus 3Pls, brokers or shippers.

Traditional brokers are investing in digital technology, such as dynamic API rates, to keep up with the DFMs. Carriers are investing in DFM or partnering with DFM vendors. For example, Maersk invested in LoadSmart and joined Blackbuck in India, while Estes invested in Zuum.

Gordon: Five years ago, the stakeholders were early-stage VCs. Today, the stakeholders include larger and more mature companies, including late-stage investors like Greenbriar [who invested in Uber Freight], as well as strategic logistics companies like Echo. Keep in mind that C.H. Robinson plans to spend over $1 billion on technology in the next five years—so they can’t be counted out.

Armstrong: The numbers are pretty substantial. In fact, we’ve logged over $2 billion in digital freight matching venture/equity Investments from 2011-2020, and 2017-2018 were characterized by $20 million+ investments. Convoy raised $585 million in 2018-2019. For 2019-2020, investments in U.S. DFM companies were significant, at over $1 billion—and these numbers don’t include internally financed DFM investments by Uber and legacy freight brokers.

LM: How do the established truckload brokerages continue to differentiate themselves from the start-ups and make further inroads in the market in terms of scale and market share?

Gordon: That’s a good question. Established truckload brokerages have several advantages: size, scale, network density, customers and adoption. Smart brokers will use those advantages while systematically rolling out technology features and benefits in an incremental rather than radical format.

As a result, their customers will gradually see continuous improvements. The smartest incumbent truckload brokers will invest in powerful technology, like GreenScreens.ai, which gives them predictive pricing and other AI-powered analytics tools.

Armstrong: Digitalizing brokerage operations will be the key to future success. Using off-the-shelf DFM and intelligent carrier capacity management applications such as Parade or those being developed by leading TMS providers will be key. Upfront pricing applications are being developed by Logistical Labs and Greenscreens.ai which will help level the playing field as well, and many 3PLs have deployed HubTran for back-office automation.

Leading visibility solutions by project44, MacroPoint and FourKites are increasing the use of APIs and are improving real-time track and trace and quoting as well. Other apps by tech companies such as Channel19, which aggregates freight broker loads, are helping to automate carrier operations and automate load booking reducing transactional friction.

De Muynck: Indeed, traditional brokers are investing in digital technology to provide a similar experience to their shippers and the carriers they work with. Their advantage is that they focus on the customer relationship and the quality of service.

Transportation is not a commodity and is not bought online. The relationship is still the most important part in a connection between a shipper and a broker, carrier, freight forwarder or 3PL. That’s why we see traditional brokers, even new entrants, growing at a faster rate than most DFMs.

LM: In your opinion, who are the biggest—or most important—players in this space and what makes them stand out?

Armstrong: For DFM there are many leading players, but for different reasons. DAT and Truckstop have built large public networks, where 3PLs and shippers can find carrier capacity. The aforementioned digital freight brokers and legacy freight brokers with leading proprietary or off-the-shelf technology will continue to grow market share, while those that don’t adapt will be acquired or fall by the wayside as lower-cost operators squeeze gross profit margins.

Convoy has been a standout in two main ways. When it digitally matches a load to a carrier, its system automatically starts working to find the carrier a return load, and its Convoy Go trailer drop-and-hook program uses A.I./machine learning to optimally plan and route its fleet of 2,000 dry van trailers to shipper facilities on any lane. It has really taken off and is very popular with shippers.

For off-the-shelf intelligent carrier capacity management, Parade is a stand-out and has grown its customer base to over 50 3PLs. You can now digitally match and secure carrier capacity with your own carriers, or carriers posting capacity on multiple load boards using Parade.

Convoy and Uber Freight are clearly the largest in terms of volume, network, as well as capital investment [in the United States]. India and China have larger players, but for the United States, those two lead the way followed by LoadSmart, Transfix and Emerge. Growth in both the revenue and the carrier network has been capital intensive, so it’s hard for smaller players to follow—plus shippers want to work with the larger networks unless the smaller players can differentiate which has been hard to do in this space.

Gordon: On the DFM side, I would start with Convoy, Transfix and Loadsmart. The recent Transfix SPAC merger will raise the profile of the sector, and will also give them the capital to expand. On the incumbent side, I would start with C.H. Robinson, Echo and XPO. Then you have several high-growth challengers, like Arrive, Mastery and Everest. Any way you look at it, it will be an exciting several years of growth for the industry as a whole.