Making supply chain transactions more efficient is the end game for many startups in the freight tech space. But solutions like transportation management systems and digital brokerages don’t necessarily solve one of the biggest challenges facing the freight markets – how to stabilize pricing.
Leaf Logistics, an early stage startup based in New York, has another idea. Its platform allows shippers and carriers to enter into so-called “forward contracts” – the buying and selling of future transportation capacity. The idea is to give companies a way to manage rate risks while eliminating many of the inefficiencies associated with legacy operating systems.
“The supply chain is fundamentally about planning, and because so much of the planning is manual, it’s not scheduled; it’s not guaranteed,” said Leaf founder and CEO Anshu Prasad. “What if we could use data analytics to plan a very significant chunk of this, to take it out of the day-to-day firefighting, and provide real benefits – productivity gains and margins for the seller, savings for the buyer and hundreds of man hours.”
Forward contracts allow people to buy or sell an asset at a specific time at a given price, but forward contracts are not standardized. They are private agreements between two parties.
Formerly known as the Logistics Exchange, Leaf has been in beta mode for the past year and a half. A few weeks ago the team underwent a rebrand “among friends,” said Prasad, and will formally relaunch in the next few weeks.
Using data analytics and artificial intelligence (AI), Leaf’s platform addresses an industry practice that has confounded many an outsider – the fact that shippers and carriers often pull out of contracted deals, leaving the other party with either an empty truck or a pallet of goods and no vehicle to transport it.
“There is a deficit of trust in this industry,” said Prasad.
Seeking to bring back the faith, Leaf has created a freight contracting platform that in many respects resembles a flexible form of the “dedicated services” model, in which contract carriers guarantee a certain amount of capacity to a shipper for at least one year. (Truckload rates typically fall into one of three categories – spot, dedicated services and contract.)
“But for all the times I’ve seen it applied, people have been gun-shy about signing for one, three, five or seven years,” said Prasad, who spent 10 years at the consultant A.T. Kearney advising logistics and transportation clients. “What happens in the weeks you don’t need it?”
That down time isn’t a problem with a forward contact, in which shippers get the same certainty dedicated services provides but for a shorter period of time. For example, a shipper might forward contract for three weeks during the summer when it expects a price surge, Prasad said.
A Leaf Logistics contract is a binding commitment. If a shipper or carrier bows out, it is still on the hook for paying the cost of the load.
Or they can trade the contract, the other key feature of the Leaf Logistics system.
Say I’ve got contracts for every Monday for the next 52 weeks,” Prasad explained. “With a dedicated fleet, if during week seven I shut down my plant for inventory, I just eat the cost, because I made that commitment for that truck. If I now know weeks in advance I don’t need that that load for week seven, I can trade that load for week seven.”
The further out a shipper trades a contract on Leaf, Prasad said, the better chance they have of offloading it.
Leaf’s forward contracts fit into a larger trend of market-oriented solutions to managing volatility in freight pricing. In 2018, the New York Shipping Exchange (NYSHEX) unveiled a forward contract platform for the liner shipping industry.
With the forward contracts “you’re actually buying future transportation capacity,” Prasad said. “That correlates nicely with the goals of a third-party logistics company (3PL) or broker, who might want a physical buffer that says a certain part of this I should pre-buy.’”
The Leaf platform is not meant to be a “speculative commitment,” Prasad noted, but a way to show people how “plan-able and predictable” all aspects of shipping can be.
“There’s an army of people on the sell side, and an army on the buy side,” he said, referring to freight tech companies. “We’re all saying, ‘today’s firefighting and triaging and picking up two phones is not the way to go.’ But you need to find a compelling business case to change behavior.
“The status quo is our biggest competitor.”