By Omar Singh, president and founder, Surge Transportation
Until recent history, all of the top brokerages have been profitable companies. This is not the case with all of the investor-backed technology companies currently taking up market share, which leads me to ask the question: Is it better to be a technology company learning supply chain or a supply chain company learning to adopt technology?
There is an old joke in our industry: “How do you become a millionaire in the trucking business? You begin with a billion dollars and start a trucking company.” I guess with what we are seeing in the current marketplace we should modernize the joke to “begin with a billion dollars and start a logistics brokerage.”
Look, I get that it’s sexy to be a technology company — to be a digital broker; I get that it’s noteworthy to take up market share and become a top 10 brokerage within a short period of time when comparing top line revenue; I get that it’s cool to be etched in the annals of history for being an industry disruptor and changing everything. But, is it a disruption or just a distraction? I mean, at some point, the bottom line matters more than the top line. I didn’t take many business classes in school, but I took one that taught me that the purpose of a business existing is to make money — to be profitable.
Any broker can get all the shippers that exist to give it all the business it can handle — $800 million worth — if it is charging less than the next competitor — less than cost. I don’t actually think that’s disruption, I think that’s distraction from business fundamentals: Be profitable, have a positive bottom line — none of the other noise matters. I’m all for fighting the good fight — don’t get me wrong. I remember feeling the high of my trucking company going from $4 million to $6 million to $8 million and trying to figure out how to make it work; if only I can increase my revenue per mile by 10 cents and decrease my cost per mile by 12 cents, if only I could reduce my repair labor costs 20%, if only I could leverage more volume for better fuel and tire discounts — then we will turn the corner. You stay in that arena and you fight until there is nothing left. It’s honorable. I can tell you something else, though: Bleeding out until you lose everything, it doesn’t feel good; I don’t wish it on my enemy.
The joke has to be funny, though, so the billionaire doesn’t lose everything, they just almost lose everything and become a lowly millionaire before getting out of the business. But what is going to become of technology companies — the digital brokers — that are operating below cost on investor money and bleeding out? Are they going to make the necessary adjustments and “turn the corner”? Do they have a sustainable business model? All eyes are on them for sure.
Personally, I am having fun being a supply chain company learning to adopt technology. After the trucking company went under, I had to learn how to develop a sustainable business model. An already existing supply chain company that learns to incorporate technology into its sustainable business model is a winner in my book every single time. There is a lot of talk of the mega digital brokers taking over and all the smaller brokerages going under. I like evidence and data. When the digital guys hit the market, there were 16,000 licensed and operating brokerages — now there are 24,000. That’s not trending in the direction of supporting evidence. The more they grow, the more they lose, and the more sustainable competitors enter the market. Additionally, the APIs and TMS integrations and real-time capabilities that gave digital brokerages a competitive advantage years ago are becoming more widely available to the 24,000 other competitors out there. So, they couldn’t make a profit and eliminate the sustainable brokerages while they did have a competitive advantage; that is going to change now that they are losing their advantage?
I like to meet people at simple. Is it better for your heart surgeon to learn to adopt some technology into his or her practice or for that technology company to give it a go at being your heart surgeon? That answer that you feel inside, it’s the same as the answer to the first question in this conversation. I like to see people win, I really do. I even like to see friendly competitors do well and enjoy spending time with them. More than anything, I like to see our industry innovate. So there is a part of me that wants to see the technology brokers win, but in the end, I call it a distraction rather than a disruption. My money is on the 24,000 other brokerages out there grinding out sustainable business practices and exercising classic business fundamentals.
More from Surge Transportation:
API vs. RPA — what’s the difference?
Perfectly executed routing guides fail 100% of the time
7 Steps to Strategic Partnership Between Shipper and Service Provider