This commentary was written by Nick Dangles, co-founder of Kinetic. The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
By Nick Dangles
The brokerage game is changing … and it’s changing fast.
The past few years have brought an overwhelming amount of interest (and funding) to an industry that was often overlooked. This has generated some amazing technological advancements and new entrants looking to disrupt the market.
Brokers are here to stay, but the services they provide have become increasingly commoditized and these changes have prompted questions about the future of brokerage in the industry.
Historically, there’s been a mentality that all you need to broker freight is some basic equipment and a lot of hustle. While that’s still true to a certain extent (you definitely need hustle), basic equipment no longer just means a load board and a phone.
The industry is evolving so quickly that technology isn’t just a helpful tool anymore; it’s a requirement to be competitive. People and relationships always will be fundamental, but brokers will need to incorporate technology in order to allow their people to be effective.
From both my experience in brokerage and working with other brokers, I see two areas with the greatest opportunity to engage technology: 1) enabling customer acquisition, and 2) reducing the cost to serve.
First, certain technology is now the price of admission to work with enterprise customers. Moreover, the pace of change is so accelerated that technology providing an edge two to three years ago is rapidly becoming required for a seat at the table.
Take digital tracking as an example. As recently as 2019, there were still enterprise shippers who didn’t care about digital tracking, but now it’s a contractual requirement in every RFP. While this may be limited to larger companies for the time being, it won’t be long before it trickles down.
The story of tech adoption by shippers is that enterprise shippers set the terms, and eventually midmarket and small shippers start demanding the same thing.
Even where technology is not a contractual requirement, it will be needed to keep up with the competition. So much so, that not having it will be a barrier to entry with more and more customers.
Think about it like this — even if it isn’t contractually required, what happens when you’re the only company that can’t provide digital tracking? It’s a pretty safe bet you won’t win any of that business.
Second, brokers should look to reduce their cost of service. It’s admittedly still an open question whether margin compression is coming but, if it is, the days of 15%-20% margins are rapidly going away. Maybe some brokers will find an insulated niche, but most will need to adopt new technology to keep up and remain profitable.
Even if margins are not shrinking, investing in technology that enables you to compete at a lower margin simply provides more options. Maybe you win more business by charging your customers less; maybe you charge the same and make more profit; maybe you pay carriers more and build better relationships — or maybe you do a combination of all three.
Regardless, you still come out more favorably than the brokers who didn’t make a change.
In either future, you still win.
Take a minute to think about some inefficient processes in a brokerage:
- How long does it take to price a shipment?
- How many shipments do you lose because you were wrong?
- How many calls does it take to book a load?
- How much more money could you have made on a load with the wrong strike price?
- How many calls does it take to manually track a driver?
- How much of your carrier network is underutilized?
- How much time does accounting take to process an invoice?
Technology is available to make all of these areas more efficient. Capacity Management tools like FreightFriend and Parade help brokers make better use of their carrier data and book loads more efficiently. Visibility tools like P44 and FourKites help reduce the calls needed to track a driver. Pricing tools like SONAR help provide faster and more accurate pricing with less reliance on tribal knowledge.
Regardless of the tools you choose, the brokers who succeed will be the ones who embrace technology to drive efficiencies in their organization. They’ll be able to operate (profitably) at lower margins, leaving their legacy counterparts in the dust.
The next few years will be very interesting for the industry as a whole and, more specifically, for the role of freight brokers. Brokerage services have become increasingly commoditized over the past few years, and new entrants into the market will only drive margins down further.
The good news is that there is now an abundance of technology that can help brokers reduce their cost per load and drive efficiencies throughout their organizations. To stay competitive, brokers will need to constantly evaluate new ways to leverage technology to their advantage.
Nick Dangles is a veteran of full truckload brokerage with 10 years of experience in transportation. As the co-founder of Kinetic, he works with FreightTech companies to introduce their products to market more quickly and with better adoption. He believes transportation is a relationship-based industry and that the future involves using technology to help automate tasks and drive efficiencies, while allowing human beings to focus on what they do best — building relationships.