What are digital brokers’ low freight prices costing the industry?
2018 was one of the most unpredictable, off-the-wall years in recent history for carriers and shippers. Within a perfect storm of new government regulations, tax incentives, natural disaster recovery and a booming construction sector, the trucking industry experienced tight and almost non-existent capacity for the first half of the year.
Tonnage has increased even more in 2019. But freight pricing has dipped. And we keep reading about an influx of trucking companies going out of business — with one expert estimating as many as 20,000 trucks being pulled off the road in the first half of the year.
What has disrupted the industry and made it so tenuous?
We can point to more balanced capacity supply and demand, higher insurance premiums, more asset investments, more competition or even new trade tariffs. But none have levied as heavy a toll as digital brokers.
Digital brokers are offering significantly lower freight rates. Advocates cite software, automation, cloud computing and other technologies that allow them to optimize routes and reduce costs further than traditional 3PLs. Opponents claim these price concessions are unsustainable and a blatant attempt to artificially and temporarily gain market share.
Both takes may have merit.
It’s indisputable that digital brokers are a significant threat to legacy carriers, 3PLs and brokers who are forced to carve out their own piece of a rapidly shrinking pie. In response, the bigger brokers have been forced to enact their own price cuts to keep pace, so they don’t lose catastrophic market share. The smaller-to-medium-sized asset companies — who historically have less leverage in setting industry-wide prices — have had to simply accept their losses or risk losing customers to the low-price points set by digital brokers.
Right now, shippers are reaping the benefits of reduced prices. The new technologies and digital platforms championed by digital brokers promise to automatically align shippers with the best rates. These platforms have been conceived to potentially surpass the results of even the best human freight experts.
Minimizing or eliminating the human element from shipping and logistics is a grand, ambitious paradigm shift that’s banking on shippers valuing the bottom line above all else. We’ll know more about whether this plan if feasible — and whether the low rates are sustainable — after we see how the platforms perform in the everyday world.
Obviously, traditional 3PLs and brokers are leery about the shift toward automation. It’s not from an aversion to technology. Every credible 3PL provider relies on new technology to optimize lanes, track shipments, communicate with stakeholders, reduce delays and more. We also rely on our years of experience in the industry to help customers navigate complex shipments or sudden market shifts or even unforeseen problems that arise in shipment.
Knowledgeable logistics professionals understand how to resolve every issue. But more importantly, they know how to offer support, guidance and real-time assurance to put shippers at ease. After all, a modern 3PL partner realizes there’s a human on the other side of the transaction, possibly full of angst and concern about a shipment’s delivery.
Only time will tell whether digital brokers will garner more market share by leveraging extremely low freight prices. For now, truck asset firms and 3PL providers must remain diligent in seeking new ways to differentiate themselves from the competition — whether that’s using technology to optimize lanes and lower prices or superior service that can resolve even the most complex issues.
It’s one thing to know how to get freight moved quickly and economically. It’s another to do it while knowing our customers’ names, too.
Jared Moore, Vice President, AMX Logistics