The U.S. freight market is notoriously fragmented. As the vast majority of trucking fleet operations have only a handful of vehicles, shippers' ability to efficiently find the carriers they need to move goods, at the right price, is a wholly inefficient process. Add to that a driver shortage, as well as the industry's continued use of manual tools to connect shippers to carriers, manage documents and make payments, and a recipe for non-optimal logistics quickly emerges.
These challenges are particularly poignant in the full truckload (FTL) space, said Ricardo Salgado, founder and CEO of freight booking platform Loadsmart. Whereas the less than truckload (LTL) market can address the shipping needs of multiple companies through fewer trucks, the FTL market is struggling to help companies that need to move entire truck loads full of goods to match up with the right freight player.
According to Salgado, the back-and-forth between brokers, shippers and carriers in the highly fragmented FTL market creates headaches across the board of industry stakeholders. It largely comes down to the continued use of legacy processes and tools, he said.
"The analogy we use is the stock market in the '90s," he recently told PYMNTS. "If you went to the New York Stock Exchange to buy stock, you would have open outcry system specialists yell at each other and trade stock."
Like many things, he continued, this process became digitized in the early 21st century. Yet, in FTL freight booking, the process by which brokers connect shippers and carriers, providing price quotes and facilitating payments remain largely reminiscent of a 1990s stock exchange floor.
Salgado went on to explain how industry fragmentation prevents the industry from being able to take full advantage of technology that can address the friction of transacting information and money. In this regard, he used another analogy: online flight booking websites. Since a handful of airlines control a significant part of the market, platforms like Expedia can efficiently integrate into those airlines via application programming interface (API) to aggregate prices and quickly place those offerings in front of a single consumer.
The LTL freight space is similar in that a relatively small number of providers control a large portion of the market, making it easier for platforms to provide price visibility for shippers via API. The FTL space, however, hasn't been able to follow suit, he said. Larger enterprises booking hundreds of shipments per month find it especially difficult to coordinate this process, Salgado noted, yet companies are still forced to rely on manual communication and booking processes to get the job done.
Unsurprisingly, the freight booking process isn't the only aspect of the industry facing friction as a result of legacy technology. If a carrier is unable to digitize, it may deliver a shipment on a designated day, but will mail out the proper documents it needs to send an invoice, adding more time to the payment process.
"If you deliver, you're still waiting for documents to invoice the shipper, and that continues to advance the time," Salgado explained. "I get the sense that most carriers want to optimize and get paid as quickly as possible."
It's been one motivation behind the industry's efforts to digitize, he said. In that effort, Loadsmart offers an API solution that can bring greater transparency into this industry, allowing larger organizations to integrate the platform into their own transport management systems (TMS) to streamline the booking and management process for firms with high volumes of full-truck shipments.
Brokers and freight forwarders are already showing increased demand for technology: 92 percent of forwarders, surveyed by Logistics Trends & Insights last year, said they agree that digitization brings value.
However, technological solutions will have to be flexible because the demands and challenges of the freight market are headed for change. According to Logistics Trends & Insights, nearly half of forwarders surveyed agreed that, as industry consolidation heightens competition, technology will enable them to stand out from their rivals.
Salgado said he agrees with predictions of consolidation for the industry, with recent regulations requiring electronic logging devices (ELDs) likely to further fuel that industry shift and companies less able to squeeze out extra hours from their drivers.
There are some positive impacts of consolidation that he anticipates. Whereas today, in which most carriers have only a few trucks, consolidation will enable those fleets to combine and, therefore, obtain greater buying power when procuring maintenance, fuel, oil and the like, he said. For shippers, consolidation means streamlined access to pricing and booking capabilities.
Even as the industry changes, Salgado noted that data aggregation and analytics are essential to addressing the pain points of the industry, even as it consolidates. Industry players are "hungry for tech," he said, and with a driver shortage, rising wages and ever-increasing demand for shipping services, mixed with a capacity crunch, data analytics will act as the crux of efficient matchmaking, booking and, ultimately, payments.
"There is opportunity to aggregate data to be more efficient on both sides of the marketplace," he said. "On the demand, shippers, and on the supply, carriers. For shippers, [that means] less empty mileage, and getting the drivers home on time. Hopefully, that will also mean better rates for shippers."