Amazon is entering the profitable freight brokerage space with a new online service that matches truck drivers with shippers. The service will help Amazon to better manage its existing network of carriers and expedite the cargo matching process. The move is expected to address inefficiencies within the freight brokerage industry where most contracts are still organized over the phone or by fax. It is also a highly fragmented market with 50-60% of the work driven by small brokers, and in which there is currently a significant shortage of truckers putting pressure on costs and creating uncertainty. How is the move to a model of automated matchmaking in the brokerage space expected to disrupt the traditional freight market?
Whilst the traditional trucker companies such as C.H. Robinson have launched their own versions of technology ‘app’ platforms, they are up against notorious disruptors Amazon and Uber. The move towards matchmaking platforms for shipments and truckers means the market will move from shipping contracts to a spot market environment. Data will become more abundant, which translates into greater situational awareness for shippers and receivers, and less of those “Where’s my shipment?” calls.
Due to the high levels of fragmentation previously mentioned, a considerable amount of the market can be picked up by the disrupters without necessarily damaging the position of incumbents. Yet this will be dependent on how quickly or easily the latter can lock in their customers with existing trucking apps, and if they can figure out their differentiator when targeting those small to medium-sized businesses that have no specific relationship with any particular trucking company.
Spot the difference
The incumbents do need to remain wary, however, of the by-now-familiar tactics of companies like Uber undercutting prices to gain initial competitive advantage. Uber’s freight business which generated $359 million in gross rate bookings last year, recently announced that Uber Freight is going to be integrated with SAP Logistics Business Network, with its contracts to approximately 30% of the Fortune 1000 companies. This signifies a move from purely spot market activity to activity centered on contracts or first cycle freight activities.
Because there is no significant difference between the products themselves, the key for all players going forward will be to get enough volume of the two-sided marketplace – namely, the ability to attract both truckers and the shippers. Both Amazon and Uber are coming into this game with equal route optimization skills, each basically taking existing technology and repurposing it to a new business (although Uber may have a slight initial advantage around price optimization). The incumbents, not originally coming from a tech background, will have to buy off-the-shelf technology to best compete in route optimization and the spot market. Going forward, Amazon may well try to replicate some of their recent initiatives in the freight day business into international markets, albeit with the need to be cautious of the likes of forthcoming EU regulations.
Ultimately, companies like Amazon will be able to reap benefit from their ability to capture a disproportionate amount of data and optimization of their middle-mile fleet costs. Amazon and the other disruptors are all set to flex their technological capabilities, and by doing so are poised to potentially disrupt the traditional freight offerings.
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