Digital freight brokerage growth to accelerate sharply over next five years

The business consulting firm Frost & Sullivan released the results of its new study of trucking-as-a-service (TaaS) and digital freight brokerage this week. From an estimated current size of $11.2 billion, Frost & Sullivan expects TaaS to grow to $79.4 billion by 2025. Digital freight brokerage will account for the lion’s share of this market—Frost & Sullivan said that segment had 2025 potential revenues of $54.2 billion. Telematics is projected to triple, from 25.7 million devices in 2018 to more than 73.1 million in 2025.

According to a September 2018 report by Goldman Sachs transportation equities analyst Matt Reustle, third-party logistics providers (3PLs) and freight brokerages handle 23% of all loads moved in the United States, a share that has grown 5x since 2000.

“New entrants (Convoy, Uber Freight, uShip) are trying to gain market share by offering price transparency, online load boards, and freight marketplaces (akin to shopping for a flight on Expedia) for booking freight all via mobile applications, with the goal of disintermediating human interaction in the freight booking and payment process,” Reustle wrote.

FreightWaves estimates that the two leading ‘pure’ digital freight brokerages, Convoy and Uber Freight, are on a combined $1.3 billion revenue run rate. Incumbent technology platforms such as C.H. Robinson’s (NASDAQ: CHRW) Navisphere and J.B. Hunt’s (NASDAQ: JBHT) Carrier 360 are also highly automated and handle billions of dollars worth of freight.

Neither Convoy nor Uber Freight yet possesses even 1% market share of the truckload brokerage industry, and more than 60% of industry is composed of relatively small players, presenting an opportunity for technology disruption and consolidation that has been catnip for venture capitalists, who poured nearly $3 billion dollars into freight tech companies last year.

“Lack of instant load and rate visibility, frequently delayed payments and operating cash crunches are creating a huge market for digital brokerage solutions, as in the very least they enable faster brokerage, instant electronic upload of proof of delivery as well as electronic payment terms,” said Silpa Paul, Frost & Sullivan’s Industry Analyst, Mobility.

“Autonomous driving technology is fostering services such as platooning, which are expected to deliver fuel savings of 4 percent to 11 percent per truck,” Paul continued.

Frost & Sullivan is more bullish on platooning than recent FreightWaves analyses: in our view, the complexity of managing hours-of-service and linking trucks together exceeds the potential fuel savings—and enterprise truckload carriers have already neutralized their exposure to diesel prices. If a truck has to wait more than a few minutes for a platooning truck to catch up, or if the rear truck has to drive above 65 mph to catch up to its lead truck, cost savings are destroyed. We think that inter-carrier platooning, where trucks from any carrier can platoon behind trucks from any other carrier, is the best way for the technology to realize its potential to increase fuel efficiency (apart from safety improvements).

The low-hanging fruit for digital freight brokerage has already been picked: increasingly, load-matching and realtime pricing are available from both new entrants and incumbents. The challenge—and the reason why Convoy and Uber Freight still have brokerage floors—remains in operations and exception management. Technology integration is still incomplete, and, indeed lagging in drayage and final mile.

Telematics’ increasing penetration will help 3PLs solve higher-order problems in the near future. This technology was invented to answer a simple question—“where’s my freight?”—but now that visibility solution providers have installed hundreds of thousands of devices and apps on trucks, more sophisticated analytics products are being built on top of those data streams. That data will enable 3PLs to help shippers optimize shipment schedules with regard to cost and help carriers utilize their assets more efficiently.

In this way, increased market transparency will mean that high-tech 3PLs can offer premium data-driven services to both sides of the market, rather than simply being disintermediated as many analysts expected just a few years ago.