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From SCDigest's On-Target E-Magazine

- Nov. 2, 2015 -


Supply Chain News: Not Surprisingly, Race is On to Become the Uber of the Trucking Industry

Investors See Giant Market Potential, as New Companies are a Threat to Existing Brokerage Model


SCDigest Editorial Staff


The wild success of Uber, the virtual taxi services that uses freelance drivers connected by mobile technology, has entrepreneurs of all sorts looking to replicate the model in other sectors - and not surprisingly, that includes trucking.

Last week, for example, on-demand trucking service Convoy officially launched after it raised $2.5 million in seed funding from an investment group that included Amazon founder Jeff Bezos and other high-profile investors. Other companies are also jumping into the fray.

SCDigest Says:

That means to real addressable market might be far, far short of the $700 billion that has investors in these startups drooling.
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Of course, there have been on-line "load boards" for many years, and connecting shippers with smaller carriers is what freight brokers do - to the turn of hundreds of millions of dollars in annual revenue for brokerage giants such as CH Robinson, while many smaller brokers make a decent enough living out of connecting shippers and carriers locally.

That brokerage model would seem to be under assault by new age brokerage services such as Convoy and others.

"You can't have 1 million small trucking companies without brokers, but they're taking a hefty fee without adding much value," Dan Lewis, Convoy's 34-year-old CEO, recently told the Wall Street Journal. Traditional brokerage fees average around 20%. Lewis said Convoy's fee varies, but is less than 20%. "This makes it so much more efficient and truckers can make so much more per job."

A big attraction of this market is its sheer size, some $700 billion in the US alone. That market size dwarfs almost all others that Silicon Valley start-ups may be chasing. The US taxi market, for example, is thought to only be about a $15 billion industry - yet Uber is now valued at some $50 billion (Uber of course is a global company, also operating outside the US).

"I've never seen a larger market opportunity," said Hadi Partovi, an early investor in Facebook, Airbnb, and Dropbox, and who along with Bezos is also investing in Convoy.

A company called Cargomatic is another one trying to build an Uber for the trucking sector. It believes it can lower deadhead miles for trucker by connecting shippers looking for a carrier with truckers headed their way. The two-year-old company has 58 employees and $12 million in funding, and says it has facilitated tens of thousands of shipments in New York and Los Angeles so far this year.

Cargomatic's service means "trucks are fuller more of the time and are taking shorter routes to pick up shipments," CEO Jonathan Kessler says.

In addition to Convyor and Cargomatic, other players include KeyChain Logistics, Transfix and Trucker Path. Uber itself has a service for local parcel deliveries called, for example, Uber Rush in New York City, and another one in Hong Kong.

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Another advantage of these new services may be greater responsiveness. The brokerage process, at least as it operates now, adds some overhead to the cycle, and it may take several hours from when a shipment is given to a broker to when the shipper is provided with a carrier match.

With these new services, that match will often take place in just minutes.

In general, shippers post a shipment on the web sites of one of these companies. Shippers then receive an instant price based on proprietary formulas based on distance, weight, etc. Carriers participating in the program see and respond to the opportunity, and once a trucker is engaged the applications track the shipment in real time using mobile technology.


Convoy and Others Hope to Upend Traditional Brokerage Model


Thus, these applications do not really seem to be upending the brokerage model as much improve it, with lower fees and perhaps more rapid process models.

Still Lots of Barriers

While the hot money is flowing in, there are a number of barriers to the concept. The most important will be concerns relative to quality of service. Most shippers, at least the larger ones, rely on networks of "core carriers" that move the vast majority of their freight, turning to spot markets only when their usual carriers can't cover a load. Shippers also like drivers familiar to with physical and operating policies of consignee, rather than a different driver every time.

While carriers are vetted in some way by Convoy and the others, shippers may still be leery, without a broker acting as a more focused vetting mechanism, while how the new age services will handle complexities like the CSA driver and carrier safety ratings is another question.

That means to real addressable market might be far, far short of the $700 billion that has investors in these startups drooling.

"There are a lot of moving pieces, and I don't see an app from a non-industry player - just given the complexities of the truckload market - really coming in and having a disruptive impact," Jack Atkins, a transportation analyst with investment bank Stephens, said to the Wall Street Journal.

Brokers of course are liekly to fight back with their own upgraded technology to better compete. And companies like Transplace have been electronically connecting shippers and carriers for many years, including support for "continuous moves" to reduce deadheading or secure better round trip rates.

But Convoy CEO Lewis remains highly bullish on his service.

"I've seen firsthand how much potential this has to improve people's lives and I think the day will come when shippers and truckers won't remember how they did things without Convoy," Lewis said last week.

He added that "the [brokerage] system is running on phone calls. That is a lot of complex information to transfer over the phone. The broker takes a healthy cut for offering that service, for finding the right truck, and managing things when they go wrong."


Do you think these Uber for trucking services will succeed? Why or why not? Let us know your thoughts at the Feedback button below (email) or in the Feedback section. Anonymity will be provided upon request.

Recent Feedback

I believe there is a large opportunity for companies such as Convoy, who are revolutionizing the trucking services industry. The current brokerage system running on phone calls is outdated and unsatisfactory, especially for younger professionals who expect the immediate convenience of services like Uber. The introduction of Uber-like technology will lead to increased efficiency in supply chains (by working towards full truck loads, rather than many less than load shipments). This saves money on many fronts and reduces the impact of shipping on the environment. If companies such as Convoy can truly prove time and cost savings to their clients, then they will be on the road to success in no time. This is the way of the trucking future, especially for small companies who cannot afford to create their own distribution networks.


Regan Lewis
Nov, 08 2015

This sounds like a good idea in theory. An uber truck is very convenient for both the trucker and the company. It could also possibly be cheaper for the company along with having a quick delivery time if there is a trucker near by. However, I think there are a lot of variables that play into this that a company might not trust this system. As a company, if a trucker is transporting all of my products, I would want a personal relationship with them as opposed to a random person picking up all of my stuff. I have learned in my Procurement class the importance of building relationships in order to build reliability from your supplier. There is also the question of what happens if all of your products you want to send don't fit in the first truck. The company may have to order more trucks that pay by the mile as opposed to just one designated truck that only carriers the company's products. Overall, this could be a good idea, but is also very risky. 

Tara Comstock
Procurement Student
University of Texas
Nov, 09 2015

A so-called "Uber" for trucks seems like a good idea, and there are clear benefits. However, Convoy could easily
face the same problems that plague Uber, most prominently, employees that have not been thoroughly background
checked. One stolen shipment using Convoy could torpedo the company, and if shipments are routinely mishandled
or damaged, usage of Convoy will certainly plummet. Trusted suppliers of trucking services can be crucial to
companies which produce a large volume of commodities, so it would likely be impossible to develop any specific
suppliers using Convoy as your main source. It is very unlikely that supplier relationships could be built using this service.
However, if the current brokerage system is as technologically deficient as this article asserts, then Convoy could
have a positive effect on the trucking business as a whole. Convoy will force these brokers to improve their
process, and, if they can keep their current levels of service high, then their business as a whole should improve.

Charles Thomas
The University of Texas at Austin
Nov, 11 2015