According to the Federal Motor Carrier Association (FMCSA) data, carriers who operate smaller fleet sizes of one to six trucks continue to add power to their operation, with tractor counts growing 5% since last September. Over the same time, fleets who operate more than 1,000 units have decreased tractor count size by almost 3.5%. A byproduct of the sell-off has been continued increase in used truck prices for 3-year-old class 8 trucks, even as the freight market has softened from a year-over-year perspective.
The trend is somewhat unexpected as this year has been marred with increasing instances of trucking company failures due to lower volumes and an oversupplied market. Only recently in August, was there a sustained level of increased volumes, but the increasing tractor counts for smaller fleets have been steadily rising all year. Some of this is explainable in the way the smaller carrier has the least amount of visibility to the broader market due to dealing with only a few shippers at a time, but that is not the entire story.
FreightWaves Chief Insight Officer Dean Croke says, “Digitization and e-commerce has made it easier for smaller carriers to penetrate the market by giving them visibility via technology like mobile load board apps and increasing volumes of regional freight movements compared to longer haul over-the-road freight that is more difficult to manage and maintain utilization levels.”
Along with load boards like DAT and Truckstop.com, many larger brokers like CH Robinson and XPO offer apps that make it very simple for drivers to identify freight demand on their phone without having an existing relationship with a shipper. Freight that travels less than 250 miles is easier to manage in a small fleet as round trips can be completed in a day, reducing the need for large networks. Many larger companies outside of Amazon such as The Home Depot have invested millions of dollars in their supply chain to make travel time from warehouse to end user shorter for faster online order completion. The demand for faster order fulfillment on just about all consumer goods has been expanding rapidly, which is changing the way freight is hauled.
The Shrinking Mid-haul
An upcoming release of a version of FreightWaves’ Outbound Tender Volume Index (OTVI) that divides the index into length of haul buckets, illustrates that volumes of loads travelling less than 100 miles (COTVI) are increasing much faster than other mileage bands over the past year. Interestingly, long-haul freight that travels over 800 miles is fighting for second place with loads travelling between 100 and 250 miles, leaving the 250 to 800-mile loads behind.
The result of a booming 2018 freight market has left an impression on many operators on the revenue potential of trucking. Owner operators and small fleet owners are taking advantage of last year’s profits by expanding their fleets by purchasing some of the more recent model year equipment while the large carriers are selling.
Record numbers of class 8 orders in 2018 lead to a slew of new truck deliveries in 2019. With large carriers replacing older equipment as well as contracting their fleets, it would seem to be a good time to purchase as the market turns bearish. This is truer for the four and five-year-old models whose prices have moderated since peaking in May, growing 3.8% and 2.7% respectively YoY. Three-year model prices have grown a much more robust 14.2% over the past twelve months.
It will be interesting to see if the trend of small fleet growth continues into 2020. Freight volumes have picked up, but more locally than long distance. Less-than-truckload (LTL) carriers specialize in local freight movements due to having a large portion of their fleet dedicated to local pickup and delivery runs. They will also benefit greatly from the shrinking load distances as they are more price competitive in that range
A new California law, going into effect in January, designed to address worker misclassification could seriously affect the trucking industry, but there is so much up in the air that there’s no clear path for trucking companies using independent contractor owner-operator drivers in the state.
AB5 does away with most of the traditional methods of determining whether someone is truly an independent contractor or an employee, such as the worker’s amount of risk and investment in his or her business, in favor of an ABC test.
The big problem with the ABC test is the “B” prong, which states that to be considered an independent contractor rather than an employee, the worker must perform “work that is outside the usual course of the hiring entity’s business.”
In other words, if you’re in the business of hauling freight, you could contract with someone to paint your building or do your taxes, but you can’t use an independent contractor to haul freight.
Or at least that’s what you would think. But AB5, like any bill, includes pages and pages of additional legalese, carve-outs for specific industries and other bits and pieces that have led to a variety of opinions on how it’s going to affect trucking companies.
“Is the sky falling?” asked Greg Feary, president and managing partner of the Scopelitis law firm, in a webinar. “It’s falling in certain areas, but we don’t predict it is falling in trucking for independent contractors.”
That doesn’t mean there aren’t some serious challenges ahead, and in the meantime, trucking companies in California are still trying to figure out what to do next.
“We have more questions than answers,” said Weston LaBar, executive director of the Harbor Trucking Association in California, in an interview, pointing out that the law as passed had no language in it specifically about trucking, for good or for bad.
Converting owner-operators to employee drivers
The bill’s supporters seem to expect that companies will simply convert their independent contractors to employees.
But Feary told HDT that he doesn’t see that as a “comprehensive solution.
“I would be surprised that under normal circumstances, a motor carrier approaching the independent contractor workforce and saying, ‘Give me a show of hands, who wants to become an employee,’ I doubt there would be many hands that would go up in the air.”
“A significant number of owner-operators, more than a simple majority, see themselves as independent businesses and entrepreneurs – and they did that intentionally. If they wanted to be an employee, they already would have been an employee for a motor carrier.”
LaBar said the association has members that already have been in the process of converting their independent contractors to employees. But he notes that the law is being challenged, and if ultimately the courts find that it is preempted by federal law governing motor carriers, “and you already reclassified them as employees, it’ll be impossible to convert them back. You would be compliant with state law but may be giving up a competitive advantage.”
In addition, like Feary, LaBar pointed out that a lot of independent contractor truckers don’t want to be employees, and rather than be converted, will likely take their truck to another motor carrier that is still signing on owner-operators. “If they have a large number of contractors they will lose capacity, and that is a concern, especially for our large motor carrier members who rely on hundreds of owner-operators,” he said. “Over the last couple of years, a lot of motor carriers who have gone to all employee fleets have lost a significant amount of drivers. In some cases we’ve seen two-thirds or more of the fleet leave and go elsewhere, because they want to remain ICs.”
Another knotty part of that conversion: Who’s going to buy the owner-operator’s truck? With all of California’s air quality regulations, “I don’t see trucking companies buying older used trucks from owner-operators.” We may see the used-truck market in California become flooded with equipment, meaning owner-operators won’t be able to sell the truck for nearly what it’s worth.
Are they truly in the same business?
The author of AB5 has targeted the “gig” economy and companies such as Uber and Lyft in her comments. Yet Uber has said it has no plans to make Uber drivers company employees.
“Contrary to some of the rhetoric we’ve heard, AB5 does not automatically reclassify any rideshare drivers from independent contractors to employees,” said Tony West, Uber’s chief legal officer, in comments after the bill’s passage. “AB5 does not provide drivers with benefits, nor does it give drivers the right to organize. In fact, the bill currently says nothing about rideshare drivers.”
Referring to the three-part ABC test, West said, “arguably the highest bar is that a company must prove that contractors are doing work ‘outside the usual course’ of its business. But just because the test is hard does not mean we will not be able to pass it. In fact, severalpreviousrulings have found that drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.”
Asked about Uber’s position, Feary explained, “Uber’s position has been for a long time that they’re a technology marketing company.” The drivers are doing business with people that who to move from point A to point B; Uber’s business is simply to put a platform together so those two can talk to each other.
Trucking companies could theoretically make similar arguments. You can argue (and companies have argued in court, with varying degrees of success) that the business of a motor carrier, engaging the shipping public and dealing with all the things associated with being a motor carrier, is not the same type of business than the independent contractor driver, whose business is freight delivery.
“The court recognized that QDA’s normal course of business was arranging for the delivery of those RVs, where the driver’s normal course of business was delivering them,” he said. “The court did note that if the company also had W2 drivers, they may have reached a different decision.”
However, said Scopelitis Partner Chris McNatt, “From what we’ve seen so far it’s highly doubtful a California judge would look at the driver-motor carrier relationship and not find they are engaged in the same business.”
A possible model: The business-to-business exemption
There is a business-to-business exemption in AB5 that may be of value, said Shannon Cohen, a Scopelitis partner, “meant to capture bona fide business-to-business relationships.”
To potentially meet this exemption, the independent contractor would have to have a business entity (such as an LLC, a corporation, etc.) that is registered by the state, she explained in a webinar. The business must have a separate business location and be “customarily engaged in an independently established business as the area of work performed,” advertise those services to the public, provide its own equipment be able to negotiate its own rates and set its own hours, and has to enter into contracts with other businesses performing the same work.
“That’s a series of fairly stringent factors,” Cohen said. “We do feel the model can be used to create a viable, workable model, but there are going to be a few factors you need to pay attention to,” such as the requirement to enter into actual contracts with other businesses – not just having the right to enter into such contracts as has previously been one of the factors often used to determine the independent contractor relationship.
Some companies, Feary said, might decide that they really are a third-party logistics provider or broker, not a motor carrier, and broker freight to motor carriers. Some of the company’s independent contractors might be willing to become independent motor carriers and accept brokered freight from the same company they used to run under contract to.
“You’ll find today any number of motor carriers that have a brokerage subsidiary because they can’t handle all the freight their customers want them to handle. Or they don’t prefer some of the freight their customers want them to move, it’s the wrong route, the wrong price, and they broker it out to small motor carriers. It may be they look at that and say, my brokerage affiliate or subsidiary is going to do more business now because that’ the way they’re going to do business in California. That’s going to depend on your position in the industry and who your customers are, if that’s the way they want to do business with you.”
The Harbor Trucking Association offers a Trucker Advantage program that helps drivers become motor carriers, offering help with permits, authority, insurance, etc. “That’s not easy for a lot of folks to do,” LaBar said.
Will the law even stand as is?
“Certainly one option is to stand pat,” Feary said. There are legal challenges and the possibility of “trailer” legislation, and even a potential ballot initiative, all of which mean “you have to think about, will this law even look the same a year from now?”
Scopelitis’ McNatt said the ripple effects of AB5 could be significant. “California is in many cases the bellwether of what’s going to happen across the rest of the country.” Democratic presidential candidate Elizabeth Warren earlier this month released a sweeping labor proposal, including adapting California’s ABC law as the federal standard.
“There have been extensive lobbying efforts; the California Trucking Association engaged in a valiant effort to obtain an exemption for trucking,” McNatt said. “Those will continue beyond the legislative session,” he added, and could lead to so-called trailer legislation, follow-up legislation that could change the law.
“Stay tuned also for what you will see from the gig companies potentially pushing their own trailer legislation and/or pushing for a ballot measure, which could bleed over into trucking,” he said.
However, said HTA’s LaBar of a trailer bill that addresses trucking companies, “We don’t know if that will be beneficial for the trucking industry or will be even more onerous on the trucking industry.”
The law is also being challenged by suits alleging that for trucking, it is preempted by federal law through the Federal Aviation Administration Authorization Act, part of which prohibits states from enacting laws that affected a motor carrier’s prices, routes and services.
If the dispute makes it to the Supreme Court, Feary said, “you might find out this law is federally preempted in trucking. But you can appreciate that’s not going to be a quick solution.”
Meanwhile, Cohen noted, “the legislation was subject of a hard-fought battle, and I think those efforts will continue through the 2020 session.”
Although Uber has said its drivers are not affected by the law because they’re not in the same business, it nevertheless is taking action to try to change the law. “We will continue advocating for a compromise agreement,” West said. “But we are also pursuing several legal and political options, including working with Lyft and other Internet platform companies to lay the groundwork for a statewide ballot initiative in 2020.”
Scopelitis’ attorneys said one possibility is a “dependent contractor” model. “Uber and Lyft have suggested that’s a direction they may go,” said Feary. “That has a genesis in Canada where we see the idea that they are independent contractors,” but there are still benefits and the ability to collectively bargain.
“A dependent contractor bill was launched in June in New York and it got no favor on the business side or the labor side; both were opposed to it. But with Uber and Lyft pushing it we might see some movement.” In fact, Bloomberg Law reported on Oct. 10 that lawmakers in New York are working on legislation to create a new dependent contractor category.
Another possibility is a ballot initiative. When AB5 passed, Uber and Lyft together had already transferred $60 million into a campaign committee account for a ballot initiative.
What’s your appetite for risk?
HTA’s LaBar said the association has spoken with many top legal experts and attorneys in the state. “Most of them have very differing opinions on what you can or can’t do,” he told HDT. “Mostly the question you get asked is, what is your risk exposure appetite – how afraid are you of getting sued? If you’re completely risk averse, classify them as employees and try to build a business that way. If you’re medium risk, there are ways such as co employers and brokerage models. And if you have a big risk appetite, don’t do anything; at the end of the day you may be federally preempted and end up in a great position.”
Articles extolling the disruptive potential of digital freight brokers (DFBs) tend to draw impassioned comments from individual freight brokers who argue that DFBs are merely competing on price using the enormous amounts of capital ignorant VCs have showered on them. In this article I will highlight some of the arguments about why DFBs may find it harder to succeed to the extent that the venture capitalists who have invested in them might expect.
It is important to differentiate between DFBs and digital freight marketplaces (DFMs). The former operate traditional businesses with a relatively small number of outside partners while the latter seek to build software platforms with a relatively large number of partners and participants. In terms of the value proposition to customers, every digital freight marketplace would also function as a digital freight brokerage but not every digital freight brokerage would be a true marketplace.
The Tyranny of Complexity
Transporting freight is a complex business:
There are numerous regulations with which carriers and shippers must adhere.
Often, freight shipments must be transported via different modes of transport between origin and destination – giving rise to a coordination problem between different counterparties.
Shippers expectations and needs keep evolving.
Things go wrong all the time when freight is being transported over relatively long distances.
This is why traditional freight brokerages are characterised by a relatively large number of people who understand shippers’ needs, and work as intermediaries between shippers and carriers. Individual freight brokers perform a function that can not yet be replicated entirely with software.
As a result of the inherent complexity of transporting freight, DFBs quickly start to resemble their non-digital counterparts in terms of organizational structure. To put this another way, they operate in almost exactly the same way that their traditional counterparts do with the distinction that;
Traditional freight brokers invest relatively more money on people and relatively less on developing proprietary software technology to make individual brokers more productive and efficient.
Digital freight brokers invest relatively more capital in developing proprietary software technology to make their individual brokers more productive relative to their peers at traditional freight brokers.
What is Disruption?
One way to think of disruption is that it happens when a wave of new entrants into a market leads to financial distress for the most dominant incumbent firms causing dramatic shifts in market share and market power. For this to happen, new entrants must function in a way that makes it impossible for incumbents to offer an appropriate response.
In other words, technology-enabled price competition is insufficient; The most powerful incumbents can compete on price. Traditional freight brokerages can invest in productivity-enhancing software if they realize that is the direction in which the market is going.
Digital freight brokers will not disrupt the freight brokerage market until they start doing things in a way that traditional freight brokers can not. This is where digital freight marketplaces could come into the picture. A digital freight marketplace is a platform that largely eliminates the need for human intermediaries between shippers and carriers for load matching, allowing them to transact directly with one another using the magic of software.
The Functions of A Digital Freight Marketplace
To succeed a DFM must build and maintain a multi-sided platform that performs four functions;
First, it must build a large audience of shippers and carriers who have an interest in transacting with one another on the marketplace.
Second, as I have already described above, it must successfully match shippers and carriers with one another for the purpose of transporting freight. For carriers, it is critical that such a marketplace also solve the deadheading problem.
Third, it must provide, or allow other partners to provide complementary tools and services that are important for facilitating and removing friction from the on-going value exchange between shippers and carriers.
Fourth, it must develop, maintain, and enforce rules of behavior for participants of the platform.
This is why I said every digital freight marketplace is a digital freight broker, but not every digital freight broker is a digital freight marketplace. To succeed, digital freight marketplaces must equal or beat the performance characteristics that shippers have become accustomed to and expect from traditional freight brokers and DFBs. If DFMs can do this at a lower price, while folding other critical services and features into the marketplace, then we may start to see disruption that is repeatable, scalable, and profitable. By itself, load matching is a commodity, and DFMs must offer much more value beyond load-matching.
Moreover, DFMs must eventually be capable of integrated into existing: Transportation Management System (TMSs), Warehouse Management (WMSs) and/or Warehouse Execution Systems (WESs); Demand Planning Systems (DPSs); Materials Planning Systems (MRPs); Distribution Requirements Systems (DRPs); Labor Management Systems (LMSs), Customer Relationship Management Systems (CRMs); Supplier Relationship Management Systems (SRMs); Enterprise Resources Planning Systems (ERPs); or Business Intelligence Systems (BI). Basically, a DFM must be capable of integrating with whatever software and technology systems shippers and carriers use daily to facilitate the movement of freight.
Some Final Questions
Rather than debating if DFBs will disrupt traditional brokers, I find it more productive to ask if any of the current cohort of DFBs will make the transition from being a product- or service-based company to becoming a platform, a digital freight marketplace? A related question is this: Rather than trying to supplant traditional freight brokers should software startups be building a platform of productivity tools for traditional brokers?
I do not think there’s an easy answer to either question, but the answers that entrepreneurs and investors develop to those questions will determine what happens in the freight brokerage industry.
About The Author:
Brian Laung Aoaeh writes about the reinvention of global supply chains, from the perspective of an early-stage technology venture capitalist. He is the co-founder of REFASHIOND Ventures, an early stage venture capital fund that is being built to invest in startups creating innovations to refashion global supply chain networks. He is also the co-founder of The Worldwide Supply Chain Federation (The New York Supply Chain Meetup). His background covers the gamut from scientific research, data and statistical analysis, corporate development and investing for a single-family office, and then building an early stage venture fund from scratch – immediately prior to REFASHIOND. Brian holds an MBA in Financial Instruments and Markets, General Management from NYU’s Stern School of Business. He also holds a Bachelor’s Degree in Mathematics & Physics from Connecticut College. Brian is a charter holding member of the CFA Institute.
The ability to give customers real-time visibility into the status of their freight has become table stakes for landing business with larger shippers.
That was a key message from a panel discussion during the American Trucking Associations’ Management Conference and Exhibition in San Diego earlier this month.
“It is incredibly important, partly because of what we offer to our end customer,” said Jess Baumhoff, who handles strategic carrier partnerships and performance for e-commerce furniture giant Wayfair. “And we’re only able to meet those obligations if you can see where the freight’s moving. I think corporately we now demand there is that visibility.”
“Every Friday I do movie night and dinner with the two little humans that I own,” she said, sharing a story of ordering pizza from a small mom-and-pop pizza joint, getting pings at every step along the way, such as “Bailey is now prepping your dough,’ and, ‘Susan has put it in the oven,’ and, “Come get it now.”
“This is a small organization providing me that type of visibility,” she said. “Yet sometimes it feels like even though I’m dealing with a billion-dollar organization, when something leaves my facility it goes into a black abyss, which makes it very hard to keep that promise to our customers” for visibility into the status of their orders. “I am completely reliant on that repeat customer; that’s what allows us to grow.”
And it’s not just e-commerce.
Yone Dewberry, chief supply chain officer for Land O’ Lake, said the company may not have a lot of shipments direct to the customer like Wayfair does, but it has more than 100 business facilities with materials that come from hundreds of suppliers.
“For us, visibility has become table stakes,” Dewberry said. “We have facilities with less than a day’s worth of raw material inventory. Even though we’re not a big e-commerce player, it has become extremely important.”
At Walmart, explained Bob Welsh, senior director of transportation sourcing and procurement, “We have to be able to make snap decisions. It doesn’t matter if it’s e commerce or in our brick-and-mortar stores, information is key for us to make the right decision at the right time. If a truckload shipment of produce is coming in and we know it’s going to be late, that triggers a whole lot of things. We’ve taken a monumental amount of inventory out of our supply chain, so if there’s anything that happens en route, we have to have information faster and better than we ever have before.”
On time deliveries
Another big issue is deliveries being on time – not only not being late, but also not being early. “The acronym front and center these days is OTIF,” said panel moderator Darren Hawkins, CEO of YRC Worldwide. “On time and in full has set new precision delivery standards.”
Walmart has gotten a lot of press on this, as Welsh admitted. In 2017, it announced it would fine suppliers for early or late deliveries.
“It’s the right product at the right place at the right time for our consumers, and that doesn’t matter whether that plays into our traditional store business, our Sam’s business, our e-commerce business, what have you,” Welsh explained. “We have to make sure the product is arriving when we want it. If it’s too early, that’s just as much of an issue; it could be backing up in the back room of a store or distribution center.
“When a customer goes to a store or orders online, they can be assured that product will be there. Running a more precise supply chain across the board allowed us to reduce the overall cost of the supply chain.”
Walmart’s supply chain changes have been driven by e-commerce, Welsh said. “It’s caused us to create what was probably a more bulky supply chain and turn it into something that’s got to be very nimble on a day in and day out basis. It’s not without challenges, obviously, but it’s made us better.”
Addressing detention time
For fleets, of course, there is the frustration that while they may be expected to deliver within a narrow window, there’s a big problem with drivers being forced to sit and wait to be loaded or unloaded at many facilities. In fact, driver detention for the first time made the American Transportation Research Institute’s Top Trucking Issues list this year, debuting at No. 4.
“Detention ties up our most valuable resources, a CDL qualified driver, plus the tractor and trailer are tied up,” said YRC’s Hawkins. “But if we bill the shipper [for detention], that becomes a negotiation, when all we want to do is free up those investments so they can be productive.”
Walmart’s Welsh agreed – after all, the company has its own private fleet so it’s aware of the issues on that side of the coin as well. “I think dwell is such a major issue. As a supply chain company we have to maximize the time our drivers have to actually be driving and take the friction out of the supply chain wherever we can. Looking at it from being a carrier and a shipper, to be a shipper of choice, you have to find ways to minimize paperwork, bureaucracy, to keep those drivers moving.”
Walmart, he said, uses internal tools to aggregate information from its carriers to identify which suppliers are causing carrier issues, then works with those suppliers and its own distribution centers and third-party operations it runs. We have a team that does nothing but monitor where we are from a dwell time perspective. We often will bring carriers to onsite meetings so they can share what happens when we can’t keep drivers moving.”
Wayfair’s Baumhoff also said her company does a lot of internal reporting to help discover bottlenecks. “One thing I will say where I think carriers can help in this is letting us know and communicating if drivers are going to be early or late, so it’s not a surprise when a carrier shows up. We can help before it escalates to detention or other issues.”
In many ways it comes back to the need for better visibility into the status of freight.
Land O’ Lake’s Dewberry explained, “There’s nothing better for us as an organization to understand when someone’s going to be late, when someone’s going to be early, how are we holding you up, are you going to be in traffic. You look at truckers who are willing to share that information and those are the ones we want to do business with, because it’s so key to keep the supply chain moving and take the friction out of it.”
Dewberry said detention “is not a carrier issue, it’s not a shipper issue, it’s an industry-wide issue, and it’s one we have to work on together. And we don’t always work together well. We have to do a much better job of sharing information and come together to work on this dwell problem. Work with your partners on this — it’s a big deal for shippers, too.”
Walmart’s Welsh said when shippers are looking at carriers, beyond on-time service and being a safe transportation provider, “I think what makes a great carrier is the ability to partner and communicate. Getting beyond a transactional relationship, the value we can bring to each other’s networks. Having that open dialogues between ourselves and our carrier base, and it doesn’t matter if you are a very large carrier or a mid to small carrier…. Looking to how we make each other more efficient, make each other better, to me that’s the key.”
Trimble MAPS Development Platform Web APIs Enables EKA to Provide Real-Time Trip Management and Precise ETAs as Part of its Cloud-Based TMS Offerings
SUNNYVALE, Calif., Sept. 12, 2019—Trimble (NASDAQ: TRMB) announced today that EKA Solutions, Inc., a provider of cloud-based transportation management system (TMS) solutions, has licensed web APIs from the Trimble MAPS development platform to deliver intelligent automated dispatch and real-time visibility solutions with interactive trip management tools for brokers, carriers and shippers.
Consisting of mapping, routing, navigation and location APIs, the Trimble MAPS development platform is specifically designed for solution providers and fleets looking to build or enhance commercial applications.
“EKA is excited to work with Trimble. The collaboration between Trimble and EKA will deliver transformative and affordable solutions to small- and medium-size broker, carrier and shipper businesses. It will empower them to provide a better experience for customers and drivers, while reducing the time, expense and effort of managing the business basics,” said JJ Singh, founder, investor & CEO of EKA Solutions, Inc.
EKA has integrated trip management web APIs from the Trimble MAPS development platform to enhance its TMS Cloud. Through the Trimble MAPS stateful web services, trip data is stored on the server and used to continually monitor and manage the entire trip lifecycle, from planning through execution and analysis, resulting in highly accurate ETAs and the ability to visualize real-time trip progress.
“Creating a relationship with a solution provider who, similar to Trimble, is focused on enabling carriers, shippers and drivers to achieve operational success is extremely important to us,” said Bill Maddox, business development for Trimble MAPS Division. “With increased carrier pressure to provide superior customer service and the shipper’s need for freight visibility, we provide innovative tools to create or enhance applications that benefit the entire transportation workflow.”
EKA’s TMS solutions using the Trimble MAPS development platform are expected to be introduced and commercialized beginning as early as the third quarter of 2019.
EKA Solutions, Inc., provides the Smart, Unified Platform EKA Omni- TMS® for – Virtually – Everyone. EKA Omni-TMS® is the cloud-based SaaS freight Eco-System designed to transform the transportation and logistics industry. It empowers small- and medium-size broker, carrier and shipper businesses to operate from quote-to-cash with affordable and best-in-class digital tools, enabling the higher performance demanded in tomorrow’s supply chain. With real-time information, EKA Omni-TMS® enables brokers, carriers and shippers to provide visibility and appropriate transparency as they fluidly trade across an expanding and verified network with key, trusted partners. For more information about EKA, visit: https://www.go-eka.com.
About Trimble MAPS
Trimble MAPS provides global map-centric technology dedicated to transforming journeys through innovative routing, scheduling, visualization and navigation solutions. Built on map data and a routing engine designed specifically for commercial vehicles, its development platform and trusted products are made for a broad range of industries, workforces and fleets of all sizes. The Trimble MAPS brands including PC*MILER, CoPilot and Appian are the foundation for safe and efficient journeys worldwide—one driver, one vehicle, one fleet at a time. Trimble MAPS is a Division of Trimble: maps.trimble.com.
Trimble is transforming the way the world works by delivering products and services that connect the physical and digital worlds. Core technologies in positioning, modeling, connectivity and data analytics enable customers to improve productivity, quality, safety and sustainability. From purpose built products to enterprise lifecycle solutions, Trimble software, hardware and services are transforming industries such as agriculture, construction, geospatial and transportation and logistics. For more information about Trimble (NASDAQ:TRMB), visit: www.trimble.com.
Recently EKA Solutions launched its EKA MPlace platform, which lets shippers and brokers create private freight marketplaces where they can trade with their trusted providers in a precise, automated and real-time way.
Now EKA is offering some of the capabilities of its cloud-based Software-as-a-Service freight ecosystem to large motor carriers that use owner-operators. EKA iLoop Solution can help carriers that want to mitigate worker classification liability risks when they contract with lease or independent operators.
“The EKA iLoop platform enables carriers to manage their leased or independent operator relationships without interfering into their independent execution,” explained JJ Singh, founder and CEO of EKA Solutions, in a press release. EKA gives carriers a driver-facing app that enables load tendering, interactive communication with dispatcher and real-time information access to improve life on the road for these owner-operators.
“By providing leased-on owner-operators the ability to select freight, determine routes and schedules, monitor settlements and manage operational accounting in their own systems, carriers can improve owner-operator relationships while mitigating work classification liability risks,” said Mark Walker, EKA president.
EKA iLoop provides real-time visibility of load movement and ETA updates (LiveETA) that factor in driver unplanned events, hours-of-service compliance, and actual traffic and weather conditions.
EKA Solutions recently launched MPlace, which allows larger shippers and brokers to create private marketplaces where they can trade with “trusted providers in a more precise, automated and real-time manner,” the company said in a release.
“We provide technology solutions that are very efficient and at a lower cost,” JJ Singh, founder and chief executive of EKA, told FreightWaves. “We already focus on small and medium-sized brokers, shippers and carriers, so we thought larger brokers and shippers could benefit from our solutions.”
The company launched its unified, cloud-based Omni-TMS (transportation management system) platform for small and medium-sized brokers, carriers and shippers in 2018. Its is now offering some of the capabilities of its software platform to larger shippers, brokers and carriers “in a way that can complement their existing TMS platforms and help them meet today’s more dynamic logistics environment,” the company said.
For example, if a large shipper needs a load hauled in a new freight lane, one of its employees can go onto MPlace and find partners in its own private space and not have to go out to the spot market or load boards,” Singh said.
“Utilizing the EKA MPlace, customers reduce direct labor, transportation spend and contracting risk while providing end-to-end visibility, audit and analysis,” Singh said.
Chart of the Week: Operating Ratio — Dry Van Carriers Company Fleet
Like travelers walking through the desert that found an oasis, carriers found a wellspring of freight in 2017 and 2018 and expanded their operations. Unfortunately for the carriers, the pool has dried, leaving many dying of thirst. 2019 has been a lesson in how trucking markets can overheat just like the economy, leading to an uncomfortable period of contraction. Operating ratios (ORs) for dry van carriers in the Truckload Carriers Association (TCA) Truckload Indexes program have averaged over 100% since the start of the year as a result of this contracting growth.
In recent weeks there has been a lot of dispute in the media and over Twitter about the state of the trucking market. We’ve described the market as getting “bloody” earlier this year, while others have talked about how “strong” the trucking business is. Recently, we developed a view that the market was about to turn for the better, based on volume data we have seen in the market.
Regardless of the words you use, it is important to inform these views with data. The TCA benchmarking program is the first and only program in the history of truckload that provides monthly benchmarking of hundreds of competitive truckload carriers, ranging from mid-size to enterprise (smallest fleet 75 trucks, largest is 7000). In total, 73,000 trucks are counted in the data sample, representing 8% of the total truck count of medium and large trucking fleets operating in the entire U.S.
The fleets submit monthly financial data into a benchmarking software program that compiles aggregated financial reports for the industry, sliced by a number of variables. While the truckload carriers submit 500+ points of data, only 31 are published in an aggregated basis inside of SONAR. With this data we can use data and not bias to determine how the industry as a whole are doing. Prior to the data being offered on an aggregated basis, the only data points non-insiders would get about the state of the market is through the public truckload carrier earnings reports that would come out quarterly and offer up 8-10 operational KPIs. Now we have over 30 and they come up out monthly from over 200 different fleet profiles.
Operating ratios are a measure of operational efficiency. The formula is operating costs/operating revenue. A 100 OR indicates that for every dollar made in revenue, 100% of it goes to funding the cost of doing business, leaving nothing for debt or investment. In trucking operating costs are things like driver wages, back office support, and maintenance costs. Debt and interest payments are not included in these costs.
Most carriers carry some amount of debt in order to fund some of their growth as many trucking companies are low on cash. Purchasing equipment and buildings are some of the more commonly financed items. In general, many carriers consider making five to ten cents on the dollar a success, or a 90 to 95 OR.
The issue for carriers in 2019 has been more about the oversupply than the lack of demand, although both are present. As carriers saw margins expand in 2018, they decided to invest in growing their fleets as was demonstrated by the record number of class 8 truck orders last year. About the time that most of the orders were being placed the market started to cool. Daily truckload volumes have averaged roughly 3% under 2018 from March through July, but the most brutal hit came in May and June when they were over 4% under previous year volumes.
The trucking industry is extremely competitive with relatively low barriers to entry. All it takes is a commercial driver’s license (CDL), a truck, and a willingness to drive to start a trucking company. Many drivers will quit larger operations to start their own venture after a time. FreightWaves has studied the Federal Motor Carrier Safety Administration (FMCSA) data and found that smaller fleets are still growing when the lager fleets (100+ trucks) have contracted over the past several months.
Many of these drivers have developed relationships with shippers over the years, making them a reliable option. Smaller carriers have lower overhead costs and can drop rates under the larger carriers whose costs are filled with building leases and back office costs. The influx of smaller carriers has a deflationary impact to both spot and contract rates.
In 2017, carrier ORs averaged 99%. Many of the contracted rates were made based on 2016 activity, which was the last freight recession. Seeing as most freight contracts are made on an annual cycle, these rates were in place throughout most of 2017 and early 2018, which kept profit margins low.
Late in 2017 into early 2018, carriers started falling out of their contracted obligations to service higher paying spot market freight. Demand grew so fast that spot rates were well above contract. Carriers, at times, could get more than double the price of hauling for their contracted shippers. The spread between spot and contract was too much to ignore.
Recently, volumes have recovered but have not had significant impact to rates. This should provide relief for some carriers and extend their life for a time, but winter is coming when freight volumes typically plummet. Carriers normally build reserves in the summer to keep them afloat during the slower months. The true test of carrier resolve has yet to come.
$5.6B of venture capital has been invested in FreightTech in 2019 to-date
FreightTech venture investing is super hot, but most of these startups continue to lose money. Is this a fad or something else?
Last year, FreightWaves created a FreightTech Venture Index to track the venture capital (VC) investing in FreightTech startups. The term FreightTech is defined loosely as software companies and other technologies that aid in the movement of freight or management of supply chains through logistics.
In prior studies, we eliminated companies that were involved in on-demand mobility (Uber for instance), because much of the investment was targeted towards personal mobility and not freight movement.
Recently, mobility and e-commerce companies have started to play a much bigger role in the freight innovation map, with significant resources deployed to expand their on-demand mobility networks and experience into the logistics sector. With companies like Uber, Amazon, JD.com, Alibaba and others building out freight networks and looking more like logistics powerhouses, the lines between personal mobility and freight movement are starting to blur.
Going forward, we will include venture funded on-demand mobility companies in our studies, as long as they include freight logistics as a core product offering. These firms have been some of the biggest freight innovators of all and dismissing them because they do other types of mobility businesses leaves total investment under represented.
The logistics sector (defined as the movement or management of freight) is a $9.6 trillion sector, globally. In the U.S. alone, logistics represents $1.6 trillion, or approximately 8 percent of domestic GDP. Compared to financial services revenues, logistics is bigger, with financial services generating $1.5 trillion, or 7.4 percent of domestic GDP.
FinTech has been one of the hottest venture sectors for the past decade, while FreightTech has only recently become a core focus of Silicon Valley investors. FinTech describes the software services and other technology used to support or enable banking and financial services. Payments, money movement, capital markets or insurance technologies are sub-segments of the FinTech industry.
In 2018, FinTech received $40.5 billion in VC investment, while FreightTech received $10.4 billion. More remarkably, however, FreightTech saw an explosion of interest from VC, growing by more than 400 percent, from $2.3 billion in 2017. FinTech doubled between 2017 and 2018. Since 2014, FinTech has grown by almost 500 percent, while FreightTech has grown by almost 1,000 percent, according to an analysis by FreightWaves using Pitchbook data.
FreightTech Venture Capital investing measured by total VC dollar investments:
So far in 2019, FreightTech startups have raised $5.6 billion of venture capital, while FinTech startups have raised $19.1 billion of venture capital.
Venture investing momentum in FreightTech is unlikely to slow down anytime soon. VCs tend to be momentum-driven investors, following their peers, but also looking at broader market trends. With companies around the world making significant investments in delivery and logistics networks to remain competitive, VCs will want an outsized share of the upside.
Over the next decade, companies that fail to invest in their logistics networks will find themselves disinter-mediated by companies that do. Consumers and companies alike will want real-time visibility, custody tracking and sourcing information, combined with near instant on-demand fulfillment.
Restaurants, retailers, distributors and manufacturers that fail to adapt to these demands will be as endangered as a niche media outlet that generates a large percent of its contribution margins from paywall subscriptions.
There is only one thing stronger than all the armies of the world: and that is an idea whose time has come. -Victor Hugo
Existing incumbents that have maintained their go-to-market strategies for years or decades with little value add to their clients will be displaced by venture-backed startups.
Incumbents that have a dated understanding of established business cycles and go-to-market strategies will be forced to adapt to a new way of thinking. Simply blowing off venture startups and their founders as idealistic, impractical and cocky is foolish and demonstrates historical ignorance or context.
Blockbuster versus Netflix is perhaps the greatest example of a market leader that pretended that a scrappy VC-backed company couldn’t displace them. Blockbuster had the chance to buy Netflix on multiple occasions (for as low as $50 million), but miscalculated where the market was headed and underestimated the advantages of Netflix’s business model and tech team.
Incumbent company execs interpret VC fundraising success as grandstanding for follow-on venture funding, without understanding how or why these same startups attract investment to begin with. They dismiss their business models as “unsustainable” or “ill-conceived”, assuming that the founder is clueless, arrogant, or living in a fantasy world.
In the early days of a startup’s funding cycle, Seed or Series A, a company doesn’t have to generate revenue. Often times, a good idea, charismatic entrepreneur, and a large total addressable market (TAM) size is all you need in the earliest days of startup. For FreightTech companies, the enormous size of the total logistics market ($9.6 trillion) is so massive, even in specialized areas, that investors know if the company has early traction in the market, it can grow to a big enough size for a large exit.
The amount of investment is often small in these early days (a few million dollars), just enough to get the company to a stage where the first couple of paying customers will buy the product.
Later stage companies that raise larger rounds (Series B and beyond) require product market fit, which means they need paying customers and high revenue growth. The biggest risk to a startup is running out of money, and tech-enabled startups that have high revenue growth and favorable unit economics almost never run out of willing investors to support the company.
Startups that are not growing fast (40+ percent year-over-year) face pressure by investors for a premature exit, often to a larger company, where the startup becomes a bolt-on product or feature of the acquirer’s core business. Lack of revenue growth is death for a startup, lack of profit is not.
In order for a startup to generate revenue, it must deliver real value to customers. The assumption that startups only play for venture capitalists and not for customers is usually held by the existing incumbents that are confused by the new entrants’ business model and go-to-market strategy. The tactics of the disrupter are usually drastically different than the incumbents, so the legacy companies write the new player off as a flash in the pan or assume the startup is given market credit that is neither deserved nor earned (“hype”).
Paying customers will have a different perspective, however.
Fast revenue growth is a sign of an under served client need identified by the new entrant. If the incumbents were serving the client’s needs, the startup wouldn’t have an opportunity to gain a foothold in the market and wouldn’t make it past a Series A funding.
In what is considered by many to be the most important book in Silicon Valley, Innovator’s Dilemma, incumbents misinterpret the opportunity, often dismissing it as a small and uninteresting niche. This allows the startup to establish a beachhead without any push back from the establishment.
“New entrants (often founded by frustrated ex-employees of the incumbents) with little or nothing to lose when they enter the market. Initially these small upstarts don’t pose a threat — the new entrants find new markets to apply these technologies largely by trial and error, at low margins. Their nimbleness and low cost structures allow them to operate sustainably where incumbents could not.
However, the error in valuing these technologies comes from what happens next. By finding the right application use and market, the upstarts advance rapidly and hit the steep part of the classic “S” curve, eventually entering the more mature markets of the incumbents and disrupting them.
In essence, the smaller markets are the guinea-pigs and test labs that help the technologies advance enough to play in the big boys league. In many cases the entry-point markets are left behind as the new technologies move into higher margin upmarket territory disrupting due to their superior performance.”
In order for the startup to grow, it must continue to add new revenue and client satisfaction throughout the engagement. The startup doesn’t enjoy the longer history or distribution of incumbents and must innovate to gain customers. Simply using a playbook of much larger and entrenched incumbents just means competitors will run the same playbook with a lot more resources than the startup.
As the company scales, client satisfaction is paramount. Usually this means that the startup is solving a major issue that the prior incumbents were ignoring. In later stage companies, venture investors want to see product market fit (real customer traction), high revenue growth and high paying customer satisfaction (usually tracked through NPS scores).
Venture investors are not concerned about profits if the startup is growing revenues quickly. This confuses a lot of people that don’t understand the venture investment model. Many of the most successful technology companies burn millions of dollars each year while they are growing fast. The biggest venture exits are usually companies that have high recurring (or reocurring) revenue growth, but with substantial losses. VC investors have a great deal of experience in seeing these companies become the dominant leaders of the next generation.
Even public companies can have big losses, so long as their revenues are growing. For software-enabled tech companies, investors have created the “Rule of 40,” which means that a healthy company should have a combined profit margin and growth rate in excess of 40 percent. Under this guidance, companies can lose 100 percent, but grow by 140 percent and still be considered “healthy.” ‘
Venture-backed startups are encouraged to sacrifice short-term profits, if the pursuit of profits sacrifices growth. The logic behind this is actually quite simple: fast growing revenue companies are far more valuable than slow growth, but profitable companies.
In Grow Fast or Die Slow, McKinsey studied 3,000 tech-companies between 1980 and 2012. Their conclusions were something that venture capitalists instinctively already knew, but defied conventional wisdom held by traditional business model thinkers, reporters and executives. Since the freight space has never seen the level of tech disruption that is going on currently, it is understandable that there would be a reluctance to accept it.
In the report, the management consulting firm stated:
Three pieces of evidence attest to the paramount importance of growth. First, growth yields greater returns. High-growth companies offer a return to shareholders five times greater than medium-growth companies. Second, growth predicts long-term success. “Supergrowers”—companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent. Additionally, growth matters more than margin or cost structure. Increases in revenue growth rates drive twice as much market-capitalization gain as margin improvements for companies with less than $4 billion in revenues. Further, we observed no correlation between cost structure and growth rates.
VCs also have defined exit time horizons; their investment will only be in the startup for a few years. If the startup chooses to make a profit, it isn’t investing as much in marketing, product features or market expansion. With tech-enabled businesses valued at a multiple of revenues, venture investors want revenue growth above all to maximize their returns.
Customers are usually the winners when venture startups join the market. Often, startups build their businesses with more favorable unit economics for buyers, more flexible terms, better features and service.
Plus, with a focus on customer retention above all, client satisfaction and success is built into the startup’s DNA. Existing legacy companies that are measured on quarterly profits alone are more challenged to compete and will struggle to fend off the eventual pressure of the new FreightTech startups.
If a startup demonstrates an ability to raise multiple rounds of funding from reputable venture investors with solid track records, that signal alone is usually a sign of product market fit and high revenue growth.
For executives where their core business is under siege, it is a difficult place to be, especially if you are apart of an enterprise where innovation funding is not readily available. The instinct is to lash out and assume the startups will either flame out or lack long term sustainable business models. In other words, when surrounded, they just shoot everyone.
But for the freight executives that understand the current investment trend is just getting started, the best chance for survival is to take the startups very credible, assume that customers are as well, innovate internally, find ways to partner, or acquire.
Sitting angry, defiant, and idle is death- just ask Blockbuster. And venture investing in the freight space is just getting started.
Tom Curee says artificial intelligence can help transportation companies deal with the “analysis paralysis” of overwhelming data.
Photo by Deborah Lockridge
If the words “artificial intelligence” conjure up an image of Skynet in the Terminator movies, it’s time to think again. There are real-world transportation companies using AI to do their work better, faster, and more effectively – and they could be your competition.
Artificial intelligence is not building computers in such a way to wipe out the human race, said Tom Curee, vice president of strategic development at Kingsgate Logistics, during a session on using AI to solve problems held during McLeod Software’s 2019 user conference in Denver.
“Really, it’s just the development of systems to perform tasks that normally require human intelligence,” he explained. In fact, AI is a concept that’s been around since the 1950s. It only has gained steam in the last few years with the availability of big data, he said.
“I’m getting data from so many sources, I can’t keep up with them. What has brought AI back to the forefront is that you can train it and teach it and code it to evaluate the data for you and make decisions.”
There are subsets of artificial intelligence called machine learning and deep learning. In machine learning, algorithms and software can automatically learn and improve from experience without being explicitly programmed. Deep learning goes beyond that and gets into artificial neural networks, algorithms inspired by the human brain, that learn from large amounts of data.
Matching trucks and loads is a major way artificial intelligence can be used in transportation and logistics.
Photo by Deborah Lockridge
Curee cited as an example how AI can be used by brokers or shippers what want to find the best truck to move a particular shipment. The computer can be taught to make a prediction for which carrier is the best match, based on factors such as location, type of equipment, profitability, driver hours of service remaining, driver preferences, and so on. With machine learning, the algorithm also learns over time and adjusts its recommendations based on which carrier or driver you chose.
“Over the years, we’ve made so many decisions off of our gut, and now we have data that may tell us something different,” Curee said.
Real-World Examples of AI in Transportation
Kingsgate Logistics is a non-asset-based freight broker, working with both truckload and less-than-truckload carriers. Curee notes, however, that he actually first got interested in AI when trying to address a serious driver turnover problem for a refrigerated carrier.
Kingsgate, which has 90 people in its brokerage business, has in the past year made a serious investment in leveraging technology. In April, Curee said, the technology team consisted of three people. Today, it’s 14, “because we see the need of what we’re trying to do with technology to keep up.”
The company is already using AI in six areas and has three more it has identified to work on. Curee shared examples of some of the ways Kingsgate is using artificial intelligence and machine learning, many of which would apply to asset-based trucking fleets as well as to brokerage operations.
Recruiting: It’s not just truck drivers who are hard to recruit. With the tight labor market, all types of positions are a challenge to fill – and sifting through hundreds of applications or resumes is time consuming. In fact, by the time you find someone who looks like the perfect fit, he or she may already have taken a job elsewhere. With AI, you can tell it what parameters you’re looking for, such as the types of previous job titles, skills, experience, etc.
Think about how this could work: Look at the people who have been most successful in your organization, who worked best with the team, at their skillsets and backgrounds, and teach it what you’re looking for. In addition, you also give a thumbs-up or thumbs-down to the recommendations it comes up with to help it learn further.
Sales: One of the ways Kingsgate is leveraging AI in sales is simply by figuring out the best time of day to call a prospect. It pulls data such as social media activity, when the prospect opened an email from McLeod, when they have visited the website, etc.
Ai is similarly being leveraged to identify new customer prospects that are a good match for Kinggate. And it’s being used to create a prediction score on how likely customers are to be a fit for the company. “How much value would you have if you could stop your sales reps two months earlier on an account that just isn’t ever going to be a fit?” Curee said.
Kingsgate is also using AI to analyze recorded calls that have been transcribed via a speech-to-text program. They are analyzing what the company’s most successful sales reps do and coaching less-successful reps in these areas. For instance, it’s finding that the most successful reps spend less time on small talk and more time talking about market insights.
Social Media: In its marketing efforts, Kingsgate uses the technology to choose the best times to publish its social media posts based on the audience it is trying to reach.
Personalized Websites: Still in the early stages is dynamic personalization of its website. When people come to the website, technology tracks their IP addresses and can often cross-reference to the company’s CRM (customer relationship management) data to identify what industry they’re in. So a flatbed carrier would get shown a different version of the website than a refrigerated carrier, each optimized to appeal to that specific market.
IT Support: Although it started as an internal function, Kingsgate is in the process of making this customer-facing as well. The AI can process tech support requests and make a suggested answer based on the company’s knowledge base as well as on previous similar tech requests. Right now it still takes a human in the support department to OK that answer and send it to the person needing help, but in the future, Curee said, it will handle some of these questions automatically.
The Future is Now
“There’s virtually no major industry that modern AI hasn’t already affected,” Curee said. “We have so much data flowing at us now, and everyone is asking, ‘How do I mobilize this data, how do I make decisions from it? AI makes your data actionable. It’s not always making a decision for you; it’s helping you be able to make the decisions you need to make.”
In fact, he said, your company’s ability to adopt and adapt to this technology will be crucial to your success in the next five to 10 years.
A big part of that is going to be “reskilling” your workforce, he said. “It’s not good enough that the tech team can implement it.” Front-line workers don’t need to know how to program it, any more than they need to be able to build a computer in order to use it, but they do need to understand what artificial intelligence is and how to use it to improve their day-to-day experience.
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