Big trucking companies, scrambling along with their customers to keep up with fast-growing U.S. economic demand, are plowing millions of dollars into technology to build up services as digital freight middlemen.
The growing investment in online freight brokerage is aimed at building on operations many truckers have used to supplement their core transportation businesses, even when that means turning shipments over to other truckers or independent drivers.
The expansion is being driven by customer demand and by the need to compete with a growing lineup of upstart companies that are using new technology to grab a slice of a U.S. freight market that’s growing at a fevered pace.
Like the Uber Freight unit at Uber Technologies Inc. and load-matching startups like Seattle-based Convoy, the trucking companies’ platforms aim to automate tasks like phone calls and booking shipments. They also harvest information that trucking companies say can help find space for customers grappling with one of the tightest freight markets in years. Freight Brokerage BoomAnnual net revenue for the U.S. domestictransportation management sector, 2003-2018, in millions of dollars.Source: Armstrong & Associates200320072011201502,5005,0007,50010,000$12,500
“This is a new way for us to think about getting efficiency into and waste out of a very large system that is under a lot of pressure today,” said John Roberts, chief executive of J.B. Hunt Transport Services Inc., one of the largest carriers in North America. The Lowell, Ark.-based company’s online marketplace generated about $137 million in the second quarter, up from $96 million the previous quarter, and accounted for about 40% of its overall brokerage revenue.
The digital brokerage push comes as many U.S. manufacturers, distributors and retailers say tight transportation networks are driving up their operating costs, pushing down profit margins and in some cases holding back growth.
That’s pushed more business to third-party brokers that don’t own vehicles and make money off the spread between what they charge shippers to move a load and the price they pay truckers to haul it.
Big logistics companies are benefiting from their own investments in technology. Minneapolis-based C.H. Robinson Worldwide Inc., CHRW 0.77% the biggest U.S. freight broker, took in more than $5.5 billion in total revenue booking surface transport shipments in North America in the first half of the year, up 19.4% from the year before, and its income from those operations jumped 21.1% to $358.6 million.
Domestic transportation management, which includes freight brokerage and logistics companies that handle outsourced transportation services for shippers, was a $71.7 billion business in 2017, according to research firm Armstrong & Associates, and grew 16% from the year before.
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Freight-hauling companies are trying to up their game with technology. XPO Logistics Inc., which has both trucking and brokerage operations, launched a digital freight marketplace this year that uses a mix of brokers and automation, and says 6,000 carriers signed on in the first three months.
Standalone brokers without any trucks still control most of the freight brokerage market. C.H. Robinson notched $2.9 billion in second-quarter revenue from truckload business and Chicago-based Echo Global Logistics Inc. had $634.8 million in revenue, a 35% increase from the year-ago second quarter.
Truckers still earn the bulk of their income moving freight on their own equipment, but the middleman business is growing.
J.B. Hunt’s brokerage division generated $347 million in second-quarter revenue, up 56% from the same period in 2017. Brokerage revenue at Green Bay, Wis.-based trucking company Schneider National Inc., which is investing in software to automate those transactions, rose 41% to $197 million. And logistics business at trucker Werner Enterprises Inc. jumped 33% last quarter to $134 million.
Evan Armstrong, president of Armstrong & Associates, said in-house brokerage units help truckers keep handling their customers’ freight even when they run out of trucks. “You’re not going to have trucks everywhere,” said Mr. Armstrong. “Even [United Parcel Service Inc.] uses [the U.S. Postal Service] to get packages delivered.”
This is a new way for us to think about getting efficiency into and waste out of a very large system that is under a lot of pressure. —J.B. Hunt Chief Executive John Roberts
Operators can speed up the business with technology that replaces decisions and clerical work that humans have performed. “On brokerage we increased net revenue by 46% with less headcount by using technology,” XPO’s Chief Executive Bradley Jacobs said in an interview on the company’s second-quarter results.
Trucking companies and digital startups are wooing carriers as they try to expand those networks, pitching their digital offerings to drivers as an easy way to find loads.
J.B. Hunt in August rolled out a perks program offering truckers who use its online marketplace discounts on gas, tires and truck maintenance, and complimentary satellite radio subscriptions through a partnership with Sirius XM Holdings Inc., truck-stop operator Pilot Flying J and Goodyear Tire & Rubber Co. Such inducements have grown more common as carriers and brokers have tried to set up closer working agreements with independent drivers and small truckers.
“We need to give our customers a way to do business with us and with our carrier base in a way they can’t today,” Mr. Roberts said. “We’re going to create a lot more efficiency in the overall system by bringing those two groups together.”