Back in the dotcom days, more than 15 years ago, numerous startups launched transportation marketplaces in a bid to revolutionize the way shippers and carriers worked together. Virtually all of them failed. These marketplaces (aka “exchanges”) didn’t work for many reasons, but the prime one was that these startups didn’t really understand the transportation market. They assumed that transportation was a commodity, no different than buying paperclips, and so their primary focus was on facilitating reverse auctions, where carriers would bid against each other for shipments to drive down costs for shippers.
But transportation is not a commodity. It is a relationship-based business where trusted relationships matter — because it impacts customer service and satisfaction, and by extension, the shipper’s brand and reputation — which is why the vast majority of freight is moved via contracted carriers, not the spot market.
Today, we’re seeing the rebirth of the transportation marketplace model, especially in the local delivery market, with Uber recently launching UberCARGO, and startups like Cargomatic, which last week received $8 million in Series A funding, looking to “solve the inefficiency and fragmentation of the local trucking industry.” Will history repeat itself or will transportation marketplaces transform the industry as we know it?
It’s too soon to know, but the odds are better this time around for a number of reasons:
1. The value proposition is more balanced for shippers and carriers than the reverse auction model of the dotcom marketplaces, which mostly benefited shippers. The focus of these new marketplaces is on connecting shippers and carriers more quickly and efficiently, giving carriers the opportunity to maximize their productivity and asset utilization, which in the process results in lower costs for shippers. In some ways, you can view these emerging transportation marketplaces as the coming together of the traditional freight brokerage model with e-commerce (see C.H. Robinson’s recent acquisition of Freightquote).
2. GPS-enabled smartphones and mobile apps, which are ubiquitous today but didn’t exist 15 years ago, enable a much greater number of carriers, especially owner-operators, to participate in the marketplace. The technology also expedites the end-to-end process — tendering, dispatch, track and trace, proof of delivery, and payment — by putting more computing power and capabilities in the hands of drivers.
3. Local delivery is hot today, especially same-day delivery, and it will only get hotter in the years ahead. As I’ve said before, companies are starting to leverage delivery as a competitive weapon, as a way to drive top-line growth and gain market share, which will drive demand for new technologies and services focused on local delivery.
The main challenge for any marketplace, including transportation, is getting a critical mass of buyers and sellers. Having too many shippers and not enough carriers, or vice versa, will limit the market’s value proposition to users. Therefore, reaching critical mass as quickly as possible needs to be a top priority for these marketplaces.
— Just Aguy (@chi1cabby) January 20, 2015
But they also can’t ignore the point I raised earlier: relationships matter in transportation. This reality is the foundation of Freight Friend, another transportation marketplace that was launched almost four years ago and is powered by MercuryGate (a Talking Logistics sponsor). Here’s an excerpt of what I wrote back in April 2011:
On the surface, Freight Friend has similar features to other online load boards. Shippers and brokers can post loads, carriers can post available trucks, you can search for matches, and so on. But the big difference is evident when you register and log in for the first time. There are no loads posted, no carriers listed, no matches displayed. It’s like when you first sign up for Facebook or Twitter and very little information shows up because you haven’t “friended” or followed anyone yet.
When it comes to social media, a lot of people focus on the big numbers: Facebook has more than 500 million members, Oprah Winfrey has almost 5.5 million followers on Twitter, and so on. But in practice, social media is not about numbers, it’s about relationships. Facebook is really a federation of thousands of small relationship networks that add up to 500 million people. And although 5.5 million people follow Oprah, she only follows 31 people! She doesn’t have the time or interest to read the status messages of 5,499,969 people; she’s only interested in keeping in touch with the handful of friends, colleagues, and other business professionals that she already knows and trusts.
This is the same philosophy that underpins Freight Friend and differentiates it from public load boards. The main objective is not to connect thousands of shippers, brokers, and carriers together, but to facilitate the matching of available freight with available capacity between known and trusted parties (“freight friends”), a process that for the most part still happens manually today, with shippers and brokers picking up the phone and calling their key carrier contacts.
It seems like Cargomatic is enabling something similar by defining preferred carriers. According to the company’s FAQ, “If you [as a shipper] would like, we offer ‘Preferred Carriers’ that can be given first right of refusal for your shipments.” And from its Terms of Service: “Cargomatic may designate certain preferred Carriers that will be able to view and accept the Shipment prior to other Carriers. After a certain period of time, the Shipment will be viewable to all Carriers in the immediate area.”
The other important point these marketplaces can’t afford to ignore is what I consider to be the most critical factor in last-mile delivery: managing the end-customer experience. As I wrote last February:
The biggest issue and concern, and what differentiates local delivery from other transportation operations, is measuring and controlling quality — that is, the end-customer experience.
The local courier, and especially the driver and other personnel assisting with the delivery, represent your brand to the end customer. If a courier is two hours late making a delivery, or if the driver is wearing a t-shirt with offensive wording on it or drags mud across your recently-cleaned carpet, or if the driver and his helper break or damage something in your house, it’s the brand owner (the retailer or distributor) that the end customer ultimately holds accountable, not the courier.
So, if the buck stops with the retailer or distributor, how do they manage and control local delivery quality and the end-customer experience?
Read my post for what I consider to be the most important attributes a local delivery solution should have to best address the unique challenges involved.
In summary, we are witnessing the rebirth of transportation marketplaces, with UberCARGO, Cargomatic, and Freight Friend as prime examples. They are much improved versions of their dotcom predecessors, and various trends and factors are in their favor, including the widespread use of smartphones and mobile apps. Will they succeed? The answer will ultimately depend on three things: building critical mass, remembering that transportation is not a commodity and that relationships matter (and taking this reality into consideration in their operating model), and measuring and controlling the quality of the end-customer delivery experience.