News / Digital brokers struggling as the market headwinds get stronger

Credit Convoy

The bloodletting in the digital brokerage space is picking up steam: freight brokerages Convoy and Coyote Logistics on Friday both announced staff reductions, blaming adverse market conditions.

And Uber Freight, which slipped back into the red in Q4 last year, confirmed staff cuts in its core digital brokerage business last month, while CH Robinson indicated earlier this month it would cut staffing further this year, following reductions in November.

Convoy is to close its Atlanta office and part with staff in a move CEO and founder Dan Lewis described as “a shift to a new customer service model”, with a “leaner support operation” aimed at bringing operational efficiency gains of 30% to 40%.

He added that “further reductions to other teams around the company” were on their way.

Coyote Logistics, acquired by UPS for $1.8bn in 2015, is laying off 6.8% of its work force in “organisational changes that entail the elimination of some positions in response to weakened demand for trucking services, owing to rising interest rates, inflation and consumer spending returning to pre-pandemic patterns”.

CH Robinson let 650 employees go in November, but signalled on 2 February that the job cull wasn’t over. CFO Mike Zechmeister said: “We expect our headcount to decline throughout 2023 as productivity improves.”

Uber Freight confirmed it would cut its workforce by 3%, some 150 jobs, this year – to blame, according to a memo to staff by CEO Lior Ron, “headwinds in the logistics market”.

He said: “We accelerated hiring last year within certain areas of our brokerage business, planning for a different economic reality, but the volumes did not materialise as expected.”

Uber Freight’s Q4 results show a decline in ebitda from the third quarter. Having achieved its first positive result ($1m) in Q3, the division slumped to an $8m deficit as revenue retreated from $1.75bn in the third quarter to $1.08bn in Q4.

The decline was in stark contrast to the Transplace legacy brokerage arm, which Uber Freight bought for $2.25bn in 2021.  According to Mr Ron, Transplace was experiencing “record momentum”.

Satish Jindel, president of SJ Consulting, said the contrast illustrated the shortcomings of the digital brokerage concept. He said: “Why buy an old school company if they [digital brokerages] are the future? Why buy a traditional broker and pay a huge premium for it?” he asked.

He likened this move to the idea of Uber buying a yellow cab firm after disrupting the taxi market with a concept that turned millions of car owners into commercial drivers. Its freight spin-off has not overturned the business model in freight brokerage, merely accelerated the move of established brokers to digitise their activities, he said.

And the flow of funding from venture capital has slowed to a trickle, which is forcing tech-based logistics players to “re-evaluate their value proposition”, he added.

In addition, digital brokerages are facing headwinds from large trucking firms that are beefing-up their brokerage capabilities, such as Werner Enterprises, which bought ReedTMSLogistics in 2021.

In Q4, Marten Transport saw declines in its truckload and intermodal businesses, but revenue from brokerage surged 34.7%, contributing to a record operating income.

In the earnings call for Uber’s Q4 results, CFO Nelson Chai said freight numbers were “a bit behind our expectations” and announced a heightened focus on smaller shippers to improve results.

Mr Jindel, however, is sceptical. He said: “UPS started a push to focus more on SMBs, then everyone else has got on the bandwagon.” At the end of the day, the volume commanded by such players is relatively small, he added.

Moreover, digitalisation is not a unique capability shippers and truckers cannot achieve themselves, in the long run, he believes. Ultimately, they should be able to communicate directly and cut out a middleman that does not offer added value.

“I need to bring something to the table the shipper and trucker can’t do,” he said.