News / Freight brokers need to rethink their role as technology overtakes them

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Freight brokers have to reconsider their value proposition, says Satish Jindel, founder and president of SJ Consulting.

The going has got a lot tougher for brokers over the past 18 months. With ample capacity in the market and rates in the doldrums, shippers have no cause to reach for a middleman to find transport at acceptable pricing – a far cry from the frantic scramble for capacity in 2021.

At a media event last month, Uber Freight unveiled new services, signalling a shift in focus from online brokerage to selling freight software as a service. It overhauled its transport management system, unveiled an AI-powered tool that analyses historical data to generate suggestions for optimisation and presented a procurement tool that features simple bid functionality and historical performance recording, and allows shippers to run freight auctions.

Shippers can connect directly with truckers, and they have been getting more tools to manage their transport needs, which greatly diminishes the need for a traditional broker, Mr Jindel noted.

In the LTL sector, the role of brokerages has grown to 25% of the market, but it has stagnated, and it will shrink as carriers deploy more technology, he predicted. He added that the consolidation of multiple LTL shipments into truckload traffic to produce lower costs, a popular play for 3PLs, will also shrink.

He added: “The industry needs to do some strategic thinking. Brokers have to ask themselves ‘what is my value proposition?’.”

Shipper expectations have grown way beyond finding capacity, industry observers have argued. Real-time track and trace and automatic notifications have become table stakes as they demand services and technology that improve visibility and deliver efficiencies.

Many shippers are looking to brokers or 3PLs to deliver these capabilities and enable integration with their own IT systems., which can be a challenge. Apparently, quite a few cargo owners are still using spreadsheets to manage their transport activities.

The hits on supply chains over the past few years, combined with geopolitical uncertainty and rising concern over severe weather incidents, have prompted a growing number of cargo owners to embrace nearshoring and to reconfigure their supply chains with a greater emphasis on surface transport. As locations of their distribution centres and production facilities are changing, their surface transport networks also undergo significant changes. This opens a door for 3PLs and freight brokers to offer strategic consulting.

In addition, the need to optimise networks and extract costs from transport remains high as companies battle with elevated costs. A recent customer survey by CH Robinson found that for 87% of respondents, taking cost out of their supply chains was of critical importance.

“Brokers are really becoming industry advisers. The industry has become so complex,” said Mr Jindel, adding that many companies had downsized their shipping departments and virtually outsourced the transport function to their brokers or 3PLs.

Technology plays an important part in this, he said. A broker is expected to leverage the tools that pure online competitors offer to provide capacity, flexibility and the ability to scale up and down, but this alone is not enough. Strategic advice and its execution require human expertise and communication.

“You need to find the right balance between digitisation and service,” advised Mr Jindel.

Not surprisingly, traditional brokers (that have taken on technology over the past years) emphasise the human aspect, insisting that brokerage is still a business based on relationship.

Uber Freight’s acquisition of Transplace two years ago illustrates this. For the second quarter of this year, the company tabled a $14m ebitda deficit, with the Transplace part producing the best results. Moreover, human expertise from Transplace has been critical in the development of Uber Freight’s new offerings, according to Lior Ron, the company’s founder and CEO.

Listen to this clip of Unisys’ Sean Tinney explaining how AI is transforming logistics.