Money is pouring into the freight technology realm with a speed and urgency that hasn’t been seen, well, ever. The global logistics boom coupled with the exponential demand for low-cost freight has made freight tech a necessity for even the most hardened freight traditionalists.
Demands on freight carriers have increased exponentially in the last year and a half, and the need to keep margins from shrinking to nothing has propelled many freight haulers to find new ways to save - enter freight tech.
But what is freight tech, exactly? And why specifically has it been the beneficiary of so much love from venture capitalists of late? In this article, we’ll take a closer look at why this previously unglamorous sector has become an industry darling.
What is Freight Tech?
Freight tech refers to any digital technology used to assist freight haulers. That could be anything from electronic logging devices to digital finding fright systems to transportation management systems - and everything in between.
Confusion surrounding the term “freight tech” exists only because it has been evolving at light speed over the last 5 years. Only a few years back paper/pencil and flip phones were still common to many drivers, if not most.
But due to the current economic landscape, with a little help from the global pandemic, freight tech is now becoming hot, so much so because there is a massive need to keep freight industry efficiency at par with the rest of the supply chain - from manufacturing to online retail.
Are There Too Many Freight Tech Providers?
One might argue that, at present, there are too many freight technology providers. A quick online search will reveal copious amounts of ELD providers. Looking bigger picture, companies needing a TMS reboot will find themselves not lacking options.
With the rise in eCommerce, the need to supercharge delivery options and speed has grown exponentially. While freight companies and independent operators could previously get by with outdated technology, the demands of manufacturers and retailers are driving down freight margins even lower.
That leaves the freight industry looking for alternative ways to cut costs - enter the freight tech boom. The current investors in freight tech are venture capitalists, who for a long time were reluctant to invest in freight the low-margin, low-tech freight space.
Why Freight Tech is Different
For years, other tech sectors boomed while the freight tech arena stood stagnant. Financial technology has enjoyed a decade-long boom that isn’t going away anytime soon. However, fintech and freight technology have little in common. Finance, a numbers game, was always suited to the digital realm; freight, trucks, containers not so much.
Another reason freight tech differs from fintech is that nearly 90% of trucking companies in the US operate 6 or fewer trucks. That’s a massive amount of companies who have very little capital to invest in freight tech, let alone new trucks and other physical infrastructure.
When you have such a large percent of a sector tied up in the hands of small carriers, applying new technologies to that sector will be slow to non-existent. And it was - for decades.
Growth Potential of Freight Tech
These days the investors in freight tech are venture capitalists looking to reap big profits in shorter periods. Gone are the days of large corporations being prime investors in freight technologies.
Freight tech is ripe for VCs as the industry has become more critical to the entire supply chain. Ecommerce giants have created entire identities based on logistics - Amazon Prime, anyone? - and now freight haulers are left to deliver on those promises.
Ecommerce is expected to reach 6 trillion dollars globally by 2024. That’s a staggering figure that many VCs are salivating over as they eye freight tech companies. That means that nearly 6 trillion dollars in freight will need at least a trillion dollars of freight tech - and that’s just eCommerce. Thus, the growth potential of the freight tech sector is undeniably massive.
Freight Tech Winners and Losers
The big winners in freight tech, of course, have been the large trucking companies who have the funds to invest in freight tech on a large scale. For instance, TMS startups such as Baton are already being taken up by large freight companies and the results have seen delivery efficiency increased by 100%.
Many large trucking companies are turning their attention to higher-margin customers, which are typically small to mid-sized businesses. Since larger customers often finagle discounts due to their hefty volume, margins for freight haulers were low. With improved freight tech, connecting with smaller businesses and their loads is becoming easier and more profitable.
But who is losing at the expense of the freight tech boom? Traditional freight haulers are in the crosshairs, as companies like Amazon dominate delivery schedules with their demands for ultra-fast shipping. Smaller trucking companies with fewer drivers are less able to adapt to the constantly changing demands of eCommerce giants like Amazon.
Who else is losing? One-dimensional freight companies will continue to lose market share regardless of size as new players who provide both tech solutions and physical services such as truck yards, drivers, and other infrastructure.
Acquisitions by large trucking companies can allow them to become flexible in the freight tech space, by acquiring freight tech startups, or simply by investing the necessary capital to maintain nimble amid a logistical environment dominated by consumer-driven giants like Amazon.
Finally, those who stand to lose out the most may be some of the people who run the trucking industry such as dispatchers, and other essential workers in the field. Why? Some freight tech permanently reduces the need for certain human jobs, like dispatchers.
While new tech does increase efficiencies, it can take a toll on people who have supported the industry for so long.
What’s Next for Freight Tech?
If recent history has told us anything, it’s that logistics providers have to be agile. Whether it’s a global pandemic or a canal-blocking container ship, freight companies must have the tech to quickly react to delays and shortages that would cripple traditional freight haulers.
As venture capitalist funds pour money into drone delivery services, digital warehousing, and other 21st-century logistics operators, the likelihood of seeing the old relationship between freight haulers and shippers continue to remain unchanged is not likely.
Freight tech has the potential to boost both large and small, independent freight haulers. Digital brokerages, ELDs, TMS, and everything in between can give all freight carriers increased efficiency and larger margins.
How quickly will companies adapt remains to be seen, but one thing is clear: freight tech is the future and it will continue to play an increasingly dominant role in the freight industry.