The quick answer is yes. Of the 16,000 registered brokers, the top 25 garnered 71% of the $38 billion in fees. The nuanced answer is that it will happen to the vast majority of the mom and pops and small shops who offer 1) basic services in the commodity truck freight market, and 2) no scale or technology to compete against the biggest brokers. A Rolodex, email and bunch of phones are no longer viable. The C.H. Robinsons, Coyotes would be fine.
Travel agents are very similar to freight brokers in that both provide basic services in a fiercely competitive commodity transportation business (one people, the other freight) with tightening margins. Twenty years ago, travel agents handled more than 70% of consumer travel bookings; today it’s less than 10%. Looking underneath a bit more, you’ll find that travel agents book a much larger share of cruises and tour packages–more complex travel. Just ask yourself: when’s the last time you booked a plain old airline ticket, hotel or car rental through a travel agent?
So the lesson is clear: brokers must provide more than the basic commodity transport services in order to survive in the future. You might ask: they’ve been doing this since time immemorial, so what’s changed now? Because the digitization of the freight industry is finally here, albeit 20 years behind the travel industry. Big existing players, startups, investors, foreign logistics companies, not to mention Amazon and Uber, have pumped in billions to jump into the $260 billion commercial trucking market. The overriding goal is the same: to wring $ billions of waste and inefficiency out of the industry through automation.
A big part of that waste is the $38 billion in brokerage fees, out of a $260 billion market, or 14.6%. A 10% reduction means almost $4 billion in annual savings. With only a 3% net margin for the consolidated logistics industry, that’s a game-changing opportunity. We’ve been the most explicit about this part of our value proposition because our auction model hits straight at the problem: the excessive broker margins for the basic services they provide. LoadExpress has developed a platform that automates a big part of the basic broker’s services, which will result in reduced cost for customers. Our transaction fee is competitive or lower than typical brokerage commissions, especially when the labor savings and the reduced aggravations we deliver are accounted for.
The online travel industry was created in 1996 by Expedia, and then Travelocity and some others followed suit. But it wasn’t until Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines, and subsequently American Airlines invested $145 million to form Orbitz, that the online travel industry took off. That’s because the five airlines controlled 80% of the airline capacity. The chief motivation of the bold move, against heavy opposition from travel agents, consumer groups and fledgling competitors, is simple yet powerful: they didn’t want to pay the travel agents 7% anymore, and thus save billions of dollars every year. The industry is saying:
The airlines took a leadership position to eliminate 7% commissions. Why isn’t the trucking industry, or the biggest shippers, doing the same for 10-25% brokers’ commissions? What more motivation do they need?
While both industries are notoriously fragmented and can’t achieve the same concentration with a handful of even the biggest players, I still think such an alliance from either side, or both, will be a huge catalyst for the much needed digital disruption in the trucking industry. Will it ever happen? Don’t know. In the meantime, we are busy executing our plans.