As we talked with our users on both sides of the market, particularly carriers, some perceive our auction model as unfamiliar or unworkable. After some explaining and clarifications, then they get it. Why? The main reason is they don’t realize they are already engaged in an auction every day with a broker. When a broker gets a request for quote from a customer, he would immediately go out to his carrier network and try to get the lowest bid from a carrier. A small broker would do this directly; a large broker has multiple carrier reps internally to go to and get bids form their respective carriers. Whoever is chosen by the broker gets the load. Unless a carrier or broker is tied by long-term contracts with fixed rates, this is the essence of today’s broker-driven spot market process repeated thousands of times a day.
What we offer is a totally superior form of auction that’s better for carriers and shippers. Today, a carrier is essentially bidding blind against others and himself, with the broker controlling the process and target price. We at LoadExpress support an open auction with total price transparency. It’s the free market and dynamic pricing at its purest. Using a poker analogy, a broker who sees his hole cards and everybody else’s cards is engaged in bids/offers with 10 players who only see their own cards and nobody else’s. Would you want to play in that game?
Second, LoadExpress is a marketplace for buyers and sellers of freight so they can deal with each other directly. It’s not for brokers where they control the process and flow of information and keep both sides in the dark. Third is the transaction fee. A broker will try to maximize his margin on each deal as any business would. Typical broker margins are 10-25%+ depending on the deal, with 40% not unheard of. As usual, the big guys get the better deals, and the smaller ones not. CHR’s annual margin was 16.5% in 2016. We charge a flat, and lower fee for using the platform.
LoadExpress Current Process
Pricing Open Auction Closed auction
Relationship Direct buyer-seller Broker
Fee Flat, lower Variable, higher
Another misconception that some carriers had was that an open auction model is a race to the bottom with the last one in at a dollar lower getting the deal. That’s a misconception we do not see. What shippers want is a reliable network of dependable carriers who offer good service at a good price. In LoadExpress, the shipper picks the winner, based on the price, his rating, and possibly direct prior experience. Price is very important, of course, but a reliable carrier who bids a few dollars more will usually win.
So in reality, we are offering a fair, open and transparent auction system vs. today’s blind, closed and opaque system. We bring power and control back to carriers and shippers. The way it should be. But participants in today’s system are so ingrained in the old way of doing business they don’t always realize the improvements. Thus our central mission as we scale up our operations is: to educate and make aware of our innovation, get people to be comfortable with it, and help them use the system.
PS: We’ve been pretty hard on brokers. Our attitude towards them is summarized below: