The US trucking industry is entering a tumultuous period that will likely reshape the $875 billion industry.
Shipping rates that spiked during disruptions caused by the pandemic have plummeted — some are now calling it a “freight recession” — as inventory in the US reduced demand. That has put the industry at a disadvantage during the annual contract negotiations now in full swing, but means retailers and other customers will benefit from lower transport costs.
There is also a shakeout among the brokers who match transportation companies with loads to be shipped. Silicon Valley stepped into the fray a few years ago and digitized what had been a transaction with phone calls and paper. Large and established brokers have also strengthened their technology, leaving the 17,000 smaller companies that have not evolved vulnerable.
When Suma began his career in the trucking industry a few decades ago, his job was to open packages of paper delivered by courier to deliver drivers’ deliveries for Knight-Swift Transportation Holdings Inc. remove all that paper.
Meanwhile, uncertainty reigns. Retailers are still overstocked, a result of consumers pulling away from clothing and other goods after spending money last year. According to KeyBanc Capital Markets, the US could also be headed for a recession, which KeyBanc Capital Markets says would put more pressure on truckloads in the spot market, which are 40% lower than a year ago.
Seasonally adjusted contracted freight tonnage fell 2.3% in October from September, the largest drop since the start of the pandemic, according to the American Trucking Associations. Contract cargo rose 2.8% in October compared to a year ago, the lowest gain since April, the trade group said.
In the real estate battlefield, traditional brokers such as CH Robinson Worldwide Inc. and RXO Inc. extending automated systems, compete against digitally native entrants such as Uber Technologies Inc.’s cargo unit. and Convoy Inc. Major transportation companies, including JB Hunt Transport Services Inc. and Werner Enterprises Inc. are adding more competition by building out their own digital brokerage.
The race to become the leading digital platform includes the acquisition of ReedTMS Logistics, a Tampa, Florida-based freight broker with annual revenues of $372 million, by Werner this month for $113 million. That came after Uber Freight bought Transplace for $2.25 billion last year.
Most brokers are asset-light, meaning they don’t own trucks. Instead, they guide cargo from origin to destination by playing matchmaker between shippers and truck drivers. Brokers are building capacity in this fragmented industry by signing up as many of the 2 million US freighters as possible. These carriers are usually small, half of which are just one truck. Fewer than 6,000 carriers own more than 100 trucks.
Automation technology takes away labor by providing truck drivers with a computer application to find cargo and accept the price for its carriage. There is still a lot of paperwork used in the industry. But services, including Transflo, are bridging the transition by letting drivers scan travel documents at kiosks at truck stops to digitize paperwork for fleet managers.
Uber Freight and Convoy gobbled up market share but struggled to turn a profit. Convoy, which raised $260 million in April led by Baillie Gifford, is still investing in its technology and gaining market share, CEO Dan Lewis said in an interview.
Bob Biesterfeld, CEO of CH Robinson, has been through several dips in the freight market and is responding by making plans to cut costs by $175 million — primarily through headcount reductions — to preserve profits while increasing automation spending. CH Robinson predicts the cargo decline will put pressure on operating margins, but expects to come out stronger when the cycle finally turns positive.
RXO, the digital freight broker spun out of XPO Logistics Inc., expects to make money and win new business during the recession, said CEO Drew Wilkerson. The company enlisted Yoav Amiel, a former Uber exec, from XPO to boost its automation technology.
The digital startups that have brought in customers have done so primarily by offering lower prices, which isn’t a new tactic in the industry, Wilkerson said. Ultimately, it remains a relationship business, as shippers rely on brokers to deliver their cargo on time.
Suma Projects Loadsmith will generate $8 million in revenue this year before interest, taxes, depreciation and amortization and plans to fund expansion with its own money. The company expects revenue growth to slow next year due to declining demand for freight. The company will also pursue an acquisition late next year or early 2024 to accommodate the uptick in the freight cycle.