MONEY HAS A SHORT MEMORY. SEVENTEEN YEARS AFTER
billions followed the Pied Piper of dot-com over the cliff, the cycle
appears poised to repeat, only this time it’s tied to the dubious
quest to disrupt freight brokerage.
Nary a week goes by that we don’t run one or more stories of
logistics IT startups landing significant capital with the mission to
bring brokerage to heel using the latest digital tools. No one has
a firm fix on numbers, but Jett McCandless, founder of startup
project44, estimates that in 2016, there were 315 deals involving
logistics tech companies valued at more than $5 billion, both
record highs. The trend is likely to continue through the rest of
2017, he said.
The most recent money grab centered on a company called
Transfix, an online marketplace that pulled in $42 million in its
third round of funding, bringing its total to $79
million. Not bad for a company that appears to
have an app but no profits.
Transfix hit all the proper talking points:
The U.S. truckload market and the brokerage
industry that supports it are inefficient and
fragmented. Yes, there’s competition, but our
visibility and transparency solution is more
robust and comprehensive. We have scale,
scope, analytics, big data, etc.
Then there was a comment attributed to a
KPMG consultant in a recent news story we did
on Transfix that a “profitable model today is
not as important as the size of the total address-able market.” That took us back a few years and
made us instinctively grab for our wallets.
Needless to say, we have a few problems with the evolution.
The truckload and brokerage markets are fragmented, have been
fragmented, and will likely always be fragmented. Getting motor
carrier authority today requires paying a filing fee, completing a
two-page form, and getting insurance. Brokers confront similarly
low barriers to entry. Fragmentation is as natural as breathing, and
consolidating the sector is about as easy as getting a bill through
the U.S. Senate.
The new players, and the venture capital/private equity money
backing them, think they are entering a world full of Luddites. Yet
the brokers we’ve talked to—and we know it’s not everybody—are
quite IT-oriented. In a world where visibility is paramount, they
are keenly aware of technology’s role in keeping them competitive.
They are investing in IT and will continue to do so
as prices drop. Meanwhile, many bring vast experience in mastering the physical part of the solution
that the startups can’t touch.
To that end, the newbies will compete against
incumbents that have spent decades assembling
formidable physical and IT networks. As David
G. Ross, the perpetually candid transport analyst
at investment firm Stifel, said at an industry con-
ference in late June, “J.B. Hunt has an app. C.H.
Robinson has an app. So why wouldn’t you want
to do business with a proven service provider with
thousands of carrier relationships?”
McCandless of project44 takes a dim view of how
this will end. “Most of these deals
have nothing more behind them
than marketing,” he told us.
“Only a few of these companies
have market-ready technology.
Even fewer have robust solutions
that can make an immediate and
widespread impact on how the
industry functions.” Project44
has been the recipient of private
funding, but it can be argued
that its model, aimed at replacing
a legacy technology (EDI) with
a newer and faster mousetrap
called an application program-
ming interface (API), has proven
viability. It should also be noted that McCandless
and Tommy Barnes, project44’s president, have a
combined 40-plus years of experience in physical
distribution along with IT.
There is room for IT innovation in brokerage,
and we don’t doubt that a handful of startups will
endure and flourish. But we’re old enough to have
lived through the past, and we see it pretty much as
prologue to what lies ahead.
Group Editorial Director
BY MITCH MAC DONALD, GROUP EDITORIAL DIRECTOR outbound