Given the current capacity crunch, and the huge amounts of investment capital pouring into transportation and logistics technology, there is tremendous discussion on how technology innovation will impact the industry and, more specifically, 3PLs. What will be the impact of digital freight on freight brokers? Will artificial intelligence and machine learning disrupt whole industries? Will technology drive and displace whole categories of jobs?

Back in 2003, when RFID commercialization was accelerating out of MIT, major retailers announced an initiative that required all suppliers to tag pallet deliveries with RFID. The whole supply chain was going to be transformed. Not only would receiving be streamlined, but companies would also have much greater visibility into real-time inventory, and barcodes were going to die. Now, over 15 years later, there are still a lot of barcodes. Point being, what seems like a no-brainer often runs into unforeseen challenges, and how things develop are very hard to predict.

There are some fundamental changes in technology and adoption, however, that make today very different:

  • Advances in cloud computing have made the cost of processing drop dramatically, enabling artificial intelligence (AI)
  • The explosion of data that is shared across the supply chain for analysis
  • Open APIs to connect applications and data sources
  • Advances in AI algorithms

To drill into the freight broker segment where we work closely, the question remains: is technology a threat of disintermediation or a growth opportunity? We believe it is a huge opportunity for freight brokers! Forward-thinking freight brokers who are ahead of the adoption curve, and who are building an analytical company will experience explosive growth.

To understand why freight brokers will not be disintermediated, let’s look at two other industries that were ripe for being wiped out due to the Internet. When the Internet boom was in full swing 20 years ago, there were predictions of whole “middle-men” industries becoming disintermediated.

Back in 1999, people said we won’t need insurance brokers. The relationship will go digital and insurance companies will go directly to consumers, which will cut out huge “wasted costs” and drive tremendous efficiencies. The number of insurance agents, brokers and service employees, however, has increased steadily since 1999.

Statista: Number of US Insurance Brokers

https://www.statista.com/statistics/194232/number-of-us-insurance-brokers-and-service-employees/

Similarly, real estate agents were doomed. Why use a real estate agent when you can browse online, compare houses, see pictures, etc. The whole process was going digital; however, the same thing happened with real state as with insurance. The biggest impact on the number of agents was the economy, not technology. In the case of real estate, the great recession had a huge impact but, once the economy and housing came back, so did the numbers, and there is even more good technology today to find houses.

Statista: Number of US National Association of Realtor Members

https://www.statista.com/statistics/196269/us-national-association-of-realtors-number-of-members-since-1910/

So why do these examples help to highlight why freight brokers will continue to play a critical role? There are a few common attributes among these three industries:

  • Expertise in local markets
  • Specialization in products (e.g., luxury houses, fresh food, etc.)
  • Legal complexities
  • Customer service when things go wrong

Digital relationships work really well when there are no issues. When freight is classified incorrectly, or there is a late delivery or damaged load, the role of the freight broker is irreplaceable.

No question technology will have a huge impact; however, we believe the impact is that the most innovative companies will reap a disproportionate share of the market. To take advantage of this opportunity, we see our most successful broker customers doing the following:

  • Investing in technology and learn the best way to incorporate it into their daily processes and promote adoption by their teams to drive results
  • Continuously “raising the bar” on areas of improvement initially by automating the track and trace function and then expanding to improve sourcing, capacity and tendering.
  • Hiring and developing a “knowledge-focused workforce” that encourages process improvement and analytical thinking versus administrative staff.

What is your approach to technology? What are the top areas where it is providing new innovation and value?

Written by Brian Hodgson

Senior Vice President, Industry Strategy Product Management