2024 Digital Freight Matching Roundtable: Evolving for a digitized future

While the freight recession has been ongoing for more than two years, that does not translate into any type of lull for players in the digital freight matching (DFM) market—not by any stretch.

Despite the current downturn in demand and tonnage, recent signals of increased freight activity offer a glimpse of optimism, fueling efforts to prepare for a higher-volume environment ahead. In fact, key industry stakeholders—shippers, carriers, brokers, and service providers—are more focused than ever on the future, particularly as freight processes grow increasingly digitized and automated.

Joining Logistics Management this year to help shippers put the DFM market into perspective are:

• Evan Armstrong, president of Armstrong & Associates;
• Ben Gordon, managing partner of Cambridge Capital and managing partner of BGSA Holdings;
• Lee Klaskow, senior freight transportation and logistics analyst at Bloomberg Intelligence.

Logistics Management (LM): How do you view the current state of the digital freight matching market?

Ben Gordon: The digital freight market today is battered and bruised. We’ve just lived through the worst two-year freight recession in U.S. truckload history. And the bodies are strewn across the battlefield: truckload carriers, truck brokers, and digital freight companies. That said, the best companies are surviving, and should use this downturn as an opportunity to consolidate.

Lee Klaskow: In a word: exciting. The digital freight matching market evolution has been accelerated by the growth in artificial intelligence (AI). AI has been one of the few hyped developments that has true promise for all the industries that embrace it. We believe we’re in the early stages of a transformational time for the freight industry.

DFM is becoming more sophisticated and powerful for shippers, capacity providers, and brokers. When used properly, these tools can drive better decision-making and profitability for all stakeholders as well as reduce fraud. All that being said, we expect the market will rationalize itself given the flood of new products that are using AI or machine learning.

Evan Armstrong: For the most part, medium and larger domestic transportation management/freight brokers are now utilizing either proprietary DFM algorithms within their transportation management system [TMS], or are using ‘bolt on’ DFM applications like Parade, or to a lesser extent Trucker Tools, to automatically match motor carriers to shipments. We have dubbed these Intelligent Capacity Systems.

To see the real impact of the technology, 3PLs are paying closer attention to loads handled per-person per-day and revenue per-person per-year. These two key operating metrics can quickly tell you how efficient a freight brokerage operation is. From a buy-side, merger and acquisition [M&A] perspective, we look at these measures and use them in determining the enterprise value of a freight broker and how much they can benefit from further automation.

LM: What are some of the most pertinent trends you see evolving within the DFM space?

Klaskow: I’m going to be talking about AI ad nauseum today. It will be driving where the DFM market goes from here. I remain excited to see where the technology takes us and how it makes brokers, shippers, and capacity providers more productive.

As you know, there are a lot of inefficiencies inherent in trucking. DFM can help take some of those inefficiencies out, which could result in more efficient supply chains as well as lower costs, lower rates and more profitable loads. As I mentioned earlier, the tools that fight fraud are critical for every broker to have at their fingertips.

Armstrong: Best-in-class digital user experiences are becoming expected by motor carrier partners and shippers. Automated functions such as search, pricing, booking, and payments are now table stakes. Freight broker digital experiences are expected to be on-par with consumer digital experiences, and the digital platforms are exploiting this gap.

Straight-forward, user-friendly digital experiences help build sticky carrier capacity and create more liquidity on a freight broker’s platform, allowing them to transact and execute bookings more easily.

Early adaptors, who build liquidity, will reap rewards in the form of valuable freight platforms with readily available carrier capacity. Every digitalized freight broker is focused on data-collection to continuously drive improvements in its carrier experience and freight matching.

Gordon: I’ll add that the big theme is convergence. The top DFM companies have built outstanding technology. But, so have the top traditional brokers. To customers, as the saying goes, ‘it all tastes like chicken.’ They view DFMs and brokers as similar solutions for the same problem: how to move freight effectively and efficiently.

LM: With market conditions similar to last year at this time, with lower rates and excess capacity, how much of an impact does that continue to have on the DFM marketplace?

Armstrong: With the ongoing freight recession which started in late 2022, we estimate that the domestic transportation management 3PL market segment, which is 84% freight brokerage and 16% managed transportation, will decline another 4.2% in 2024 to $118.4 billion.

For freight brokers, DFM is very important in times of tight carrier capacity to find capacity in the spot market. In the current environment, it’s more about managing a loyal carrier base, increasing utilization within that base to ensure solid operational performance, and meeting the needs of contractual shipper customers.

Gordon: We remain near the bottom of the worst freight recession in history. This squeezes margins for DFMs as well as traditional truck brokers. That said, we’re starting to see an improvement in rates. The data from Greenscreens.ai, the market leader in predictive pricing in trucking, shows that we’re beginning to see a bounce back.

Klaskow: These technologies are partly to blame for the slow pace of trucking capacity coming out of the market. They provide small truckers with the resources to reduce empty miles and make informed business decisions about which loads to take.

The progress made over the last two years with DFM platforms will be felt more when the freight market turns from the current doldrums. It will allow brokers to scale their business at a faster pace than headcount and will give more options for truckers. I’m excited to see the productivity gains at freight brokers when demand picks up, which should result in better margins next year.

LM: Do you see more entrants coming into the marketplace in the next couple of years, or are things in more of a holding pattern, given events like Convoy’s exit last year as well as the recent sales of Coyote and the Transfix brokerage group?

Klaskow: Yes. This can be a good thing and a bad thing. The market is already saturated with companies looking to ‘disrupt’ the freight markets. This, along with plenty of private equity money, has helped nurture a number of companies during the downturn. It will be the market’s job to figure out which of these companies have value and which don’t. For niche players, being acquired into a larger platform might be the only option for those that can’t build scale.

Armstrong: Given higher interest rates and Convoy’s exit, we’re seeing more DFM adaption within legacy freight brokerage operations and less outside investment in pure digital freight brokers. We think RXO acquired Coyote at a below market EBITDA multiple, and it was a strong strategic investment.

With the adaptation of DFM and increased investment in other technologies by legacy freight brokers, it’s getting harder for new entrants without network scale to compete. While it’s still narrow, the competitive moat amongst leading freight brokers is getting wider.

Gordon: Lee and Evan both make some great points here. I will note that I’m not seeing more entrants. I am, however, seeing consolidation of existing entrants.

LM: What types of stakeholders are making the move into this segment and why?

Armstrong: As interest rates come down, we’ll start to see increased targeted outside investment in 3PLs and in innovative point solutions for DFM; upfront quoting and pricing; visibility; and freight brokerage back-office functions. Strategic investors will continue to look for ways to fill operational and geographic scale through further M&A. This will include the acquisition of DTM 3PLs, and solutions providers.

Gordon: We’re seeing consolidation across modes [LTL, TL, air, ocean], geographies [European and Asian companies buying U.S. platforms], and business models [DFM, traditional brokerage]. I expect we’ll see more activity across all three themes.

Klaskow: Private equity remains active in transportation-related tech due to the market size and perceived ability to fix inefficiencies in the market through technology.

You’re also seeing more traditional brokers make investments in the space to drive productivity and to remain relevant to customers that want to have the option for automation and human contact—and everything in between.

LM: Who are the biggest—or most important—players in this space, and what makes them stand out?

Gordon: First, there are DFM pure plays. But those have changed. Convoy sold to Flexport. Transfix sold its services and kept its technology. Uber Freight is really integrated with Uber.

Second, there are traditional truck brokers. Giants like RXO, C.H. Robinson and Echo have invested hundreds of millions of dollars into technology. They differentiate by virtue of combining technology with services.

Third, there are emerging specialists. This includes niche winners in fields like cold chain, LTL, and cross-border. And there are fast-followers, like Everest, who use best-of-breed technology like Greenscreens.ai, Revenova, and others, then integrate them to provide
a superior combination.

Klaskow: Amazon Freight, Uber Freight, C.H. Robinson, Redwood Logistics, J.B. Hunt, and RXO are household names. It will be interesting to see the evolution of RXO once it closes its Coyote acquisitions. We’re under the impression that the RXO tech will be beating out the legacy Coyote platform.

All these players have size that helps them stand out. We’re seeing more traditional brokers getting into the market out of necessity to compete. We don’t think a tech-only platform is the solution. It needs to be paired with people. This hybrid model of technology and people will win the day in our opinion.

Armstrong: Uber Freight and leading tech-enabled legacy freight brokers C.H. Robinson and RXO have automated shipment quoting, tendering, and acceptance with shippers. They’re also automatically matching spot market loads to carriers. Most is done within private carrier networks using lane history.

In addition, they have ‘book-it-now’ functionality with carriers for automated tendering and acceptance and can real-time track 80% of shipments. Small- to mid-sized 3PLs often do not have these capabilities unless they partner with technology companies such as DTM AI providers Parade for DFM, capacity management, and instant booking, or Greenscreens.ai for upfront pricing.

LM: Do you think shipper usage and adoption of DFM technology has increased or decreased over the last year?

Klaskow: It has increased and will continue to increase as work flows evolve with technology advancements. It’s hard to imagine shippers going back and decreasing their reliance on DFM technologies. The genie is out of the bottle, and there is no looking back.

Armstrong: Most shippers’ systems interaction with freight brokers is via applications that rate shop the spot truckload market via freight broker quotes versus their contractual carrier and freight broker rates using application such as AVRL.

Outside of the rate shopping, most shippers are still managing primarily contractual carrier and freight broker relationships under a traditional lane-by-lane waterfall process with primary to tertiary carriers; however, the use of shipper load boards and interest in putting more volumes out for spot quoting is on the rise. For pure DFM technology, most shippers rely on freight brokers that are actively using DFM.

Gordon: I think shippers have increased their usage of technology. Some of that has come from DFMs. Some has come from pure-play technology companies. We’ve seen this in the Cambridge Capital portfolio, with ReverseLogix for returns, Parcel Perform for post-purchase tracking, Bringg for last-mile, and GreenScreens.ai for pricing. And some of that adoption has come from the fast follower 3PLs.

LM: Where do you see the DFM market in the next three years to five years?

Armstrong: We’re getting to the point where the largest digitalized freight brokerages are seamlessly being tendered truckloads at a contractual or an automated spot price via interfaces from a shipper’s TMS to the broker’s TMS, and a broker’s intelligent capacity system is then selecting the optimal carrier based upon detailed and data-rich smart carrier profiles, lane history, and multiple other data points.

Using the TMS, an appointment will be scheduled if needed. This will trigger the visibility management system to initiate transit status updates until delivery where back office automated proof of delivery information is uploaded into a TMS and freight bill payment/carrier settlement is triggered.

Transactional freight brokerage is getting closer to the automation levels seen in managed transportation. And in 2025, we estimate that there will be more than 50 truly digitalized digital freight brokers in North America that will account for more than 60% of total DTM segment gross revenues. We will be at a point where more than 10% of spot truckloads in the U.S. will be automatically tendered and booked with carriers. This number will increase further over the next five years.

Klaskow: My guess is that more and more loads will be transacted without human interactions. That’s not to say that the freight world will be taken over by robots. People will remain key within the freight brokerage industry. It’s that human connection that’s critical between brokers and carriers as well as between brokers and shippers.

The ecosystem can focus on building out these relationships. In addition to relationships, brokers will be able to help customers with exceptions or more complicated loads. I also hope that the technology developments will be able to root out fraud. It’s amazing the uptick we have seen in fraud within the trucking market. Technology is our best defense to sniff out bad players.

Gordon: In three to five years, I believe the DFM market will be integrated with the traditional truck brokerage market. It will be one large market.