Should Freight Carriers Swipe Left on Digital Freight Matching?
To date, most of the conversation surrounding Digital Freight Matching (DFM)—essentially digital apps matching capacity with cargo like Uber does drivers and passengers—has focused on how this new type of service will affect shippers. In truth, increased adoption of DFM services will affect all supply chain and logistics professionals. That is equally true for carriers, who rely on external connections and relationships to obtain business.
An easy way to understand DFM versus traditional 3PLs is in terms of the benefits each model brings to the table. With the best 3PLs, interaction with carriers is service-oriented, and there is a clear emphasis on long-term mutual benefits. 3PLs also work with carriers to ensure they adhere to receiver procedures and policies. DFM, on the other hand, is more transactional in nature and less relationship-driven. DFM provides a user-friendly interface, but can lack the value-adds of a 3PL.
Over the next few years, carriers will need to learn how to navigate the web of digital solutions as companies dedicate more resources to creating sophisticated apps (including DFM). Here are a few areas to consider when choosing which way to swipe on DFM.
Rates. DFM services boast low prices, which may initiate a race to the bottom in terms of linehaul rates. Ultimately, this would negatively impact carriers’ finances by creating thinner-than-ever profit margins.
Detention times. Due to the lack of a strong relationship between the shipper and the DFM service, easily avoidable pitfalls, such as detention time, can become a significant hassle and barrier to profitability for a carrier. In addition to missed opportunities, a driver’s ability to meet federal hours-of- service requirements could be impacted as a result of long detention times caused by lack of communication between the DFM service and the shipper.
Liability. When a carrier works with a 3PL to move loads on behalf of a shipper, the 3PL carries liability insurance to cover the value of the load. With DFM services, carriers would need more information on whether or not they would have that protection.
Load Details. A good 3PL provides insight into cargo loading and receiving protocols—how it’s loaded and/or stacked, if drivers can handle unloading or need help from a “lumper” service—and supports troubleshooting if an issue arises. DFM apps can communicate these cargo details as well, but don’t provide problem-solving support like a 3PL.
Geographic service area. Today, DFM offerings are regional with relatively limited footprints. Carriers working with a DFM service can expect to work within a restricted geographic area. As-is, DFM is simply not a scalable national shipping solution.
Without a doubt, the evolution of DFM services is pushing the logistics industry to make better use of advanced technology. DFM services also encourage a fresh look at how shippers, logistics providers and carriers work together.
However, it’s clear that DFM, as it exists today, poses many challenges for carriers, especially those working on a national scale. With the overwhelming majority of trucking companies comprised of small fleets of less than 10 trucks, many carriers simply can’t afford to gamble with extra costs and headaches that may accompany some DFM services.
Before determining whether or not DFM services are a good fit for their business, carriers should look at the rates, detention times, liabilities, and service area limits involved, among other factors. Today, and until DFM services address these issues, many carriers may decide it is in their best interests to “swipe left” for now.
Erik Malin is head of corporate development at AFN.
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