In 2019, the U.S. third-party logistics (3PL) market had total gross revenue of $212.8 billion. Of that, the non-asset based domestic transportation management (DTM) segment accounted for $83 billion, or 39% of total 3PL market revenue.

DTM focuses on the management of truckload (TL), less-than-truckload (LTL), and intermodal rail shipments managed on behalf of shippers of freight using motor carriers and railroads to perform the underlying transportation. DTM splits into two primary sub-segments: freight brokerage that accounts for 83% of total segment revenues; and managed transportation that accounts for 17%.

Current DTM 3PLs look vastly different from the original “one man with a desk and phone,” manual-process based freight brokerage model of old. The evolution of manual-process based freight brokerage into DTM and its core offering—information systems-based freight brokerage with a host of value-added services—stems from the federal deregulation of brokerage licenses in 1980 as part of motor carrier deregulation.

Today, most DTMs have a transportation management system (TMS) that many have augmented with applications to improve load tendering, carrier onboarding, shipment visibility, freight bill payment and document processing.

Digital freight matching evolves

Since our first report on digital freight matching (DFM) in 2016, there has been significant focus on DFM companies that have been seen by investors as disruptors to the DTM 3PL market sub-segment.

DFMs primarily include two categories of companies: load boards such as DAT and Truckstop; and digital freight brokers such as Convoy, Loadsmart, Transfix, Uber Freight, and uShip. These companies aim to match shipper demand with carrier capacity via digital—web or mobile-based—platforms, usually in the form of applications.

Key functionality includes:

• communication via app;
• track-and-trace;
• GPS-based alerts for nearby loads;
• automated pricing;
• task automation;
• digital document storage;
• two-party interaction; and
• push notifications.

The increased competition from digital freight brokers has paved the way for widespread digitalization throughout the industry. The modern day features available through digital freight brokers and traditional DTM freight brokers that digitalize service offerings provide ample benefits to shippers during a time where doing more with less has become a necessity.

Digital freight brokers (DFBs) look a lot like their modern DTM freight brokerage brethren, but have focused on automating transactional freight brokerage in three major areas: Pricing; load/carrier matching; and shipment tracking and tracing. Shipper customers can receive upfront pricing for a shipment, and, once the shipment is tendered, the DFB’s system automatically matches the shipment to a motor carrier and the shipment is automatically tracked until delivery.

DFBs are defined by a set of distinct operating characteristics:

Intelligent capacity systems. Digital freight brokerage operations are centered on what we define as “intelligent capacity systems.” At a given moment, millions of information points touch a freight brokerage. Data points such as traffic, weather, historical carrier transactions pricing and performance, third-party capacity markets, and other variables make the task of decision-making complex.

Processing carrier capacity data, making real-time routing decisions, and facilitating digital bookings are all capabilities of intelligent capacity systems that are used to augment TMS. Intelligent capacity systems use artificial intelligence and machine learning to perform transportation planning, routing, and carrier selection functions traditionally managed by carrier sales staff in a buy/sell side freight brokerage model.

Intelligent versus rule-based systems. Digital freight brokers that are on the right side of the paradigm tend to shift away from rule-based systems and move toward A.I. and machine learning centric intelligent systems, efficiently accounting for multiple data streams and are continuously learning and matching shipments to carrier capacity in the Cloud.

Digital user experiences to improve stickiness. Motor carrier partners and shippers now expect a best-in-class digital user experience. Automated functions such as search, pricing, booking, and payments are becoming expected. Freight broker digital experiences are expected to be on par with consumer digital experiences, and the digital platforms are exploiting this gap.

Straightforward, user-friendly digital experiences help build sticky carrier capacity and create more liquidity on a freight broker’s platform, allowing it 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.

Visibility management systems and exception management. What we define as “visibility management systems” are further systems augmentations to core TMS that provide real-time tracking information from multiple sources. Adopting these systems improves the percentage of freight that is tracked in real time and is an important customer success metric. In a digital freight brokerage environment, it’s expected that shipments will be tracked in real-time, and in-transit exceptions will be highlighted and resolved as they occur.

Connectable digital carrier capacity networks. With key automated workflows such as pricing, carrier capacity management, and load booking, DFBs can embed their carrier capacity networks into shipper transportation management systems and routing guides to gain a competitive advantage in procuring freight.

We anticipate a not-so-distant future in digital freight brokerage where shippers seamlessly tender shipments to DFBs at a contractual or an automated spot price via interfaces between their TMS and a freight broker’s intelligent capacity system. The system will then select the optimal carrier based on detailed and data-rich smart carrier profiles, lane history, and multiple other data points; it will then tender the load to a carrier; handle tender acceptance/rejects (re-tendering); and book the load in the freight broker’s TMS.

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.

Feedback loops. The focus on digital experiences helps companies collect more capacity information leading to better freight matches, more bookings, and carrier capacity information. Each transaction builds upon itself, laying the groundwork for increasingly optimal future transportation planning and execution.

Carrier experiences are key. Positioned around personalized digital user experiences, DFBs are spending time on building straight-forward, user-friendly digital experiences with carriers. Every DFB is focused on data-collection to continuously drive improvements in its carrier experience and freight matching. In addition, they’ve built out automated document handling and freight bill payment/carrier settlement processes.

Digitization efforts by 3PLs

Market entrants such as Uber Freight, Convoy, and Transfix have placed a mounting emphasis on “digitalizing” DTM operations. While managed transportation has been highly automated for years through TMS, EDI and other systems interfaces, most freight brokerage operations still have many manual account management, carrier sales/procurement, and back office processes.

The future of the DTM 3PL market segment is now centered on creating digital experiences, workflow automation, and optimizing customer and carrier focused service performance. Freight brokerage is made up of carriers and customers, both who want a mix of the best price, service performance, and user experience.

In the meantime, pressure to evolve and digitalize increases as freight brokerage competitors adopt strategies centered on automating operations and improving customer/carrier experiences via digital platforms.

Serious action is being taken by approximately half of the Top 50 DTM freight brokers to build a digital freight brokerage platform. These freight brokers are responding by either building technologies in-house, buying from third-party software vendors, or a mixture of both.

However, of the freight brokers we analyze, very few have developed and implemented a long-term strategy to achieve full digital transformation.