ECHO have the right idea. Technology driven brokerage is the future and their profitability AND growth prove you can do both. They have made acquisitions too. The press release is pasted below. We cannot just get big, we need a model to take us to the next decade in good shape to leverage new technology. The days of the big brokerage with lots of people is long past. We need to follow ECHO's lead and get on the leading edge technology track and re-invent how brokerage business is bought, sold and transacted.
West Palm Beach, FL – March 20, 2013 – BGSA is pleased to announce that Echo Global Logistics, Inc. (NASDAQ: ECHO), a leading provider of technology-enabled transportation and supply chain management services, has acquired BGSA client Open Mile, Inc., a truckload brokerage headquartered in Boston, MA.
Founded in 2010, Open Mile is a non-asset transportation service provider that combines high tech automation with freight management expertise to create superior shipping services for clients and carriers.
"Open Mile has developed leading edge, cloud-based technology that successfully automates many of the manual tasks of transportation management," said Douglas R. Waggoner, Chief Executive Officer of Echo Global Logistics. "The acquisition of Open Mile enhances the technology solutions we offer clients and carriers while also expanding our client base, sales force and carrier network in the Northeastern United States."
"Echo is the premier third party logistics firm in the transportation industry," stated Evan Schumacher, CEO of Open Mile. "We look forward to joining the Echo team and contributing to the industry leading technology that drives their business.”
Recently, the CEO of Echoe gave an investor presentation where he was asked about the status of the automation process in the industry. He said LTL has become fully automated, but truckload is "destined to be manual". Then he goes on to say how they are making truckload more automated. A little conflicting.
When I think about your mix of business, you have both the LTL and the truckload brokerage. My understanding is LTL tends to be more automated and truckload brokerage tends to be more personnel-intensive. First off, maybe, if you just think that's an accurate way to view it. And then second, do you think there's opportunity over time where you can -- not fully automate, but increase automation of the truckload brokerage process?
Douglas R. Waggoner - Chief Executive Officer and Director
Yes. So you're absolutely right. LTL, generally, you get -- you negotiate pricing with the carriers either on a customer-specific basis or wholesale prices that you can resell. So that's all automated. And we have systems that are very similar to how you might think about Orbitz, where you can put in a couple of zip codes, see multiple carrier options, you can see what the transit times are, what the price is, you can see what the service performance, the claims performance of the various carriers. So either the customer or our sales person or operations person can make an informed choice about the right carrier, and it is very automated. All of the LTL carriers have EDI capabilities and a lot of things that make it a seamless transaction. Truckload is destined to be manual. And if you think about a small regional broker, they're going to have a very compact footprint. They'll have intimacy with the lower market. They'll know who the shippers are, they'll know who the carriers are, and they can make a nice little business matching up loads and trucks. Once you spread that out to 48 states and create this ubiquitous footprint, now you've got a lot of geography to cover
Douglas R. Waggoner - Chief Executive Officer and Director, ECHO Global Logistics
We think about the market in the U.S. as 211 distinct markets. So those could be origin points or destination points. If you square that number, you'd come up with the 44,000 origin/destination pairs. And so each one of those lanes has market pricing associated with it, both on the buy side and the sell side. So if you don't have automation and technology, it's a very manual process. You call the carriers that you know operate in that area and you make phone calls until you can find somebody at the right price, and that's how a lot of brokers do it. We try to make it a lot more automated, where we have efforts on to continue to do, so that we can not only rely on our historical pricing data, but we can rely on external data we purchased, or we can use algorithms to model what we think the price should be based on a variety of parameters so that we're not wasting a lot of time making phone calls trying to cover a load with a truck.
It's also important to know, out of 24,000 carriers, which carriers have the highest probability of being able to cover a load at the price that I want to pay. So again, you use algorithms to make you more efficient. So if I could cover a load by making 1 or 2 calls versus 12 calls, it's a huge productivity gain. And those are the kind of systems that we've put in place. With truckload, your smaller truckload carriers don't have technology. They don't have EDI. So if you want your systems to be up-to-date and accurate for tracking and tracing purposes, you've got to have the driver call you and tell you where he is so you can put it in your system, or you got to call the driver. So we have technology rolling out now where we track drivers using their cell phones. And so there is a lot of things that we believe can be done to automate the process, and we're -- those are the things that we're investing in.
Hi Ziippiity, I saw that news yesterday. It is an interesting topic. Wonder what ECHO will do with the acquired technology - how far down the company will it be adapoted? And would they let it compete with their existing business?
What about the big shippers? The Fortune 1000? The ones XPO is targeting. Will those shippers sacrifice the carrier reliability that comes with their traditional broker and go with an app instead? I don't know.
Jacobs is always saying that the future of brokerage is having access to carriers - and in the end, he with the most trucks wins. I'm not sure how Open Mile (or any other app) is going to break the relationship bonds between large-size carriers and traditional brokers. Not to mention that the large shippers demand a level of reliability that Open Mile doesn't seem to provide. At least not for now.
Open Mile seems like a useful mobile app for small to medium size carriers and shippers. It will definitely take a chunk of that market. The big fish shippers want service and reliability, and it seems that's what XPO is targeting. But if Jacobs decides he wants to play in the kiddie pool, what's stopping XPO from creating an automated app of their own? The entire Open Mile enterprise was created and funded with just $9 million. Jacobs could create 20 Open Miles with their cash available and not break a sweat. So will he do it? Good question to ask him. I hope somebody does.
For what it's worth, CHRW and LSTR created their own online automated freight load board, complete with one-touch mobile processing. Woohoo! Maybe in 20 years people will actually trust this stuff more than phone contacts.
ECHO just bought Open Mile.
What is XPO doing? I can't find an automated broker board from them. Maye they have something in the works. At this point I think they're focused on building their lanes and carrier capacity.
Thinking of other industries that essentially do matchmaking. A lot of automation has taken place. From telephone switchboard operators to travel agents. Even dating has been automated with the advent of dating websites, though there are still professional matchmakers for the rich and demanding. Why is it taking so long for the truck brokerage industry to become fully automated? Is it simply a matter of complexity? And in the end, will there be just a handful of truck brokerages that control this technology, each having their own specialized web portal? Or will there be only one company left standing in the end?
Every time I hear Jacobs talk gleefully about how they have room in their Carolina building for another 500 telephone operators working for commission, it reminds me of a Charles Dickens nightmare. With my iPad in hand, I can't wrap my mind around it.