The marketplace model has provided logistics with an opportunity for unprecedented transformation. To see the full potential of the marketplace model at work, we can look to the digital freight marketplace, Convoy.
Convoy disrupted the logistics industry by building a network that aggregates supply and demand while leveraging algorithms to better match shippers with carriers and eliminate middlemen in the process. The company has successfully reduced empty miles, optimized shipping times, and drastically increased carriers' revenue-earning miles.
The key to Convoy's success? Leveraging the multi-vendor marketplace model.
In an industry hamstrung by a combination of decoupled, disparate systems and exceptionally relational processes, Convoy's success proves there's a better way to operate. Not just for new market entrants but all existing brokers and freight forwarders.
If your brokerage is looking to introduce much-needed digitization via the marketplace model, there are some fundamental best practices you should strive to implement before embarking on your project.
Marketplaces thrive on volume. The job of any marketplace operator is to remove friction in the buying and selling process and get that flywheel in motion. Step one is generating supply, in other words, getting sellers up and running on your marketplace.
Applied to logistics specifically, this means making it easy and lucrative for carriers to carry.
There are several ways to increase participation in a logistics marketplace:
Remove onboarding barriers: How many phone calls does it currently take you to onboard a carrier? For a logistics marketplace to be successful, it must ensure shippers have a healthy density of carriers to choose from, so you'll want to get carriers signed on efficiently. Your marketplace infrastructure should support carrier onboarding by automating dated processes. Look to enable self-service vendor onboarding, automated contract management, and seamless systems integration between the transportation management systems, fleet management systems, and ERPs participants are using.
Carrier enablement: Just because a carrier wants to take a shipment doesn't mean they necessarily can. Insurance for a given shipment might be too costly, demanding, or time-consuming for an individual driver to attain. If you can augment insurance coverage for carriers, your marketplace can provide more delivery services, support more shippers, and provide more opportunities for carriers.
Fast payouts: Many drivers are individual owner-operators. They're not on salary. They live off the wages they work for, and they're responsible for significant expenses like gas, insurance, and maintenance. Payment according to standard corporate terms, 30 to 120 days, is not an attractive proposition. It puts the driver at a loss and stunts their cash flow.
Payment within five, ten, or 15 days is much more palatable to a driver but, in many cases, impossible for accounting teams to deliver on. Marketplace platforms integrate with fintech that can push out payments frequently and automatically, which can be a huge incentive to get carriers on board. Convoy, for example, offers carriers a factoring option, where the carrier can get paid faster for a small percent of the payout.
Generally speaking, marketplace trust is a three-way street between buyers, sellers, and operators, but facilitating that trust falls squarely on operators' shoulders. Logistics is no exception.
The advantage of a marketplace is that you can build mechanisms into your platform that simultaneously establish trust and weed out poor performers.
Automated carrier due diligence: A marketplace is only as good as the vendors participating, so engaging a fleet of trustworthy drivers and carriers who hit their SLAs is critical to keeping shippers happy. There are many great tools to reduce the time and effort it takes to vet your drivers. For example, RMIS and Carrier411. These give you background information on the track record of drivers and the status of their motor carrier licenses, eliminating the need to use lots of staff to confirm credentials.
In-platform feedback loops: Reviews are self-policing. Just as an Uber rider with a one-star would cause a driver to dismiss a ride request, the same logic can be applied to logistics marketplaces. Even if an inadequate carrier or shipper makes it through your vetting process, with reviews, you can rest assured that poor performance punishes itself.
On the other hand, favorable reviews reflect well on the carrier and your marketplace. To ensure positive experiences go publicly acknowledged, your marketplace platform should automate feedback loops to incentivize reviews via email prompts or push notifications. Tales of bad work travel fast — feedback loops ensure good work does too.
Real-time visibility: Thanks to conditioning via Uber's driver tracking, marketplace users expect visibility. While shippers are interested in the whereabouts of their delivery, carriers benefit from visibility as well.
Time is a critical resource for carriers, and you'd be surprised how much time drivers spend waiting for a stall — losing money. If they have to wait an hour, that's one hour of not driving and one hour of not getting paid. As an operator, logistics marketplaces should support control mechanisms for reducing detention time so that shippers aren't over-ordering and drivers are compensated if they do.
Fairly adjudicate issues: When issues arise, marketplace operators are expected to be fair and transparent in their adjudication. For logistics, this translates to providing support for both shippers and carriers. Whether the problem is weather-related, damaged goods or incorrect delivery instructions, operational workflows and commerce logistics should be in place to fairly reimburse shippers and troubleshoot for carriers, who traditionally might take the hit. By bringing logistics online in a centralized platform, issues can usually be identified and solved faster.
Since most logistics processes are executed relationally, not digitally, logistics is a greenfield for digitization. Marketplaces present opportunities to digitize small efficiency leaks, like calling drivers for route updates to the outdated process of matching shipments with carriers.
When we zoom out and look at the logistics marketplace as a whole, here's what the tech you choose should enable:
Support for multi-carrier ecommerce, fintech, and logistics: Logistics companies looking to transform digitally might see an ecommerce solution as the way forward, leaving accounting and operations to back-office employees to cover.
But this misses the opportunity to connect and digitize aspects of fintech (like payouts and taxes) and logistics (like shipment tracking and freight capacity.) Your marketplace platforms should act as a control center for your business's commerce, accounting, and logistical side.
Integrate legacy technology and modern applications: Logistics will unlikely be completely free of legacy technology any time soon. As a result, you have to have tech that can translate between antiquated EDI interfaces and modern headless systems to make them more congruent. At the same time, logistics should focus on modern tools available to them, like algorithms that can more precisely orchestrate freight logistics and reduce waste or mobile apps that facilitate quick communication with drivers.
Intuitive use: Reducing back office work might be the goal, but we're talking about an industry that relies on phone calls, emails, and human touchpoints. The tech might streamline and automate redundancy, but if it isn't intuitive for marketplace participants to use and make their lives easier, you'll never be able to scale or grow in the way you wish.
You don't have to be Convoy to get Convoy-like rewards. When any broker sees itself as a marketplace operator, suddenly, logistics unlocks a world of digitization, scalability, and efficiency previously only available aspirationally.
With a looming recession, trucking labor shortage, and rampant supply chain disruption, shipping and logistics companies today may not believe they have the luxury of time or the financial resources to allocate to an initiative like this, even if the marketplace model can help them solve these problems.
Fortunately, advances in marketplace technology mean that companies no longer need to budget millions or years in development and can get a multi-vendor platform up and running within 90 days.
Logistics might be a laggard in embracing the digital revolution. But with the right approach to modernization, more leaders can emerge.