Transfix sells brokerage unit to NFI, Flexport expanding Convoy Platform, Maersk lifts guidance

Welcome back to Supply Chain Tech Trends, your twice monthly deep dive on supply chain tech news, events and analysis, written by Operator Stack.

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Top Tech News

1) Transfix announced the sale of its brokerage unit to NFI and will now solely focus on its transportation software and data offerings.

2) Flexport is expanding the Convoy Platform for brokers by giving them access to thousands of carriers in its network across the country.

3) Maersk said it expects profits in 2024 to be $3B higher than previous projections as freight rates have increased amid the Red Sea crisis.

💬 The Thesis¹

We weren’t surprised by the Transfix brokerage unit sale, as the freight brokerage industry is no stranger to consolidation. And we anticipate this consolidation trend to continue throughout the year and into 2025. 

The industry has been grappling with its longest recession since 2008, with over 24 months of low per-mile rates squeezing brokerage margins. 🫨

This downturn is expected to persist at least through some part of 2025, forcing brokerages to adapt and innovate to stay afloat. 🚢 

The cyclical nature of the brokerage industry is well-known, with the market oscillating between tight (undersupplied) and loose (oversupplied) conditions every four years or so. These cycles are primarily driven by the ebb and flow of supply in the market. Traditionally, brokerages have weathered these shifts by adjusting their headcount, particularly in variable cost positions such as carrier sales representatives and account managers.

However, tech-driven brokerages face unique challenges in this environment:

→ Custom TMS Development: Many tech-driven brokerages opt to build their own transportation management systems (TMS) instead of using off-the-shelf solutions. This approach necessitates a large engineering team from the outset, leading startups to raise substantial funds on the back of "brokerage revenue."

→ High Fixed Costs: The sizable fixed costs associated with maintaining a large engineering team can make it difficult for sub-scale brokerages to weather loose markets, resulting in heavy burn rates during lean months. 🔥

→ Selling Tech to Competitors: Selling technology to other brokers can be challenging, as it essentially means offering a product to competitors. While not impossible (e.g., Amazon Web Services selling to other retailers), it comes with a significant price tag.

To address these issues, tech brokerages must either a) significantly reduce burn by downsizing their R&D teams and/or externalizing their technology, or b) rapidly scale up, which seems like a tall order in the current climate. We expect most to opt for the former.

This is where technology providers innovating on core brokerage workflows enter the picture (e.g. Parade*, Freightstack, Rectangle Labs*, Hubflow). We believe they will play a crucial role in shaping the future of brokerages. As the industry undergoes much-needed consolidation (the US currently has 25,000 brokerages), these tech providers will be instrumental in driving efficiency and automation.

Flexport's recent launch of Convoy for Brokers is a prime example of this trend. Rather than launching a separate brokerage, Flexport has chosen to externalize its brokerage tech offering to other brokers. From what we can tell, they are selling capacity services rather than a full-fledged broker TMS – a smart move. By leveraging the Convoy app's extensive carrier network and acting as a pure marketplace, Flexport can reduce its risk during a loose, low-cost market. Other brokers bring in demand, while Flexport supplies capacity for a reasonable fee.

Automated booking through apps offers several inherent advantages:

1. Price Differentiation and Standardization: Automated channels allow for greater price differentiation and standardization compared to phone-based bidding, resulting in lower costs for moving the same load.

2. Automated Load Lifecycle: Loads moved through automated channels often have other steps in the load lifecycle automated as well, such as tracking. This reduces the number of touches needed per load, lowering costs. A 20% automation rate can theoretically reduce variable costs by the same amount.

3. Scalability without Additional Headcount: Perhaps most importantly, automated channels allow brokerages to scale their operations without having to hire additional carrier sales representatives. While a good carrier rep can find capacity for around 15 loads per day, an automated channel like Convoy for Brokers enables brokerages to scale their load volume without significantly increasing their carrier sales staff.

We envision a future where most brokers use tech- /AI-enabled capacity management platforms to manage their fulfillment, which in turn distributes loads to automated booking platforms like Convoy for Brokers, in addition to leveraging their internal CRM.

We hypothesize that touchless booking and touchless appointment scheduling will become common metrics used by brokerages in the near future, with touchless loads being the holy grail of the tech efficiency play.

As the freight brokerage industry navigates this transformative period, it will be fascinating to see how these developments unfold and shape the future of the industry.

_{¹ This section is intentionally opinionated to spark debate; *Operator Stack portfolio company}

Notable Fundings

Ofload, an Australian-based freight management solution, raised $31 million in funding led by Yarra Capital Management.

Gatik, the California manufacturer of self-driving trucks, raised $30 million in funding led by Isuzu Motors.

XSquare, a Singapore-based intelligent warehousing automation company, raised $10.5 million in funding led by Wavemaker Partners.

Ship Angel, a SaaS startup building a suite of digital logistics tools for BCO shippers, raised $5 million in funding led by Glasswing Ventures and NVP.

McEasy, an Indonesian logistics SaaS startup, raised $4.5 million in funding led by Granite Asia.

Revive, a platform that handles return inventory for retailers to optimize revenue, raised $3.5 million in funding led by Equal Ventures and Hustle Fund.

RetailReady, an Atlanta, GA-based retail compliance management platform, raised $3.3 million in funding led by Wischoff Ventures.

Forge, a provider of procurement management for hardware companies, raised $2.1 million in funding led by Gradient Ventures.

Realtime Robotics, a Boston, MA-based leader in collision-free autonomous motion planning for industrial robots, raised an undisclosed amount led by Mitsubishi Electric Corp.

Links to Ponder

Collaboration will strengthen the supply chain

May transportation trends update from Greenscreens AI*

Logistics operators are looking to break the sector’s IPO logjam

The $10,000 shipping container looms in latest trade strains

_{*Operator Stack portfolio company}

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