Turning Empty Space into Higher Revenues
The rapid success of startups like Uber and Airbnb have spawned a bevy of consumer-facing mobile apps that promise to pair supply and demand for everything from dog-walking services to in-home massages.
“Logistics companies who are willing to adopt new technologies stand to benefit enormously from the new efficiencies that sharing economies are bringing to the market”
These tech startups are based on an economic model called the “sharing economy,” which is shorthand for the sharing of access to goods or services facilitated by technology in an online marketplace. Sharing economies are starting to establish themselves in the logistics space as well by removing the friction involved in booking freight and by helping logistics providers easily access various types of capacity. Logistics companies who are willing to adopt new technologies stand to benefit enormously from the new efficiencies that sharing economies are bringing to the market.
How does the Sharing Economy Function?
At its heart, a sharing economy uses technology to eliminate the friction that typically prevents individuals and organizations from sharing assets or providing services.
Let’s pretend I own an RV and you are looking to rent an RV for a weeklong trip to the Grand Canyon. I only use the RV two weeks a year, and would be willing to rent the RV for $2,500/week during one of the other 50 weeks of the year that I’m not using it.
Before the internet, it would have been difficult for you and I to find each other. As a result, you go to your local RV rental facility and pay $5,000/week to rent the same RV that is sitting unused in my driveway.
Thanks to sites like RVshare.com and Outdoorsy.co, it is now possible for RV owners to efficiently connect through technology with RV renters directly. This new arrangement saves the renter money while providing extra revenue for someone who was previously unable to market their goods.
Unlocking Underutilized Capacity:
Anyone who has used Uber immediately grasps that the experience (i.e.: service) is far superior to calling a taxi. But the reason Uber is valued at more than $60 billion is not simply because they built a better mousetrap. Their technology has made it easy for people with a car to connect in real time with people that need a ride.
In addition, sharing economies have the potential to decrease trucking rates by unlocking underutilized capacity. For example, if an asset-based carrier is able to gain efficiency and keep its fleet operating at 95 percent capacity rather than at 80 percent, it theoretically would be willing to sell that excess space at a discount, especially if it can be sold with little or no excess operation or marketing costs.
Tech startups like Cargomatic, Flexe, Flexport and Project 44 are providing access to this capacity, as well as an overall better experience for their customers, through easy-to-use technology. They are improving the way companies connect with supply that was previously difficult, if not impossible, to find in real time.
In a sense, these technology companies are creating capacity out of thin air. Or, to be more precise, their software is putting new capacity into the marketplace and making it available when and where shippers need it the most.
Tapping into the Sharing Economy Marketplaces:
The easiest way for shippers and carriers to take advantage of the sharing economy is to leverage the infrastructure of the companies who have already built these platforms and marketplaces. Cargomatic covers local and regional trucking; Flexe handles warehousing; Flexport focuses on overseas shipping; and P44 provides faster API connectivity.
Cargomatic has focused on local and regional trucking, a market where there is often a lot of friction. Short distances mean jobs are high-touch and low-revenue. Coordinating shipments by phone and email, along with cumbersome paperwork and rudimentary pricing models that do not reflect real-time supply and demand, are industry challenges that diminish the shipper experience and eat away at carrier profits.
Cargomatic gives its freight management software away for free (via EDI or API) as an incentive for shippers and carriers to use the platform. The result is a transparent marketplace for local freight. The market determines the price that shippers pay. The driver rating system holds carriers accountable for the service they provide. Accessorials are added to digital invoices in real-time, which reduce billing disputes and ensures carriers are paid in a timely fashion. As a result, shippers are increasingly relying on sharing economy principles for their daily logistical needs. Carriers love the Cargomatic platform because it allows them to drive more efficient routes, fill their empty space, and make more money in the process.
The ‘sharing economy’ is now established and proven. Millions of dollars have been invested in building marketplaces that can be connected with easily. It is now up to those in the supply chain to integrate the benefits of it into their organizations. Once connected, shippers and truckers alike will realize the efficiencies, cost reduction, and access to capacity that so many consumers have already realized. It is now time for those in the logistics world to wholeheartedly embrace these new sharing economy platforms as they continue to evolve and become an integral part of the logistics industry.