Editor's note: This article is part of Inc.'s 2020 Best Industries report.
Talk about moving targets. Roughly 36 million trucks crisscross the country 24 hours a day carrying 71 percent of U.S. freight, according to the American Trucking Associations. To make money, the close to 900,000 owners of those trucks--most of them small businesses with six or fewer vehicles--need to minimize the distance they travel with empty trailers (called dead-heading in industry lingo). At the same time, shippers must ensure that billions of dollars' worth of wares reach their destinations on schedule. If they fail, consumers will fume. Assembly lines will stall.
Freight brokerages--the largest subset of the third-party logistics (3PL) industry--evolved to match loads with wheels. It's a huge sector--$86.5 billion in the U.S. alone. The problem: The vast majority of freight brokerages are older companies that typically rely on off-the-shelf transportation-management systems, which don't provide the same efficiencies as powerful, purely digital upstarts like Uber Freight and Convoy.
Now, a cadre of new businesses is leveling that field with technology to augment traditional systems--a $3.3 billion market, according to Evan Armstrong, president of supply-chain consultancy Armstrong & Associates. While that's much smaller than the overall brokerage market, "you can get to profitability much faster than by trying to be another freight broker," Armstrong says.
One of those companies, the nine-employee, San Francisco-based Parade, uses natural language processing and data analytics to address a particularly knotty problem: the volume of time-sensitive messages flooding in from truckers looking for loads. Say you're the driver of a refrigerated truck delivering 40,000 pounds of sirloin in Oswego, New York, at 7 a.m. You shoot an email at 5 a.m. to a broker to find another perishable load in that vicinity you can pick up afterward. But the brokers' reps are asleep, and when they get to the office, they'll be facing thousands of similar requests.
Parade's platform reads such requests as they come in, and then combines them with the brokerage's historical records--for example, how a particular trucking company has performed in the past and what routes it prefers, as well as government data on things like inspection reports and liability certificates. It tees up a match, prompting a human to finalize details like price and terms, in most cases. That function and others performed by Parade allow brokerages to increase their load bookings 250 percent, according to the company.
While truckers fume that their messages often go unread, brokerages must identify carriers in the right place at the right time and with the right capacity for their shipper clients' pickups and deliveries. In the past, USAT Logistics, the brokerage arm of Plano, Texas-based freight company USA Truck, primarily used commercial boards to send out the bat signal. "In the industry, it's called the post-and-pray model," says Erik Jenkins, the company's director of strategic carrier development. "You post on a load board and hope someone will call in and take your freight."
Now that Parade makes the preliminary match for about 20 percent of USAT's bookings, Jenkins says he no longer has to rely on prayer. The company is booking an additional 75 loads a day just from the platform, a boon for the business and for carrier managers who book the loads and work partly on commission. "I wish I had something like that back when I was a carrier manager," Jenkins says. "I would have gotten rich."
A relative's woes
Growing up in Cupertino, California, Preet Sivia worked summers for SPS Transportation, a relative's one-truck operation. He observed his uncle Surinderpal Singh's frustration when emailing and calling brokers trying to line up jobs. In 2015, Sivia, still a student at the University of California, Davis, contacted his childhood friend Tony Wu about starting a freight brokerage more responsive to business owners like Singh. Wu and his Berkeley classmate Anthony Sutardja--both former interns at companies including Google, Uber, Yelp, and Facebook--joined Sivia to launch Parade as a digital brokerage, developing their own technology to rapidly match truckers' messages with potential loads.
But small brokers work with only a limited number of truckers. "If you want to improve the lives of somebody like my uncle, you have to become a $50 billion company," says Sivia, Parade's president. "Our vision was to help people at scale."
So in 2017, Parade, which has raised $2 million from investors including Berkeley's House Fund and Arena Ventures, decided to tackle the problems faced by freight brokerages, especially companies competing with purely digital upstarts. (The purely digital market could top $30 billion in 10 years, according to FreightWaves, which provides news and research on the freight-transportation industry. Sutardja, who is Parade's CEO, believes the business can serve that market as well.)
Parade launched with the email product it developed for itself and then began integrating other information sources from inside and outside its clients to ensure optimal matches of trucks and loads. "Now, email is just 4 percent of the data we collect for our customers," Sivia says.
To know them is to book them
The strongest supply chains minimize the number of vendors and maximize the level of trust. Parade's research has found that a brokerage typically engages with a single small trucking company just twice a year, and consequently doesn't know much about how it prefers to work--or whether it works at all. Parade encourages deeper, longer-term relationships between brokerages and carriers by capturing data about how the carriers have performed in the past--that they've often picked up early morning loads in El Paso, for example, and always delivered on time.
One of Parade's first customers was ReedTMS, a $210 million third-party logistics company in Tampa. Before ReedTMS deployed Parade's platform, "it was one truck to one load and that was pretty much the extent of the relationship," says director of pricing Cody Thacker. Now the company knows what trucks are in the same cities or travel the same routes every day or follow other patterns. That has allowed it to build processes around booking loads.
"We've developed better relationships in the carrier community and also support our customers at a higher level," Reed says. "They are starting to see the same faces in their sheds and in the docks, whereas in the past it was a turnstile of carriers. We couldn't sell as high a level of service because we didn't know who we were using every day."
To date, Parade has 30 enterprise customers ranging in size from $30 million brokerages to billion-dollar-plus behemoths. As Sutardja predicted, three of its clients are digital freight brokers.
In Sutardja's view, two models compete for the heart of the brokerage industry. One is the purely transactional one-truck-one-job-and-see-ya model practiced by Uber Freight. The other is the relationship-based model embraced by Parade's customers. The startup's success depends on the triumph of the latter. "We see relationships as the future," he says.