Freight Brokerage Tech: To Build or Buy? That is the Question.
In a recent article, Peter Rentschler, CEO at CarrierDirect, discussed why freight brokerages should focus on better utilizing their existing Transport Management System (TMS) to increase operational efficiency, rather than investing in upgrading their systems or purchasing something new.
I agree with Peter's insight, and am thankful he shared it. Technology can be a powerful tool to grow your freight brokerage business and introduce incredible efficiencies to your operations. However, it all depends on how you use technology, because technology isn't a solution in and of itself.
I’d like to build on the valuable insight Peter shared because, as Kurtis Tryber discussed in a previous post, significant disruption is coming to the freight brokerage industry. This presents new challenges to all brokerage business owners. However, at the center of those challenges are also opportunities. Opportunities to leverage technology to augment carrier sales reps' efforts, book more loads in less time, and strengthen carrier relationships.
At this point, I’m sure we can all agree that brokerages (regardless of their size) need to leverage tech effectively to stay competitive and relevant in this ever-changing market. The question is: how? If you are a business owner or member of the leadership team, you’ve probably already asked yourself this question:
Should I build these tech solutions in-house or should I buy them?
The reality is: it depends. In this post, I share my thoughts on the topic to help you make the best technology investments for your freight brokerage and stay competitive in a rapidly changing industry. This will include:
What type of freight brokerage you want to build
The nature of your brokerage team, client-base, and load opportunities
How easy it is for you to access tech expertise
This post will be relevant to you if you want to scale your brokerage, or if you are already an established large brokerage looking to streamline operations, strengthen your brand, and attract the best talent to join your business.
Decide Whether You Are a Tech Company or a Tech-Powered Brokerage
As many will know from experience, building your own tech while simultaneously running a brokerage is an incredibly time-consuming and resource intensive undertaking. Which is why industry leaders like ReedTMS Logistics, NTG, and EPES have entrusted the development of their toolstack to companies like Parade, rather than trying to become the next Convoy, so they can stay laser-focused on their brokerage.
Things to consider: 1) Do you want to be a tech company? 2) Is technology your company’s greatest strength?
If you want to be a tech company and technology is your strength, then you must build the tech in-house. There's nothing to buy. The benefits of this include:
Ability to develop and iterate fast (however, if you outsource to a developer shop, you'll lose the ability to iterate without paying their hourly fee)
You own the technology (asset value)
You can build integrations with any other tool
You could be the only brokerage to have access to the benefits
Choosing to build is not without risks and challenges. Finding developers is difficult, and the development time could take years of costly trial and error. If you don't want to be a tech company and technology isn't your strength, you can avoid these risks and challenges.
Just because tech presents excellent opportunities for your brokerage, doesn't mean you have to become a tech company. You can still gain the benefits of technology without having to become a tech company by: 1) Understanding your company's specific operational needs and goals, and 2) Identifying where technology can be leveraged to help you. Understanding the opportunity is the first step to finding the right solution.
New Brokerages without Tech Talent
Imagine you are a brokerage with a turnover of less than $30MM, no tech talent, and most of your business relies on using load boards to cover same-day loads for customers. This was the world I operated in when I first started building a freight brokerage. No technology tool would have helped grow our business from $5MM to $50MM.
At this stage, your focus should be on serving those customers to the best of your ability, strengthening your relationships with carriers, and growing your customer-base so you can hire more people to help you scale. To assist you, you should purchase the most affordable Transport Management System (TMS) that only builds rate confirmations to move loads.
You don't need sophisticated ‘capacity tools’, ‘lane preferences’, or ‘waterfall tendering’. I emphasize this because a lot of TMS providers sell products with features you don't need.
At the end of the day, a TMS is simply a system of record that helps you (the brokerage) manage an order from start to finish. Some low-cost TMS options in the market can get you moving.
Small Brokerages with Tech Talent
Now, let's say you are a brokerage with a turnover greater than $30-50MM and you have some tech talent. It’s possible that you could save money by building some technology solutions yourself. You could develop rate confirmations and integrate with other services to create a custom workflow - for example:
Billing tools (e.g., QuickBooks)
Project management software (e.g., Asana, Trello, and Basecamp) to help you manage workflows
Google Apps for email and documents
Process creation to map out workflows
Load-boards to find carriers. (e.g., Truckstop)
When my brokerage grew to this stage, I used my skills as a developer to build a TMS that saved us $35,000/year (this is what we were paying for another provider). Our TMS served our needs at the time and was limited to a few simple functions:
Load lifecycle and progress information
Once a load was marked "delivered", our accounts team knew to pull the load, input it into QuickBooks, send an invoice via email, and collect payment. Any roadblocks to this were assigned and managed in Basecamp. However, looking back on this process and now knowing of low-cost (free, even) TMS options, I wouldn't have built anything myself and instead focused that time on continuing to build customer and carrier relationships.
Large Brokerages with Established Custom Workflows
Brokerages with annual revenue exceeding $100M have typically already purchased a leading TMS in order to best serve customers and manage internal operations. As your client and operational demands are higher than smaller brokerages, you’ve been forced to consider how to streamline your operational processes to better serve all your stakeholders.
Your large customers demand the best from you, such as better tracking and dedicated carriers. The CEO of a large shipper can get anything he/she wants with complete visibility, tracking updates, communication, and dedicated customer support from distribution to doorstep. If large customers trust you with moving millions of dollars worth of their freight, they will expect higher standards of visibility, communication, and support too!
Your employees are experts and have more sophisticated needs. Carrier sales reps want tools to help them book more loads with ease. Accounts people should spend their time closing and managing relationships, not inputting thousands of invoices into a system and managing the collection process themselves. It’s time to introduce some automation into your workflows to best support your staff and customers.
The stakes are higher at this stage of your brokerage than they have ever been and the decision to build or buy is critical. On one hand, as a larger brokerage you already have well-established custom processes for your workflow. Your existing custom processes could be the blueprint for your custom-built TMS and a great place to start. From there, you could address key challenges and align your build with your strategic vision. Ultimately, before committing to a new solution, you’ll need to perform a cost/benefit analysis of switching to a custom-built TMS.
On the other hand, as discussed earlier, unless you want to be a tech company and technology is a great strength of your company, you should leave building a TMS to the vendor experts. The benefits of working with the right vendor instead of building in-house include:
Access to deep technology experience and expertise
Effective tech training and support
Lower risk with proven solutions
Cost-savings associated with upgrading internal technology infrastructure
Every freight brokerage must consider how to leverage technology to stay competitive and relevant. While the right choice for some brokerages is to focus on better utilizing their existing Transport Management (TMS), others should buy a leading TMS from a vendor, and others still should build something new. Before you decide whether to build a technology solution in-house or purchase a vendor’s solution and product:
Decide whether you want to be a tech company and whether tech is your strength.
Audit essential aspects of your business, including; the size of your team, nature of your client-base, and the types of load opportunities you help book.
Identify where technology can help you the most.