On the face of it, these are heady days for the trucking industry.
Driver shortages are driving up wages. More goods — driven by eCommerce tailwinds — are crisscrossing the proverbial roads than ever.
As a result, there are initiatives like Walmart’s program to get thousands of more drivers on the road, and six-figure salaries for those who get behind the wheel.
But as Guillermo Garcia, CEO of FinTech SmartHop, told Karen Webster, the trucking industry is a competitive landscape that is inherently unbalanced. There are the major carriers — and then there’s everyone else.
More than 90% of the trucking industry is made up of independent operators and smaller firms, where the average fleet is six vehicles. Those smaller companies face challenges within logistics, with operations, and with back-office operations that keep the wheels turning.
“You wind up in this unbalanced situation where you are simply too small for such a massive industry,” Garcia said. “Your top line is controlled by intermediaries.”
Many of those companies work within the confines of a spot market and don’t necessarily have long-term contracts in place. That means volatility reigns, and scrambling for job after job can be a tough proposition, as there has to be constant matching between shippers and the truckers, balancing the supply and demand of loads that need to be ferried and the trucks on which they’re transported.
The vagaries of the economy are no help — not within an inflationary environment. Garcia noted that fuel only two months ago was 24% of a small trucker’s cash outlay on expenses. In just a few weeks, that percentage is around 32%. Not an easy bump to digest in a business where 6% operating margins are the norm.
Cash flow is further hindered by the fact that payments within trucking, in general, are mismatched from a timing perspective. Garcia said that payments come after the loads are delivered, usually within 60-day terms, and through ACH payments, which come well after the trucks have been gassed, the drivers paid. It’s little wonder that factoring of invoices is a hallmark of the industry, he said — and traditionally, independent operators have been viewed as high risk by underwriters.
Back-office functions are less than optimal as many smaller trucking operations do not have dedicated administrative operations that can keep track of insurance, quotes, invoices and payments.
The payments, insurance and matching of supply and demand are all pillars for tech-driven change, he said, leveling the playing field where heretofore small truckers have not had direct relationships with shippers.
SmartHop’s dispatch technology and platform helps those smaller firms compete with larger carriers through tech-powered freight dispatch and load booking, back-office support, insurance, lease/rental and fuel cards, he said. It also helps accelerate payments.
The Platform Model
Giving a bit more granular detail, the platform, through machine learning, matches supply and demand in ways that help small trucking outfits control their top lines.
The key is matching truckers with opportunities, chiefly in the form of the freight loads on offer from brokers. SmartHop automates the decision-making process of booking a load, with a certain broker at a certain price, Garcia said.
SmartHop also helps trucking clients run their administrative functions, automating invoicing, reporting requirements and reconciliation.
Through the platform, he said, “we know [the firms’] top lines and their bottom lines, and we’re connected to their GPS.”
Sometimes, then, the drivers just need $500 because they’ve broken down on the side of the road and just need to get some repairs in place to get up and running.
The improved visibility corrects a situation in which smaller companies have been too small to have any buying power — and have had to “pay retail rates across the board” for everything from gas to insurance, he said.
Earlier this month, SmartHop raised $30 million in a Series B to expand its operations.
Read more: Trucking Platform SmartHop Raises $30M, Plans Expansion
Logistics and freight — and by extension, trucking — operate in cycles, Garcia said. That means, looking ahead, we are headed toward a tighter cycle after two heady years. And that means it will be important that customers have the right tools in place. They need to operate more efficiently than the leading carriers.
Along the way, the ripple effect will accrue throughout the system, he said. Better relationships between brokers, truckers and shippers will translate into better margins for merchants (because freight costs are lower). Eventually, the cost savings should be passed along to consumers.
For the truckers, he said, with an eye on the pressures looming this year, operating costs are on the rise, and top lines may be pressured too.
“You’re going to have a very tough 2022 if you’re not set up to navigate all of this,” he told Webster.
