The world of logistics demands digital transformation, and numerous studies have found digital advancements far exceed the limits of traditional processes. Running a freight brokerage is no different; digital advances have given rise to a new breed of brokerages, a digital-first company. That occurred in tandem with the limitations becoming more prominent among traditional truckload and omnimodal brokers as well. According to a 2019 report cited in Supply & Demand Chain Executive, the benefits derived from digital advances often follow typical business needs, such as communications, workflow management, and customer service. To help shippers and logistics management professionals understand the value-add of a digital brokerage, it’s important to understand the cons associated with traditional brokerages and how a digital approach wins the battle.
Traditional Brokerage Con: High-Quality Service That’s Less Focused on Quantity
There’s a misconception in logistics: traditional brokerages have a better level of service than a digital freight broker. It sounds true, given the nature of technology and all the hype of robotic apocalypses, artificial intelligence, and innovation. Yes, a traditional brokerage may seem like it has higher service levels. After all, employees may work much more closely with their customers. They may be on the phone every day.
That sounds like a customer service dream, but it comes at a cost. The labor costs grow exuberantly, and as costs increase, the only way to recapture them is to increase the profit margins. Therefore, they charge shippers more than they could otherwise. Communications could get lost in email or voicemail.
What happens if an account manager is ill?
With all the pressure of the pandemic fresh in our minds, it’s easy to realize that a handwritten, personal touch can be great or a vector for illness. And in logistics, a traditional brokerage is a vector for mistakes, errors, higher costs, and poor collaboration.
Digital Brokerage Pro: High Quality Service That Combines With Quantity
A digital freight broker can attain high-quality service at a scalable rate. That implies digital brokerages can instantly find capacity, source more loads, and onboard more carriers quicker than a traditional brokerage. A digital brokerage also leverages automation to reduce the manual effort that goes into all these activities. As such, they are able to meet increased shipping needs without sacrificing on quality of service.
Centralized platforms further allow for streamlined communications, building collaboration with carrier partners and shippers. It all comes together to amount to a single principle: digital freight broker services make more throughput possible. Period.
Traditional Brokerage Con: Freight Payment Delays
Traditional brokerages may be limited by lengthy payment processes. Depending on the company, freight auditing may be non-existent, and if the company processes a high-volume of freight, manual auditing can occur weeks, if not months, after submitting payment. And like all aspects of any business, that adds to costs, even if those costs are the labor costs associated with filing a claim against an erroneous invoice datapoint after payment has been made.
Digital Brokerage Pro: Integrated Payment Processing
A digital freight brokerage leverages connected systems and integrated platforms to automate more processes within freight auditing and payment. Rather than waiting on invoices to accumulate over time, digital freight brokers use software to audit and approve payment in near real time.
Integration with other systems, such as freight factoring platforms or lines of credit, can be used to further streamline the payment process, whether that’s tracking invoices and matching them in truckload or planning payments to outsourced courier “gig” workers. This shortens the payment clock and allows brokerages to stay more profitable. In turn, they are less likely to experience disruptions and can continuously work to source more capacity for shippers and more loads for carrier partners.
Traditional Brokerage Con: Highly Reactive Business Model
A traditional brokerage is a highly reactive business model. They operate on a run-until-it-breaks workflow, and when it breaks, the problems abound. Shipments might be missed, errors can occur, and customers will leave. Carriers may also choose to eliminate their relationships with traditional brokerages that experience major disruptions.
Digital Brokerage Pro: Highly Proactive Business Model
Digital brokerages leverage automated workflows and technology to stay strategic. That simply means they are able to assess operations more effectively and manage by exception.
For instance, using automated notifications allows digital brokerages to intervene when problems arise, but automated rulesets can be further applied to handle the most common issues that may arise. This is where the distinction between a digital truckload strategy versus a traditional brokerage approach lies. In the traditional model, the problems may go unnoticed until a missed delivery, pickup or other event occurs that results in immediate disruption to the shipment.
However, it is important to note that both a traditional and digital brokerage possess some reactive qualities. This distinction rests with how a traditional brokerage must experience a disruption to address it; a digital brokerage can pre-empt it or mitigate its fallout more easily.
Traditional Brokerage Con: Pay Carrier Rates Regardless of Market Conditions
Traditional freight broker businesses have a limited view of market dynamics. They know rates because that’s what carriers tell them. They see inbound and outbound flows based on moves within their individual network. This creates a limited view of the overarching freight market and effectively results in paying what a carrier demands.
Yes, that is true during times of disruption and when carriers possess the bargaining power. However, a brokerage’s whole business is transportation. Therefore, they need to know what to pay for each load based on its unique O/D pairing and the availability of drivers for that specific lane. A traditional brokerage lacks the digital freight data necessary to do so.
Digital Brokerage Pro: Pay Carrier Rates Based on Data
A digital brokerage applies advanced analytics and market tools to understand market dynamics in real time. While digital brokers receive the same inside information from partnering carriers as traditional brokerages, they are able to use technology to gain a more holistic view of all market activity. Even if rejection rates are incredibly low in tandem with low rates, a traditional brokerage may still be overspending. But it’s difficult to visualize that overspend and quantify it without access to data. That’s why a digital brokerage tenders and pays based on data, not an arbitrary value.
Take Advantage of a Digitally Enabled Freight Brokerage by Partnering With Wicker Park Logistics
There will always be a need for digital technology, and there will also always be a need for freight brokers in logistics. Regardless of whether your team needs an expert for the short-term or a dedicated service for your whole business, a digital partner is key. Wicker Park Logistics knows that a digital brokerage differs vastly from a traditional firm, and it’s time for your business to put that fact and the strong advantages of digital brokerage strategies to work. Connect with Wicker Park Logistics to get started today.