30K Feet: Key Takeaways from FreightWaves Transparency 2019

Harris Williams professionals regularly attend industry conferences and events. On the flight home, they share three key takeaways to help shape your strategy.

Event: FreightWaves Transparency 2019 – Disruption and Digitization in Freight Innovation

Report by: Jon Meredith, Vice President, Transportation & Logistics Group

Event Overview: Transparency 2019 focused on the impact technology is having on the freight transportation market as well as the broader third-party logistics (3PL) industry.

Why is this an important event for professionals active in this industry?

Meredith: The market for the transportation of freight, and the over-the-road (OTR) segment in particular, is massive and highly fragmented. Relative to many other industries, it has been slow to innovate. That’s rapidly changing, and this event is one of the best places to see the latest trends.

Over the past several years, there has been a major shift: A number of new, technology-driven companies have zeroed in on this market as a massive opportunity that is ripe for innovation and are out looking to capture the immense amount of potential data being generated by the more than 3.5 million Class 8 trucks operating in the U.S. As start-ups have emerged across the U.S., significant institutional capital has poured into the space to fund these disruptive innovations.

There’s significant runway for companies that can leverage technology and data collection capabilities to drive informed decision making, remove friction from the many interactions and transactions that occur during the lifetime of a shipment, and add transparency to a sometimes opaque marketplace, all while helping market participants increase efficiency, productivity and profitability.

Which trends, companies or business models were top-of-mind at the event?

Meredith: Amazon had been in the headlines in the days leading up to the event due to two separate events. The first was a planned $800 million investment to reduce delivery times from two days to one for Amazon Prime members, which has significant implications for the truck transportation sector. The second had to do with the launch of a digital truck brokerage platform catering to the $80 billion-plus U.S. truck brokerage market.1 While only a fraction of this market is served today by purely digital brokerages such as those launched by Amazon, Convoy, Uber Freight and uShip, this is a rapidly growing subset of the freight brokerage landscape. There are many theories as to Amazon’s true underlying strategy around a brokerage platform and how it will impact the marketplace, but the topic was front and center.

Another key topic was FreightWaves’ recently launched Trucking Freight Futures contracts. Freight transportation is a major cost component of most consumable goods, and freight costs can be rather volatile due to supply and demand forces, seasonality, even weather. This volatility can create significant financial exposure for shippers and carriers. FreightWaves has collaborated with DAT Solutions, a leading authority and aggregator of trucking spot market rates, to launch an instrument that mirrors futures contracts for physical (crude oil, corn) and non-physical goods (interest rates).  

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The goal of these contracts is really two-fold. The first is to offer a risk management tool that helps market participants hedge against volatility. The second goal is to bring additional transparency (a common theme of the conference) to the OTR transportation industry by providing a sense of where the market expects rates to head in the near- and long-term.

The future of the “driverless truck” was also a frequent discussion point. There are differing opinions as to whether (and when) we are headed to a semi-autonomous versus fully autonomous environment, but what isn’t up for debate is that serious investment dollars are pouring into autonomous driving technology, specifically for the trucking market. As the well-publicized truck driver shortage persists, innovative organizations are focused on developing technology to ensure enough truck capacity remains in the market for years to come, despite today’s labor market dynamics.

What opportunities are these dynamics creating for strategic buyers and private equity investors?

Meredith: At the moment, much of the investment in the space is coming from venture capital funds. They invested an estimated $2.9 billion in freight technology during 2018, and have already invested $1.6 billion in the first quarter of 2019.2

Many of the companies that venture capital money is supporting aren’t as mature as those typically targeted by traditional private equity investors. However, the landscape is rapidly shifting, and many of these companies are quickly scaling to a point where they will soon be receiving significant private equity interest.

Private equity groups and strategic buyers are keeping their eyes on the space to see which companies emerge as differentiated technology leaders in the sector. We expect that valuations for such best-of-breed technology disruptors will remain high in the coming years.