3 Technology Companies Disrupting Shipping
FLEXE, Flexport and Convoy–three technology companies adding flexibility to the supply chain–,recently hosted the first Peak Logistics breakfast in Seattle, Washington. The founders of each company came together to discuss the overlap of technology and logistics and how it can be used to solve every day problems.
The speakers cover everything from air and ocean freight to trucking and warehousing. Watch the video here, or read the transcript below!
Nerijus: Good morning, everybody. I’m Nerijus Poskus — Director of Pricing and Procurement at Flexport. Basically, responsible for ocean freight carriers, ocean ships that rely on truck companies.
Moderator: Who is Flexport?
Nerijus: Flexport is a technology-enabled freight forwarder. It’s important to mention that our company is the first freight forward to invent a platform that allows our clients to make better decisions. So software allows us to be more competitive, more predictable. And, basically, a better client for our partners. So, again, just to sum it up. Flexport is a freight forwarder that allows clients to make better decisions. Allows carriers to think better and is slowly automating this industry that has been behind for the last 20 years.
Dan: All right. Good morning. My name is Dan Lewis. And I’m the Founder and CEO of Convoy. So Convoy is a trucking company. And if you think about the services you use trucking for and your flatbed where you’re driving in temperature controlled refrigerated frozen, same-day parcels, a full truck load, contracted… A pretty broad array of trucking things. The thing that’s different is, we’re also a technology company.
So if you think about, along every step of the way, how can we use technology to make it better? And you know, we can get into the details of how it works. But things like real-time GPS, instant pricing, etc., result in more competitive pricing, more reliability. And, honestly, the service levels are, you know, better than what we’ve seen in a lot of other truck companies, in terms of our time in there, etc., things like that. So it’s really just mashing the traditional trucking services with technology inside of it. Visibility results in a better experience, and that’s the service embedded in what we’re offering.
Karl: Good morning, everybody. My name is Karl Siebrecht. I’m the Founder and the CEO of FLEXE. We are a marketplace for warehousing services. So if you operate a warehouse, if you rely on 3PL to operate your warehouse, we are a networked marketplace of, essentially, 3PL services.
What we have in common with these guys is, we also have built this on top of a technology platform. So what that allows you to do is one technology interface to operate across a very broad set of different providers to do all the storage and overflow all the way through fulfillment. So large companies/small companies use us, sometimes, as their distribution network. And, sometimes, as their compliment, as a flexible compliment to their existing infrastructure, again, in warehousing and distribution services.
Moderator: So we’ll start with questions for Dan, from Convoy. So maybe talk to us a little bit about how different sized businesses view you and what the different use cases for you guys working with them?
Dan: I hope that I can meet all of you and you can tell me your thoughts. So in terms of size and the size of the companies we work with? We work with a really broad range. And I think when we first started, the focus was on typically more small and mid-sized businesses. We built an experience on the web where a company could go on and easily create shipments, easily track and trace their shipments with real-time GPS. Get into the pricing, again. If you use a model where you work with carriers or brokers, today…whether or not you’re working with carriers or brokers, it probably ends up a lot of the work is done by small trucking companies — that’s the vast majority of trucking capacity. You’re looking for, oftentimes, a soft quote or a quote in the last minute. Or, some sort of reliable contracts are great — week-in/week-out on some specific lanes. And so in all of those cases, you know, we can provide pricing up front. And we could provide a reliable service. And you can always have visibility.
What we found is that a lot of times everything goes right. The majority of the times everything goes right. And that’s fine. But when something goes wrong — if the truck’s late, if you can’t find a driver, if you’re not sure when the price seems like it’s changing after the fact. Going back, knowing in real-time, where that truck is? Going back, and look and audit what happened? Figuring all those things out is a lot easier if you’ve been tracking the whole experience using GPS and technology and an experience on the web that lets you see every step of the way. So that’s available to companies of any size. It’s free CMS. If you want to use this to build trust and track all this, there’s no cost using technology. We only make money if you’re using the service to actually build trust. And then, the benefits of visibility in GPS, transparency in the process also translates in these very large companies.
Actually, yesterday or a couple days ago we’ve asked Unilever…as, we’ve been doing a four-year deal with them. We’re going to do tens of thousands of shipments with them. And I think what that really demonstrates is that the value we’re creating actually is useful for every sized company. Because at the end of the day trucking’s trucking and you want to know where your truck is and you want to know when it’s going to get there and you want to have the ability to figure out when it arrived. Figure out a ditch time — all those details you want of trucking. And if you have technology tracking it all, it makes it a lot easier.
Moderator: So one of the things that’s been dominating the news recently is the Hanjin bankruptcy. So Nerijus, can you talk a little bit about how that’s affecting rates today? And what that might look like for the next couple quarters?
Nerijus: Yes. So, as you all know, Hanjin basically went bankrupt a few months ago. Hanjin affected United States a lot more, the bankruptcy of Hanjin affected the United States a lot more than it affected the rest of the world. Hanjin had 7% of market share in the U.S. — it was like 7.6% of market share in the U.S. west coast. They also had 6% of market share on the U.S. east coast.
Now all of this capacity is gone. There was an estimated overcapacity of about 5% two-three months ago. So 7% of the capacity is now gone. And what that caused was a huge under capacity. So today and yesterday, there was not enough capacity, cargo was rolled, prices spiked. They spiked so significantly, I’m sure all of you faced that. Shipping a 40-ton container back in July or June used to cost about \$700 — a 40-ton container. Today, it’s nearly \$2,000. So that’s basically a 300% increase in three months.
How does the future look like? We expect that capacity slowly comes back to the market. More than half of Hanjin’s ships were chartered. They actually are going back to the market through other carriers. So the chartering companies are already receiving the ships back and they need to rent them. They need to charter them again. MSC is interested to charter those ships. Maersk is interested as well. So, again, this capacity will go back to the market.
So it’s a temporary bump. We expect the prices to slowly go down again. And that should start happening around November 15. The next peak is expected before Chinese New Year. It’s no longer related to Hanjin but the prices are going to go up, again. Should I talk a little bit more about the peak, in general, or no?
Nerijus: Yeah? So I wanted to tell you, why does your cargo get bumped. Why does your cargo get rolled? It’s not only because of Hanjin. It was mainly because most of your cargo today is moving on standby. I don’t know if any of you know or if any of you have experienced flying on an airline on standby? Where you have a ticket but you don’t have a seat asigned. This is how ocean freight boats today, focus [SP] everybody. Until the last minute, your cargo is not confirmed.
So what technology allows us to do? It allows us to predict better. Where, we can tell the carrier exactly how many to use? And they can expect this week, the following week and the week after? That means the carrier will get better data from us. They can plan better. They don’t need to overbook. The reason that cargo is booked today? Because freight forwards don’t have the data. They are always overbooking and under delivering. And that results in ocean freight carriers booking…allowing a lot more bookings than they carry. And then, during peak, your cargo is getting rolled. So Hanjin was just a little spike. But this will happen again and you have to be prepared.
Now, how do you get prepared for that? Is, you have to work with your freight forwarder. You have to provide forecasts and we will make it work. Like, with Flexport and there’s also other freight forwarders predicting better. The cargo shouldn’t be rolled. You should get a seat assigned on your shipment. That’s it.
Moderator: So Karl, Nerijus just talked a little bit about peak season and we’re in the middle of it with a lot of companies. Maybe you can talk to us about how you see some companies managing their peaks better through use of technology?
Karl: Sure. So in environments where capacity comes in relatively fixed chunks, some intermediates in the shipping business as well, certainly, in warehousing there is many businesses, unless you’ve got really predictable and no growth or low growth inventories, there’s complexity and uncertainty around…and, do I have enough or the right amount of capacity in my warehouse or my warehouse network for the flow of my goods, right? So if I have forecast for next year that I know it’s going to be within two points of being accurate and I’m 100% sure that there aren’t going to be any disruptions coming along. Like, I don’t know, Hanjin going out of business and messing up the flow of goods. Then I could rent/lease a warehouse for multiple…a three-year lease, which is sort of typical, and feel good that I’ll get good utilization.
Okay. So then there’s the other businesses in the world that have some degree of uncertainty in their forecast. Maybe, they might grow 15% or 20% to 30%. Or, maybe they have predictable seasonal peaks and valleys. In any of these scenarios, fixed capacity is a mismatch for that variant over in inventory.
So for peaked, peak Q, for holidays are the biggest fall peaks. And so a business has a choice. Do I want to lease a warehouse that will cover my peak and sort of go to church for Easter Sunday, therefore? Or, do I want to reserve less capacity and find a place to go? With technology…we keep going back to that theme. But it is the dominant underlying factor. With technology, you can be very, very efficient and effective in augmenting this capacity with a variable layer that’s being formed.
So in a marketplace model, as long as there’s scale, you can reliably say, “I’ve got mine.” So it’s now, I want to tap into another site to overflow. I want to tap into another site to pop up an extra node or two to get closer to my customers for a holiday season. Extend that fixed capacity either semi-permanently or just for a peak season.
So in warehousing, where we’re most familiar, this variable component is incredibly valuable. One of the…the garment supply chain always compare this to IT cloud infrastructure. So Amazon Cloud Services, most of it is probably in Seattle. And if we’re not, you know where that is. It’s cloud-based IT infrastructure that allows them to pay as you go, right? We need more server capacity for a weekend spike of the website? No problem. Just pay for more and dial it back down. And it adds a layer of IT cloud infrastructure capacity. Is the same thing happening with stocking and with warehousing as well? We see this across lots of spectrums, where they’ll just switch.
Moderator: So does anybody here, you guys have follow-up questions for Karl, or Dan, or Nerijus at this point?
Man: So I have a question. Thanks. So if I take this idea to a client, a warehouse client who needs to expand. Their first pushback is going to be, well, we have value in the product. We don’t know who’s going to be handling it if we’re not managing them. So what do you tell people, when they come back to you with that?
Karl: Yeah. That is pretty much the first question we always get. What is FLEXE? At first, he’s going to say, “Interesting concept. Where is my stuff going to be?” Who’s going to be handling my stuff? So our model is, we don’t obfuscate what the supplier holds. We are a marketplace. It may be a buzz-worthy word but what we mean by that is, the suppliers of warehousing services, about half of them are 3PLs. Half of them are what we call 1PL — so they’re other retailers and manufacturers who are operating their warehouses. They offer their capacity and services in the marketplace. How much do I have? What kind of handling capabilities do I have as a practice for any fulfillment? And, do I have food grade certification? Do I have high security? What are the attributes? And, what are my capabilities? Then people come to the marketplace to say, “I need fulfillment.” Or, “I need overflow.” “My goods can’t be stacked because they’re round.” Again, through a technology platform, you can provide and surface that visibility to help make the right match, right?
So the shippers will come to us and say, “I have very particular requirements.” Screen through, find candidates that are a good match. And then, go validate the warehouse, just as you would anywhere. But the technology helps you narrow down the choices, it’s price and transparency. And then, when you choose the partner with whom you want to work or partners. Many of our clients are operating in multiple markets with different providers on the other end. The system, again, allows you the visibility. My goods are arriving. I see them online. The control of knowing where and which partners…, where my stuff is. The KPIs around, “Hey, is the stuff getting received and delivered on time?” What’s the error rate? All those things that you need and that you would and demand from any sort of outsourced provider, you get through the technology, there. And you get it in a one to many relationship. And, again, with the power of the marketplace in scale, you start to get comparative metrics.
So if you’re using a warehouse provider, I’m sure you have KPIs for service delivery and an SLA. This is what I demand from my partner. Can you measure that stuff? Well, imagine being able to measure those metrics in an apples-to-apples way across hundreds of providers. And when you go start to look for a new provider, those metrics are available so that you can compare even before working with them. Hey, how does this provider stack up versus these other providers? That’s what the power of the technology platform can bring you, upon the quality and controls.
Dan: A thought related to that. One of the biggest questions and frustrations we’ve heard from customers as well. They say, “Person, the truck actually showed up.” Typically, [inaudible 00:18:55] but they don’t know the actual…which company it is. And so a couple of ways to think about that are, if you’re working with a broker, brokers are going to go find a truck for you and find a trucking company to do that delivery. They’re going to manage the service. They’re going to manage the billing. They’re going to manage any questions you’ve got. But at the end of the day, someone else is providing that service. And, oftentimes, that’s not on-hands. They don’t often tell you the ultimate characters that did the work. And one of the reasons that is the case because there’s obviously double-brokering when you hire people from… And a lot of them fully worked on just working it out with the brokers. It’s 100% doubling-brokering was done when you’re working with other clients. Which means they’re giving their work to another broker. And they’re brokering it out to other carriers, which is almost three or four layers in there. And the shipper doesn’t actually know who’s doing the work.
DC Velocity, which is a supply chain logistics magazine. Had a study, recently that listed the top 13 carriers. Forty percent of…the top 13 carriers of the U.S. [inaudible 00:19:54] these larger carriers. Forty percent of the work that they had, they’ll re-broker it to smaller contractors and doing this .
So even the biggest…half of these carriers have re-brokered almost half their work. And we work with 25 truck companies. It’s super common… is a brokerage. Where they essentially, take work for their customer and build that relationship. They get service calls and they find them trucks. So it’s a mess. There’s two to five layers probably happening in every shipment. And the person who’s shipping his goods doesn’t actually know, often, who’s moving them.
So one of the first things we did, we decided in our experience — toss up the name, the name of the driver, the name of the carrier, the address of the carrier. So it’s just transparency to know who’s doing your freight. It’s a little thing but it’s really meaningful from an accountability perspective. And if we’re accountable to show you that, it means that we have to really know we’re working with quality carriers. We can’t obfuscate and hide behind in those ways. So I think it’s really important and it’s part of the culture at Convoy as well.
Woman: This is for Convoy. What is carrier turnover rate and how do you guys rate your performance?
Dan: That’s a great question. To date, we don’t have…because we don’t have full-time…like, our carriers are not 100% to our service, we don’t really have a notion of a turnover. We let carriers go for poor performance. And there’s a bunch of ways that we might let you go. If they’re not doing their insurance, there’s a basic safety score that goes below our typical threshold. If they’re not on time in dropping off loads. Maybe something, that they’re disrespectful to our customer, for example… So a lot of reasons we would let carriers go… 100% their work, they don’t really quit. We might just not give them more in the future, if that makes sense.
And we measure their performance based on qualitative things and quantitive things. Qualitatively, we subscribe to business services…I guess there’s the just kind of safety and compliance. We want to make sure about their insurance, safety scores, history/references. When they’re working for us, we measure, were they on time? We timestamp with GPS, when they arrived. We have them take photographs of loads. We just want to make sure that they’re tying it down in flatbed scenarios, they’re bracing it correctly… We do a lot of these just like that.
And then we look, in qualitative information back from our customers. So when a shipment’s done, our customers can rate and give feedback on the carrier. It’s actually two ways, similar to, say, Uber. And that provides that qualitative feedback as well. Mostly, I’m concerned about time. Are they reliable? Do they take a load and then cancel later? Those are indications that they don’t run a tight ship. So we track that stuff really closely.
We actually hired a guy who used to run compliance and quality in for North American tracking for startups. He runs it. That’s compliance and quality for us as well, now. So very high standards.
And so what’s actually interesting with some of our shippers as well, is that carriers rate the experience that they have. So if they go to a particular distribution center or warehouse facility, they say, “This experience was this rating.” And then they’ll write a comment. We require that, actually, for every shipment. And so our customers, a lot of our customers actually want to see that. Like, tell me what my average rating is across all my different distribution centers? Is one out from any other? And, of course, is there one where it’s just off, right? Something’s wrong and I don’t know if these abilities are not there? And so that’s actually another service we offer right here, as well.
Moderator: Other questions?
Man 1: Since you rolled that out, what is the percentage of carriers that you find not doing acceptable deliveries that happen like that?
Dan: Yeah. I would say, it’s about 3% to 5%. We have almost 3,000 carriers right now. So it’s about 3% to 5% of that, based on that.
Man: How do you screen that to where you say that you know that they’re going to…that they’re a good carrier? What are you looking for? We’re doing this on a daily basis. We’re always trying to find the best carrier. We can have all the metrics and to where we ship that and goes down to Florida with the three properties. And he missed his appointment. And then he ends up at the bar. I find carriers sometimes that are little funky. How do you…certainly you can eliminate at least three or four. I’ve got a problem with a client…
Dan: It’s a really great question. It’s a key problem. There’s no one solution to it. We have a shortcut to that, which is kind of unique to us, which is a nice sort of byproduct of what we do. Because we require our carriers to download the app and install the app and allow us to kind of track their location and manage them through this piece of technology, it actually self-selects the carriers. Their a little bit more comfortable with somebody with this power.
They’re essentially saying, “Yes, you can hold me accountable. I’m going to download this technology. I’m going to sign up to your system. You’re going to track me.” And so a lot of carriers that don’t want to have that level of transparency, they maybe want to go to the bar…and they want to be able to pick up the car and say, “Yeah, I’m on my way.” And they’re actually having coffee. So that’s just one way. That just self-selects the whole team.
And then, the second is, all the metrics we talked about, we use those. The qualitative things that are the biggest indicators for us are communication. If the carrier had a problem, did they call us immediately? Or, did they let us know through the app, immediately? Or, did they try to give it a runaround, or squeeze it in, or do something that actually created a lot of risk for us without them communicating? If proper communication happens, it usually solves almost all the problems. If they try to not communicate… somehow it fails, then that’s a strong indicator that this carrier is proactive. Great question.
Man: All of you guys are finding capacity and bringing visibility to the market. Do you have a metric, which you can share that shows, on average, what you save your customers as cost, in general? Or, as they adopt your technology, how quickly the payback is created from that adoption?
Karl: Yeah. Great question. The metric — the ROI metric. So with FLEXE, the key value from an economic perspective is, avoidance of fixed or committed costs. That’s the key value. So instead of leasing another facility or adding capacity on to an existing lease. Or, instead of signing a termed contract with a 3PL service provider, I can through our platform, just operate on a pure pay-as-you-go basis. You pay only for the pallets that are dropped off. You pay only for counts that are in. You pay only for the boxes that are shipped out and surely, with everything.
So we’ve done some case studies with, actually, our earliest customer that’s here — … A great thing that we’ve done some economic analysis on the daily. Had I gone down the other path and leased the building versus done this variable-only model, what was the savings? And you know, the savings are in double-digits percents. And, you have to assume what the utilization of that building would have been, which is serving the variant component. Think about that historically and say, “Look, our growth is highly unpredictable,” maybe, growing very quickly. So very high, double-digit percent savings is what we’ve seen across the board.
Now, also seeing just on a varying processes. So how much is it to store pallet? How much is it to handle goods in and out? We hear feedback from our customers that very often, not always, but very often that that price is well more than what they would get in as well.
And the reason for that in many cases is, the supplier who’s providing the service is sitting under a fixed cost, right? Leasing a warehouse…let’s say I’m a high-growth company and I’ve got enough space to handle my third year in the building and I’m planning on growing 30% a year. So my first year, I’m going to fill a third of the growth. I’m paying for all the power. I’m paying for the…the landlord’s not going to be paid less because I’m not using the whole thing. And so they look at this and say, “Man, I’ve got space, equipment, and labor.” And, maybe I want to keep the best park rate through occupied. So if I can give you more work, the income I bring in drops to the bottom line. So if you have 5,000 pallets of overflow for a big national beverage company that’s building up inventory for the summer. I know I can handle it. I can handle it well. And, I’ll charge a relatively competitive and, sometimes, very competitive rate to handle that business because it’s pure profit. So that’s a longer winded answer than, what’s the ROI metric? But, hopefully, that gives you some context.
Dan: What’s easy to measure is easier to measure. There’s no such thing as the actual price in trucking. So we try to understand, what are people generally paying? I’d say for a long haul or, let’s call it regional. A longer haul for the truck number who are just below market, and if you get closer to the more regional we can get up to 20% more. And we’ve seen companies… that are done like this. At one point someone said that they were seeing 27% up. That they were saving over… I don’t know if that’s actually common. Again, it’s really hard to know these kinds of recovery. That was a little trucking scenario. In that, it’s a pretty significant chunk.
The harder thing to measure is warehouse efficiency and sort of the ability…because the trucking is more flexible. To have a more efficient warehouse and to avoid or kind of spot market…or, just because we have a higher acceptance rate and because our trucks are more reliable and on time. And that is, dealing with exceptions faster, not having to spot market for a company that’s using it would look great. But based on that point, obviously isn’t a ton meant. We haven’t fully qualified that yet. And, also, in terms of warehouse operations, if you know that trucks are more reliable, you can actually stage things more reliably [inaudible 00:31:07]. You can maybe do more mileage. You can have a different…maybe you can have a truck show up in the morning and stock products, instead of using LTL service. Not just taking some time using an operational warehouse, some efficiency there. So there’s different approaches. It’s when you have a more reliable and flexible in trucking, you can actually build a supply chain that is maybe a little more efficient as a whole. And again, that’s hard to measure but that’s live feedback.
Nerijus: I’ll give you a simple example. If a carrier, let’s say Maersk used a large freight forward price — let’s say \$1,000 for shipping from Shanghai to C-O and they ship 1,000 containers a year. On average, 20% of them get canceled. There are no penalties for that. So a carrier just lost a \$200,000 revenue.
At Flexport, we are aiming to reduce that number anywhere below 20%. Whether it is 19%, 16%, 15% — that means we are a better client for the carrier. We’re saving them money. We can pass those savings back to you. So we do the same thing with trucking. We do the same thing with airline. So we are simply trying to be more efficient. Especially in sea trade because this industry was so behind, again. Where cancellations are free. People are always free to book as much as they want and cancel last minute. With Flexport, we give our carriers better predictability and better visibility of what’s coming and we actually end up delivering. That’s how we can procure better. That’s how we can compete with large freight forwarders.
Man: I had a question for the panel on automation, either self-driving trucks, self-driving ships. Or, even warehouse rollouts. How much of those things factor into your business planning now? And, over what time frame you see heavier automation being a viable alternative to things people are doing now?
Dan: I’ll take that first. It’s going to be a phase, right? There will be a period of time where automation maybe allows a few trucks to run in concert down the road and save some time and energy. Or, save some energy and save some fuel. There will be another phase where the driver can actually not be driving. So then, the trucks moving for 22 to 24 hours a day, potentially, which makes it more efficient.
So what I think about that second phase. That’s certainly a few years down the road where that’s happening in a reliable basis. The impact to our business right now is that it’s something that all of our carriers are interested in. There are four or five companies right now, developing self-driving technology. We’re talking to most of them. And I think what we’re really thinking about is, it’s going to make our carriers more efficient. From that two to three company to a, maybe, a 50, 20, 100 truck company. It’s going to allow them to run more efficient, allow them to save money and offer a higher service to our customers. And even by getting things there faster.
And so because of that, it’s going to get going in matters in trucking, across the board, right? And so those guys we have and all the companies we work with we’re still going to need their work, so we’re still going to need to get their business. But they will be more capable at offering better services and it’s going to be a differentiator for carriers. So we’re studying it really closely. We’re talking to all these different companies. We’re working with our carriers. to figure out what the right time is. And we’re figuring what the right recommendations is for them, to get into self-driving and bring that capability to the market. And then, it’d still be our job to help them find work and service that work. But I think every carrier in the country is thinking about this and interested in how it’s going to play out.
Karl: Yeah. In the warehousing world, I think that the one thing I heard them talking about is that it is inevitable. That more automation will be coming to more warehouses. Really difficult to project the timeline. But what encourages us, and we think it’ll help make a distributed marketplace model even more effective because we have the scale to deploy through our marketplace, this type of hardware in ways that companies on their own may not be able to do as early. So we’re starting to innovation out there with people [inaudible 00:35:41] robots, something, one of the first and by all accounts, very effective technology. Very expensive needing massive scale to be able to deploy that. There’s a whole prop of smaller companies building lighter weight, less capital intensive robots for more specific use cases — pattern making batch or cluster picking in a warehouse that looks very, very promising, right? And even the way it’s designed and built is less intimating.
So the notion that, look, everybody’s goods are different, right? My stuff is different from the other person’s. Yes, in some ways. But maybe 80% to 90%, or 90%-plus of it is very similar, in terms of… weights, flow, order complexity than a lot of other business out there. And so the automation that can be deployed can be used across multiple accounts that have a similar profile of the new tooling. And that’s a way we think that the marketplace model, we can help probably accelerate the deployment in some of this robotic technology.
Nerijus: Can I just add a few things? Like we are, we don’t really have any assets so the assets we have are our people and technology. If there are self-driving trucks, we are going to use them and we will pass those savings back to our clients. There is already some technology the industry supports that are already fully automated. The port… is already automated. So as automation continues, the pricing of shipping simply gets cheaper. And, again, we don’t own assets and the savings will go back to you.
Dan: I want to mention some things. In trucking, in particular, it’s about safety and it’s about capacity. Self-driving trucks make the world safer. And that also comes back to capacity. Which is, if there’s a pending shortage of truck drivers in the country right now. It’s important were talking about that in that industry, there’s not enough people coming in. And so automation can help solve that. If you think about just the math, today, you have 14 hours you work in a day. And you drive 11 of those hours. This would change and I will say double-stack. All of a sudden, say the number of trucks provide, not double the work because there’s other inefficiencies. But maybe 50% more I could see with that. So I view it as improving safety so drivers aren’t pushing themselves to drive too long, which happens all the time. And, again, it helps solve the capacity, for instance, that’s coming from a driving because it just automates more of that. I think it’s [inaudible 00:38:19] as drivers start to exit the market and there are few, you’ll actually retain capacity by having a percentage of the trucks able to drive longer because they’ve converted to self-driving.
Moderator: Questions? Okay. So maybe let’s talk a little bit about pricing around peak. Each of you talked about how… technolog in the market can change.
Dan: Companies tend to use more brokers during peak. I think, probably, you’ve seen that. And back in 2014, it was probably the market was having a professional peak. I’m talking as the price went up. I think that the biggest things that our company, the way we’re building our business is designed around transparency and consistency around pricing. Our business model…a lot of brokers, they’re business model is essentially predicated on opaque pricing. You don’t know. Brokers charge you the price. You don’t know what they’re paying the carrier. It’s a black box. And when peak season comes around their markets skyrocket. That’s when they make most of their money. We’re going to automate and then self-service a lot of the steps which are in the trucking process, which saves operational costs.
You know where the truck is. You don’t have to have someone calling the truck driver for three hours. If you have technology that could dispatch the job the right truck company in the right time, via your phone, via the web. You don’t have to have a broker’s team calling, negotiating every job. And so that saves a lot of money right there. And it allows us…because we still have prices, to have a fixed rate and a fixed fee with every shipment. And that creates transparency. So when peak comes around, now I’ve got change the peak model that we have. Like our prices will…we won’t try to maximize the margin during peak and take advantage of that situation. Which is, from the experience we’ve had with the brokers, that is just really part of the model. And it’s part of how they make their money for year, is taking advantage of spikes during peak season and making this much margin, again.
Man: I’ve got a question. How do you lock a truck in during peak season, when there’s so much demand on these trucks? We can hire a truck for \$2,000 to \$5,000. And by the time the peak gets in and I’m going with Walmart and transfers. He’s talking to a few guys and you’ve got him [inaudible 00:40:47] for \$5,000 grand. But then somebody else offers him \$6,000 and he bails on you. How do you protect the shipper from an escalated market? And these truck drivers, as independent as they are, will change rates on you?
Dan: Yeah. We do a couple things. Building relationships and giving them a lot of work. If you’re a partner with them because you have a relationship with them… work and building, then they’re going to think of you as a longer term partner and they’re less likely to do that. You never let them get away with…calling out the things they shouldn’t do. But a part is that relationship and giving them consistent work and actually building relationships with them.
Another thing is just treating them extremely well. So we pay our drivers in 24-hours [inaudible 00:41:40]. I think that’s the right thing. Accepting cash is extremely important to them and it creates a much stronger sense of loyalty. We give them free tools to manage their whole fleet. They can know where all their trucks are. They can manage the rest of their business using a free small track and handy [SP] CMS we give them. And that’s what also makes them feel more committed. And if they want to keep using these bunch of benefits outside that one job. So it’s really about, what’s the holistic value you get with Convoy? And that does get them to be more reliable for those scenarios.
And the other thing is that, again, there were kind of two parts. The second one was what if the carrier gets \$5,000 and gets offered \$6,000 and switches over? The first one’s kinds of about, how do you protect…just the price question? Some of that price question is real. And some of it is manufactured. Because when there’s a sense of peak…if I’m the middle man selling you trucking services, I will increase the rate.
I remember I was talking with a guy who’s worked all the time. He was saying that when there were oil spikes, almost all of the prices would convert. They weren’t actually paying the drivers more. They were just charging more because prices went up, it was in the news, they could get away with having this massive fuel surcharge. And it didn’t actually leave the… and the percentages didn’t even make sense. The percent increase/the dollar increase was way higher than the fuel was but it’s the perception. And so I think that whenever there’s a black box in pricing, there’s no transparency. You end up with those situations and we want to actually try and work on this so that that doesn’t happen.
Man: You offer me truck [inaudible 00:43:24]…
Dan: That can’t happen in our system. The reason is that we don’t change the price, even if we’re wrong. I mean… That happens all the time. Trucks call off on me all the time, independent of whether or not they get another offer for more money. The truck may break down. The driver may be sick and had to get down to emergency. We had a trucker whose father died. It was really traumatic. He couldn’t do a delivery. And so we find another truck. And our system is designed to find trucks really quickly. We just see. Essentially, those are truck drivers we patch, if they want to ride. We offer the jobs like that, directly to the dispatcher via their mobile device. So it’s a pretty sophisticated dispatching system.
So one of the things we do, I think, better is recover from exceptions. And there’s a bunch of reasons why they may come up. It’s about recovery. And then again, if we’re wrong, if the price goes up after we’ve already agreed to a price, we don’t change your price. That’s on us.
Nerijus: For us, I guess let me tell you a little bit what are the pricing structures since… So you can decide at the beginning of the year, a contracted year or choose negotiated rate [SP], from Asia to the U.S. is May through the end of the other year. You can decide if you want to go fixed for one year, where your price doesn’t change no matter what. It’s a fixed price for one year. We actually do have clients that are paying more than 60% less than today’s market, just because they signed contracts with us at the beginning of the contract year.
Then, there’s another pricing structure, which is floating, where your prices are subject [inaudible 00:45:26] but it’s still consistent with one or two carriers where you are delivering consistent all year. And spot. Spot is, basically, where you can save the most of money when the market is soft. And that’s where you pay too much when the market goes up. So the spot guys are the ones that are moving in standby. You don’t have a seat confirmed. So if you want to save money, it doesn’t mean you have to go fixed. Fixed doesn’t mean low, it doesn’t mean high. Fixed means fixed. And, sometimes, it means taking a risk.
With the fixed price, the carrier is taking a risk. For us, with the floating price, you are the taking the risk. So, really, we’ve all…every single case, we have to discuss with you and see what fits your business model better.
Karl: And for FLEXE, pricing in the Q4 peak, we do see that supply chains, the price you take today may increase, so the capacity and utilization goes up across the board. And we also, from the business side perspective say that these rates are historically high rates. So for Lodges, the world’s largest owner of warehouses, they’re at a historically high utilization from a buildings-under-lease perspective. That being said, if you look inside those buildings there’s lots of capacity even though it’s been leased as an actual utilized. Again, before, if you’re e-commerce or a retailer, you get very, very high utilization. But across the board, we have clients from Church & Dwight, who, great company. But people don’t buy more laundry detergent and kitty litter in Q4, so they don’t have the same seasonality.
Ace Hardware is another account. They have two spikes per year. They’ve got barbecue grills and patio furniture in the summer. And they’ve got snow shovels in the winter. And so they do see this type of pattern.
Casper Mattress is a fulfillment client. Again, and they sell some mattresses for the holidays. But generally speaking, their issue is they’re growing very, very, very quickly. So we see all types of capacity utilization/supply and demand dynamics across the marketplace. Again, in general, we do see prices go up in some markets, more than other markets. And we do see prices rise seasonally across the board as well. But the more scale you get in the marketplace, the more competition there is on the supply side. So if you look at Southern California, which is one of the tightest markets. In the country, we have many, many dozens of facilities all out there, listing prices. And they’re looking at the market rates and saying, “Hey, I want to fill up my facility. I will charge a lower price.” And so people can still get very competitive rates even in the peak season.
The only thing I’ll add to that. So for Lodges, as an investor in FLEXE, they are the world’s largest owner of warehousing. They dominate the long market, which is long-term leases, right? This is a fundamental construct of warehousing. They at this and said, “Look, for decades we’ve had clients asking this: Could I just rent from you for three months?” Could I just…that’ll be great. Can I only pay when I need this capacity? That’s incompatible with their store and the fundamentalisms behind it. No, we write three/five-year leases. It’s what we do. But they get this request so much and it’s increasing as businesses become more dynamic. They want to figure out a way to do a variable price space. And they believe that, again, the technology and the platform maybe do that. They can add more value to their customers who have that need. And probably generate and show value for themselves. And help expand that market for the variable component as well.