When Brad Henley first made the leap to Uber Freight in 2017, he admits he was skeptical. A veteran truck driver and CEO of FHLines in Waukesha, Wisconsin, he preferred working with more traditional brokerages, using a landline and fax machine.
Two years later, Henley’s outlook has dramatically changed — and so has the landscape of digital freight brokerage companies. Uber’s (UBER) freight arm accounts for nearly 10% of Henley’s overall load. And he says, those traditional competitors are quickly adjusting to the competition.
“Some of the major carriers and brokers like Schneider and J.B. Hunt, and the big ones C.H. Robinson and Coyote have all developed their own digital apps,” Henley said. “They can come to others, attempting to compete with Uber on Uber’s own footing.”
Those shifts, along with increasing competition from rival digital players, could signal a bumpier road for Uber’s fastest growing arm as it heads into year three. While its gross bookings grew by 81% year over year and revenue jumped 78% in its most recent quarter, the freight brokerage sector remains fragmented with more and more players, taking a smaller portion of the overall market.
“It’s great to see more investments,” said Lior Ron, the Head of Uber Freight. “One of the things that energized us, when we first entered the business, we saw a lack of investment in technology, a lack of investment in innovation in a huge market that is basically powering the economy.”
Uber Freight’s platform operates much like its ride-sharing counterpart. It connects shippers directly with carriers, eliminating traditional third party brokerages, and allowing for more transparent pricing. Shippers detail everything from the type of load to the weight and pick-up spot, while truck drivers choose their routes and schedules, and rate the facilities.
More importantly, the platform allows all transactions to be settled digitally on the spot, improving efficiency.
Its growth comes at a critical time for the freight and logistics industry. A tight labor market and aging drivers have led to a drastic driver shortage, with the American Trucking Association estimating the industry will need to hire roughly 1.1 million new drivers over the next decade to close the gap. At the same time, demand for drivers has surged, driven by the explosion in online shopping and the need for quick delivery.
“It can be just about anything. All the way from the cardboard that’s used for Amazon boxes to the actual goods being moved from the ports,” Henley said, adding that online retail accounts for roughly 40% of his load during busier shopping seasons.
That has driven the growth in digital freight, with investor funding since 2011 expected to surpass $1 billion this year, according to research firm Armstrong & Associates. Seattle-based Convoy, which recently raised $400 million in funding, remains one of the biggest players in the space, but nearly a dozen other companies have now jumped in to vie for their own real estate. Earlier this year Amazon (AMZ) launched its freight brokerage platform, aggressively pricing its services to undercut the market by 26 to 33 percent, by some accounts.
Ron dismisses concerns about a price war, similar to Uber’s ride-sharing and Eats platform, playing out within the logistics space, though a recent Morgan Stanley note estimated Uber passes on 99% of its revenue to trucking companies, compared to the 80 to 85% average for the industry. Ron admits consolidation could be inevitable down the line.
“I think there’s a healthy space for innovation and for some of these scale players to actually play,” Ron said. “We think this is less of a zero-sum game.”
Uber Freight already operates in 48 states across the U.S., and expanded its international footprint in Europe and Canada earlier this year. With its new Chicago headquarters set to open in 2020, Ron says the company is solely focused on scaling its business.
“We think there is a very clear path to profitability, but it’s important to understand that we are in investment mode,” Ron said.
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita