Hybrid Carriers FAQ

After posting this article - Driving Change: How Hybrid Carriers will Finally Unlock Economies of Scale in Trucking - to kick off a conversation around truckload and Hybrid Carriers, we got a lot of questions and comments. This FAQ supplements the article. Additionally, here are a couple of short videos (Part I and Part II) that go into these same topics.

1. How does a hybrid carrier differ from existing truckload brokerage and asset-based carrier models?

Asset-based carriers, brokers, and hybrid carriers all service shippers’ truckload freight. However, their approaches differ.

Asset-based carriers engineer their networks to maximize the utilization of their assets, with a preference for predictable volume anchored on drop & hook or dedicated services. Their strength is consistent service and pricing, and their limitation is volume and route flexibility. Brokers source capacity from the for-hire trucking market, often by filling gaps in a carrier's schedule. They can handle volume swings and cover a wide variety of lanes, but their drivers, service levels, and pricing are less consistent, and they don’t directly offer trailers or dedicated services.

Hybrid carriers have the flexibility of brokers with the consistent performance and range of services offered by asset-based carriers. Compared to assets, their fluid approach to trailer positioning allows drop & hook shippers to avoid failing to live spot when volumes rise, or paying trailer underutilization fees when it falls. Compared to brokers, their access to elastic capacity via a single, digital marketplace and app-connected drivers results in better and more consistent service quality, data insights, and breadth of pricing programs (e.g., dedicated, drop & hook, power only).?

2. Why is the truckload industry so fragmented, with over 15,000 brokers and large carriers? Why haven’t network effects caused the market to consolidate?

Parcel and LTL carriers pool shipments from various customers into a single delivery. Each additional shipment increases utilization and lowers delivery costs for all, so network effects exist at the shipment level. This led to consolidated industries. Truckload operates differently. There is one shipment per customer per truck, and each is individually viable. Therefore, the opportunity for optimization exists at the network or system level, not the shipment level. Batching loads together, reducing empty miles, optimizing schedules, utilizing pools of trailers, etc., reduces downtime and costs and increases the performance and flexibility of the network.?

Truckload brokerages should be better at optimizing the system as they scale. However, this doesn’t happen because brokerages don’t operate as a single, unified marketplace. Instead, they fragment their business between each carrier sales rep who effectively runs his or her own brokerage. The brokerage can grow in scope by stacking these marketplaces to cover more volume, but each quickly plateaus.?

Similarly, asset-based carriers also don't operate a single, fluid network of trucks, drivers, and trailers. They assign pools of assets and drivers to specific facilities and pre-designed runs. This leads to high performance, but the rigidity makes it hard to service unexpected needs and maintain utilization when inevitably a forecast is off, or something unpredictable happens.

In contrast, hybrid carriers do operate a single capacity marketplace and a universal pool of smart trailers, all on a digital platform. This model has economies of scale and is designed for system-level optimization that reduces empty miles and improves trailer utilization through flexible trailer returns. For example, with every additional job on the platform, the chance that a carrier finds their ideal load increases. Similarly, by not locking trailers into a specific facility, route, or driver pool, an AI-powered system can better allocate trailers to facilities when-and-where they are needed, improving both utilization and availability for shippers.?

3. What is required to become a hybrid carrier, and what role will Convoy play in this ecosystem??

Hybrid carriers need an online capacity marketplace with app-connected drivers, a shared pool of smart trailers, and technology that uses data and AI to orchestrate supply and demand, automate the shipment lifecycle, and generate insights. The more volume and data, the better they become.

Building a platform to support this requires a significant investment that few brokers or carriers will make themselves. Instead, their best option will be to use one that already exists and that is operating at scale. Therefore, we expect that as this develops there will only be a handful of hybrid carrier platforms.

Convoy built a hybrid carrier platform over the last decade to power our first-party truckload business, serving as a preview of the hybrid carrier vision. To expedite the trucking industry’s transformation, we are now offering this platform to other brokers and carriers. Our goal in doing this is to accelerate the industry's shift towards a more efficient future.

It will take a few years to know exactly how this plays out, and we are excited to continue investing in this next wave of innovation.

4. Why do per-shipment operations costs not continue to go down as shipment volumes increase? Why don’t we see economies of scale?

Existing brokers and carriers use technology, but they rely heavily on human operators to do shipment workflow tasks, such as scheduling, routing, check calls, confirmations, incidental management, exception handling, etc. This creates bottlenecks for non-linear scaling.?

Hybrid carrier platforms, on the other hand, invest heavily in technology to speed up communications and reduce workload per shipment through task automation, self-service options for drivers and carriers, and TMS integrations. Nearly every step of the shipment lifecycle benefits from this, from pricing and booking loads, to driver tracking and shipment workflows, to integrated trailers, to payments, to reporting and insights. Technology use is required, so the experience is consistent across loads and operators can focus on solving exceptions instead of just completing tasks.

In addition to operational efficiency, the digitalization of these workflows generates an unprecedented amount of data. This is harnessed to offer insights to both Shippers and Carriers, accelerating learning and improvements.

5. What specific features do hybrid carriers have that are not common in traditional brokers or carriers?

A universal, shared pool of smart trailers.

• The ability to quickly increase or decrease trailers at a given facility.
• A flexible-trailer-returns program that gives carriers options for where and when to return trailers, even allowing them to put non-Convoy loads into the trailer. This flexibility makes repositioning faster and more cost-effective, as carriers pay to “rent” the trailer until they return it to a location where it is needed.

A single, digital marketplace to access for-hire truckload capacity on one platform.

• Access to a vast pool of carriers and owner-operators.?
• Instead of phone negotiations, carriers get instant, digital access to all the freight and pricing transparency.
• Wide range of options (single jobs, batches, dedicated runs) allows for a balance between performance and cost and results in high visibility, availability, and performance.

Drivers that are online using an app and visible throughout the shipment lifecycle

• Via an app or visibility integration, drivers share data, complete documents, provide visibility, handle detention and accessorials, manage payments, engage in self-service exception handling, and more.?
• Technology supports drivers in earning more money and receiving faster payments while helping the platform learn and become more efficient operating at scale.

A technology platform that integrates systems, orchestrates the marketplace and trailers and automates the load execution steps

• Orchestrates pricing and matching along with self-service tools for brokers and carriers.
• Provides features for tracking and managing carrier compliance, trailer monitoring and repositioning, tendering, load creation, appointments, visibility tracking, payments, and insights.
• Digital connectivity into a broad range of shippers via TMS and other EDI or API integrations for seamless communication and data sharing.
• Provides sustainability data-based reporting and accounting (e.g., GLEC framework).?

6. What are the benefits for shippers??

Brokers and carriers that utilize a hybrid carrier platform can offer more services with higher performance, better cost, and more data insights to Shippers. For example:?

• Flexible drop & hook solutions that handle volume swings. Hybrid carriers offer shippers flexible drop & hook solutions that are able to quickly increase or decrease trailers on-site depending on weekly volume forecasts. This avoids underutilization fees and yard congestion and allows shippers to avoid failing over to spot. Shippers also gain unprecedented visibility into the trailer status, its location, and yard operations.?
• Improved service performance through a shared pool of capacity. Hybrid carriers can source capacity during demand surges and maintain high tender acceptance because of the scale, depth, and automation of the platform. Moreover, they can surpass asset-carrier performance levels due to the resilient network they tap into.
• Reduced truck costs and operational costs. Network density and automation of the platform lead to continuous efficiency gains that only improve with scale.??
• Flexible and differentiated procurement solutions. Hybrid carriers offer a broader set of services, such as short-notice dedicated solutions, that combine the network and asset-based services of a carrier with the flexibility of a broker.?
• Reduced procurement overhead as brokers and carriers using a hybrid carrier platform improve with scale. This enables shippers to work with fewer truckload service providers, instead of managing numerous carrier and broker relationships.

We believe that efficiencies will be unlocked through open technology and capacity platforms that allow the tremendous benefits of network effects and economies of scale to be realized across the entire industry, enabling today’s providers to become tomorrow’s hybrid carriers. To that end, we recently opened up Convoy’s digital capacity platform for other carriers and brokers, operating alongside our first-party truckload business. And as we release more features and capabilities into this externalized, standalone platform, it will only get better, and momentum will only build further. Ultimately, our north star is to “Transport the world with endless capacity and zero waste”, and we believe externalizing our capabilities is the most effective approach to achieve this industry-wide.?

Learn more at [email protected]