If you’re a business owner, you understand the importance of the supply chain. Getting your dropshipping business off the ground will be impossible if raw materials don’t reach your supplier, or your supplier can’t ship orders to your customers. According to American Trucking Associations (ATA), 33.8 million trucks are currently on the road delivering your products. In fact, they move 71 percent of the nation’s freight tonnage, generating $700 billion in revenue.
The supply chain on which your business depends, however, has many weak links, one of which is technology. Techcrunch reports “the entire industry is run on archaic 15+ year old software, almost no data is captured, and none of the software systems can communicate with each other…67 percent of shippers don’t use any software at all (they still rely on paper records).” Fortunately, a platform called Fr8 Network offers an innovative approach to improve the organization, efficiency, and accountability of an entire industry.
As Fr8 Network’s white paper describes, the freight industry has undergone many changes throughout its history. When trains were the vehicle of choice, their routes were fixed, and their departures and arrivals were scheduled in advance. The construction of interstate highways, however, allowed freight to travel off the rails.
While the highway system allowed more freedom and flexibility than the railroad, the logistics of tracking shipments carried in individual trucks all over the country became more complicated. Because many more trucks than trains were required to carry the same amount of freight, the industry became increasingly decentralized. Single truck owners operating as independent contractors or companies that own six trucks or less comprise 90 percent of the carrier market.
In such a fragmented marketplace, suppliers looking for carriers usually hire a broker as an intermediary. As Fr8 Network points out, there is no Angie’s List or Thumbtack where suppliers can look up which carriers have the best ratings and reviews. Any performance-related data lies exclusively in the hands of large brokerage firms. Because only they know what carriers and suppliers are reliable, what drivers are available at any given time, and what shipments need to go where, only they can serve as middlemen.
While the top 25 brokerage firms made $34 billion in 2017, brokers themselves were not as fortunate. Although they charge a 15 to 20 percent commission on each load they manage, they must turn over 50 to 75 percent of that commission to the firm. Independent brokers keep 100 percent of their profits but do not have access to the tools and data large companies hoard in their private databases, so they are rarely as successful as their corporate counterparts.
For brokers, the goal is to book as many shipments as possible, not to coordinate shipments to save on mileage or fuel costs. That means trucks sometimes travel thousands of miles empty. Even the best broker can’t be aware of everything, so lost shipments and fraud still occur.
The costs of an inefficient freight system are not only monetary. The Environmental Defense Fund reports the movement of goods produces 500 million metric tons of greenhouse gas emissions. 15 to 25 percent of US trucks currently producing emissions are empty, and of trailers that are not empty, 36 percent are not full to capacity. Filling just half of this capacity would cut 100 million tons of emissions each year, not to mention reduce annual diesel fuel costs by $30 billion.
According to platform founder, Jon Fox, the first step to a greener and more efficient freight network is changing the way the industry handles information. Originally developed as a decentralized ledger system for cryptocurrencies, blockchain has many applications beyond the finance industry. The health blockchain, for example, is revolutionizing the way the medical industry manages patient information. Walmart, IBM, and JD.com teamed up to create the Blockchain Food Safety Alliance, which uses blockchain to track products to their source in the event of a foodborne illness outbreak.
“Blockchains are great for moving critical data out of silos and onto an open network,” says Fox in an interview with The Huffington Post. “In this new model, we create truly open marketplaces that allow for security between actors, along with aligning incentives of individual users. The blockchain creates a truly efficient marketplace that drives prices down, and in our case fills greater capacity of trucks, creating less empty miles and more profits for truckers and reductions in carbon emissions.”
The Fr8 Network platform allows suppliers, carriers, and brokers to access all the information they need to compare prices, assess performance, track orders, pay for services, and conduct all other necessary business arrangements in a secure environment. After dropping off a shipment, for example, drivers can search for a load nearby, so they don’t have to drive empty.
The Fr8 Board’s algorithm generates user ratings based on a combination of peer reviews and transaction data. Users make all transactions via smart contracts, which are stored on the blockchain. When users enter into contracts, they place a certain number of Fr8 tokens, the network’s ERC20-compliant cryptocurrency, in escrow until they have completed the job and met their contractual obligations. Users must also rate all transactions to avoid being fined tokens, which keeps the review system robust.
Fr8 Network’s white paper predicts “broker fees now at up to 30 percent of shipping costs can fall to less than five percent.” However, the goal is not to eliminate brokers from the industry: “We believe individual brokers will exist in the marketplace as representatives of shippers or carriers, much as they do today. But we want to give every broker access to the tools and information they need to operate effectively and capture the full rewards for their hard work.”
How do you think Fr8 Network will impact your business? Let us know in the comments.