The Future of FreightTech: Transforming Logistics with Banking
Written on
Chapter 1: The Role of FreightTech in Logistics
In today's logistics and transportation sector, software is playing a crucial role in streamlining operations. A growing number of companies are integrating banking services through FreightTech.
The global movement of goods—whether by air, truck, or ship—forms a vital part of the international economy. Any disruptions in this flow can have extensive repercussions for manufacturers, suppliers, retailers, and consumers alike. With technological advancements, the logistics and supply chain landscape has started to evolve positively. Organizations are now better equipped to manage inventory, predict demand, optimize capacity, and automate manual processes, like consolidating shipments. Over the last twenty years, cutting-edge software management tools have significantly enhanced industry efficiency.
The next phase in technological advancement for logistics is FreightTech, which offers companies new opportunities for growth by incorporating financial services such as payments, banking, and lending. Emerging fintech firms focused on transportation are attracting investment and developing products that facilitate market expansion, improve liquidity, and enhance scalability.
Section 1.1: Identifying Challenges in Logistics
New technological developments are enabling shippers, receivers, and drivers to access real-time tracking information, make informed operational decisions regarding inventory, and connect shippers with drivers for transportation needs.
Early iterations of FreightTech primarily featured basic payment functionalities that allowed drivers and maintenance personnel to receive compensation for their services. Only a limited number of these platforms provided an invoicing option with a digital payment link.
As the demand for financial services within logistics grows, various stakeholders can be considered end-users: truck drivers (individuals), warehousing, manufacturing, and purchasing companies (businesses), repair service providers, and brokers.
However, many logistics companies either may not be prepared or choose not to engage in direct financial transactions. Instead, they concentrate exclusively on the movement of goods, often outsourcing payment processing to third-party vendors, which can lead to a subpar experience for both drivers and businesses.
The predominant challenges include:
- Timely billing and payment collection;
- Managing expenses for unloading shipments (termed lumper payments, which are typically unplanned and need to be paid in cash by drivers);
These fees, which range from $25 to $500, cover the cost of labor for unloading delivery trucks at warehouses or distribution centers. Drivers often pay these fees out of pocket to avoid delays in unloading and completing their routes;
- Limited financing options for managing cash flow;
- Difficulties in tracking and reconciling business transactions.
As more logistics companies gain access to workflow automation, they express interest in improving payment and collection processes (including quicker money transfers) and managing expenses.
Section 1.2: The Shift Towards Embedded Banking and Finance
Over the past decade, partnerships with banking institutions have matured, making it easier for various sectors outside of traditional financial services to offer payment solutions, wallets, accounts, and cards.
Retailers, travel companies, healthcare providers, and automotive firms have begun incorporating some form of banking products or features into their offerings. FreightTech presents multiple opportunities to streamline business operations, reduce costs, and create new revenue streams. Key use cases include:
- A financial ecosystem that integrates accounts, payments, and cards for carriers, brokers, and drivers, facilitating no-cost internal transfers;
- Business banking solutions for global enterprises, including accounts for parent companies and subsidiaries across different countries to simplify reconciliation and accounting;
- Expense management platforms that allow for card issuance and transfers for employees in logistics firms to make authorized daily purchases.
By blending these use cases, companies can develop tailored programs that cater to individual and business needs, both within and outside the US. Several established firms in the industry have already begun to integrate financial services into their offerings.
Chapter 2: Promising FreightTech Companies
Here are several noteworthy FreightTech companies leveraging banking services to enhance their platforms:
- Relay Payments: Based in Atlanta, offers digital payment solutions for carriers, brokers, owner-operators, merchants, and lumpers.
- RoadSync: Also located in Atlanta, provides payment processing, advances, and card issuance for drivers, brokers, warehouses, and merchants.
- Melio Payments: A B2B payments platform operating in New York and Israel, focusing on multiple payment methods and invoicing for logistics firms and other sectors.
- CloudTrucks: A San Francisco-based platform allowing owner-operators to lease trucks, receive payments, and apply for business credit cards.
- NEXT Trucking: A digital freight matching platform from Utah that connects drivers with load availability and offers payouts for drivers.
- FourKites: A predictive supply chain platform from Chicago specializing in shipment tracking and exception management with a vast network of global carriers (over 400,000).
- Bringg: A logistics operations platform based in Tel Aviv that manages local and last-mile deliveries, including payment options like 'Click & Collect'.
- NuvoCargo: A cross-border freight service from New York focused on cargo movement between the US and Mexico.
- Tank Payments: A digital wallet platform from Santa Barbara that automates payouts to trucking companies and offers commercial credit cards issued by Celtic Bank (Visa).
- FlexPort: A freight forwarding platform from San Francisco that provides comprehensive visibility and control over the supply chain, as well as financing solutions.
- TransFix: An online freight marketplace from New York that connects drivers and shippers while providing business intelligence and insights.
- Flexe: A multichannel logistics platform optimizing global goods delivery.
With the integration of payments, banking, and financing, these logistics platforms are evolving. The last two companies, TransFix and Flexe, represent a new wave of management and analytics firms venturing into financial services in the coming year.
Section 2.1: Drivers of Adoption
The question isn't whether FreightTech will gain traction, but rather when it will do so.
The platforms listed above share a common trait: they offer flexibility and customization. Customer experiences are meticulously tailored to meet the specific demands of the logistics sector. As the requirements of carriers, operators, and drivers continue to evolve, so too will the applications that incorporate one or more financial products.
The primary catalyst for this shift will be leading trucking and shipping companies enhancing their margins through novel revenue streams, such as deposit interest on customer balances, interchange revenue from card spending, and subscription fees. Other companies will likely follow suit to remain competitive.
The emergence of a 'Freight Bank' may occur sooner than anticipated.
Join our community @FinTechtris for more insights and content from the industry in our weekly newsletter, which includes in-depth analyses and sector highlights. Sign up today!