While it might not be so obvious, the trucking industry is a critical component of the U.S. economy. This billion-dollar industry serves as the backbone for U.S. commerce. In the U.S. alone, spending on overland logistics reached over $700 billion last year, a number that is only expected to grow.
Unfortunately, the trucking industry is also broken and has developed a reputation for falling behind on technology adoption. As a result, many problems often occur between key players in the industry – shippers (the demand), carriers (the supply), and brokers (the intermediaries).
For example, manufacturers (the shippers) often have a tough time finding available capacity for their goods. This is ironic, however, as every year carriers (truckers) drive over 29 billion miles with partial or entirely empty trucks. Within the trucking industry, demand is said to be exceeding supply, yet there are still many empty trucks on the road.
Of course, this problem could be due to a number of issues, yet freight brokers, who are responsible for connecting millions of trucks with distributors, have become part of the problem. Additionally, brokers are known for charging high fees to coordinate transport, yet the disconnect between shippers and carriers is cause for concern.
This specific problem, along with many others facing the trucking industry, struck a nerve for Jon Fox. Mr. Fox owns a freight company called Lewiscoholdings, which spends million of dollars each year on domestic freight. Mr. Fox grew tired of working with third-party brokers, as there were many problems with shipments and the company was paying a 20 percent markup to do business with these middlemen.
Mr. Fox eventually had an “aha” moment when he decided to stop using brokers and go direct. Within a week the company had negotiated deals directly with some of the largest carriers in America.
Shortly after realizing that brokers were no longer needed, Mr. Fox looked towards the blockchain as a source of truth that would completely revolutionize the freight industry. After all, some of the main benefits of blockchain technology are eliminating middlemen and creating a transparent network based entirely on trust.
Two’s Company, Three’s A Crowd
Mr. Fox founded Fr8 Network, which serves as a decentralized protocol for the freight industry. Based entirely on blockchain technology, Fr8 Network aims to solve a number of problems currently facing the freight industry.
“Blockchains are great for moving critical data out of silos and onto an open network. In order for a $700 billion marketplace comprised of primarily small business to have a fluid process of discovery, transparency is a must,” Mr. Fox said. “In the old model, an intermediary holds all the critical data and controls matching and price discovery as they are the fulcrum point for transactions. Incentives are aligned with their profits - not with creating an efficient marketplace. 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.”
For example, Fr8 has created an “Fr8 Market,” which serves as a decentralized marketplace where carries and shippers can coordinate freight transactions through customizable smart contracts – a key feature of blockchain technology. The Fr8 Market is open to all carriers, suppliers and even brokers, and provides users with full visibility into available capacity and pricing data. Historical data is also preserved to serve the future intelligence of the Fr8 network.
Fr8 network also uses smart matching technology to provide users with the best options to optimize shipment capacity. To simplify this process, Fr8 applies a user-rating system, where everyone on the network can rate users. Using a proprietary algorithm, the network combines peer reviews with historical transaction data to create an “Fr8 Rating” for users. This rating is visible to everyone on the network, serving as a quantifiable reputation for both shippers and carriers. This aspect plays a key role for providing trust within the Fr8 market.
Smart contracts on the blockchain also help create an easier, faster and more efficient shipping process. High shipping costs through brokers, along with non-transparent tracking fees, have always been an issue for the freight industry. Smart contracts, however, are making the shipping and tracking process much easier. Smart contracts on the Fr8 network will send users automatic shipment updates and monitor progress every step on the way, so manufacturers stay informed about their shipments throughout the entire process.
Once shipments are received, the smart contract technology offers an option for a series of 1-click interactions by various parties. Users can confirm receipts via their smartphones, while the fr8 network validates the information. As a result, high coordination costs between three or more parties are eliminated.
The Crypto Aspect
Many blockchain networks are associated with a cryptocurrency. The Fr8 Network uses an “Fr8 token” generated on the Ethereum blockchain. The Fr8 token is necessary within the Fr8 Market, as the fee for using the marketplace is paid in this token. All users on the network must have enough tokens to cover shipments fees, but Fr8 Network also enables shippers and truckers to operate as they always have and work through a layer of brokers who can facilitate credit for them in the marketplace.
Furthermore, Fr8 Network addresses a major pain point for truckers in the industry of expensive credit terms for invoice factoring. Fr8 Network creates a new vehicle for invoice financing that not only enriches the network itself, but allows truckers cheap access to working capital to grow their businesses.Fr8 Network is expected to launch an ICO during late February of next year.
The Future of Freight
Blockchain technology has the potential to completely transform the freight industry by eliminating brokers and allowing peer-to-peer transactions to take place on an entirely transparent, distributed ledger. As a result, shippers and carriers can conduct business on their own terms, within a network built on trust. The blockchain may just be the next silver bullet technology for the freight industry.