A chat with Kamal Akanni, Founder of Nauvus

Sar : Trucking is a freakishly large and an incredibly critical industry for the American economy. An average person’s interaction with it is basically seeing trucks on the highways. And it’s hard to appreciate just how much our lives depend on it. Even in our current world infected by the supply chain crisis. Trucks move more than 50% of the goods consumed in the US. The trucking industry employs more people (3.5 million) than any other industry. More than 90% of the trucking companies employ less than 20 drivers. The dynamics of the industry mimic what we see in other industries ranging from pizza to gas stations. There’s a few large publicly traded companies with access to the best technology, financing and other industry specific resources. And, then, there’s a very long tail of small companies and independent drivers with no access to technology or financing and higher cost of all the inputs. Does that feel like the right read of the basics of the industry?

Kamal : Yes, absolutely. That’s a great way to see the industry. What’s more interesting is that despite how integral the trucking industry is for all aspects of our daily lives, the space has largely remained untouched by technology for most of the players in this space. As you put it, a few large stand-out companies benefit from having large amounts of capital to invest in technology to scale their business. But, for the 90% of trucking companies that are small businesses, their operations have largely remained the same for the last couple of decades. So much of what’s broken in freight tech is seen in the inability to transact digitally. The leading online marketplaces (Uberfreight, Convoy, DAT) still rely heavily on offline transactions. Booking is only a fraction of the process that involves moving freight due to being a very regulated industry. Compliance, safety, visibility, and communication between all parties involved are crucial. This complex behind-the-scenes coordination involves multiple companies and technology platforms, reliant on communication largely done manually through emails and phone calls. The assumed solution has been more integration with all the siloed systems that carriers and shippers rely on to keep goods moving across the country. But I’m convinced that a full stack solution will get us there faster.

Sar :Before we get into what you think is the right way of solving the problems, I want to focus on understanding the problems and players better. You spent a couple years across Samsara and Verizon Connect selling fleet management software in the trucking industry. What can you tell us about your main learnings across SMB, mid market and enterprise segments? Talk about technology adoption, structural bottlenecks etc. Any geographical differences between what you saw in Canada versus USA?

Kamal : 90% of all trucking companies are small businesses with less than six trucks and face a 90% failure rate during their 1st year. While my previous mid-market and enterprise customers had the liquidity to invest in new technologies, back office support, and other tools to enable them to grow, scale, and be more efficient, the SMBs were struggling just to exist. Many of the tech companies looking to solve the problems in the trucking space, especially the new ones, do not fully understand the problems faced by these small businesses.

SMB trucking companies are structurally put at a disadvantage because they lack access to build a direct relationship with shippers to bid for contracts. They rely on brokers and the spot market for business and use platforms like DAT, Uber Freight, and Convoy. Unlike the mid-market and enterprise companies that have contracts directly with shippers and can negotiate better rates, SMBs have to rely on these marketplaces for business, often at less attractive spot rates. UberFreight and Convoy are part of the 17,000 freight brokers in the US.

It's important to recognize the difference between contract vs spot rates. ​​Contract rates are often awarded to the mid-size and large fleets for a fixed price and volume commitment for a set lane over a set period of time, usually one year. Because contract rates have a fixed term, they offer the security of both price and capacity, which is beneficial for companies looking to maintain their bottom line. With contract rates, companies can budget and forecast better. They also don’t need to go back into the market with each shipment, which can save on administration headaches.

Unlike contract rates, a spot rate is a one-time price offered “on the spot” by a freight service provider to move a shipper’s freight from point A to point B. Spot is there to assist shippers when their contract carriers are not enough or there is a special need. Spot freight is often awarded to brokers who will then source a trucker to move the load, often offering 40% less than what the shipper is paying for the load so they can make their own profits.

Regarding tech adoption, a trade-off in focusing on the SMBs is high churn. However, SMBs make up over 90% of the trucking industry, so the market size is larger. So you need to scale with a financial product such as factoring rather than a SaaS offering. Mid-size and enterprise companies are a great customer base for SaaS software such as transportation management. However, they make up a fraction of the trucking space, so their tradeoff is the scale and potential market share.

A few problems all segments of the market have in common are visibility, safety, and compliance. This is why companies such as Samsara are very successful in selling compliance and safety products to mid to large size companies. At $600 million in ARR, 39% of Samsara revenue is generated from the trucking industry. U.S and Canadian truckers have similar operations. The majority of mid-market to enterprise-size Canadian companies are also registered in the U.S FMCSA since they often are moving freight across the border.

Sar : What would you consider to be the top 1-2 problems for various stakeholders involved?

Kamal : Drivers want more flexibility with their schedules and better pay. SMB fleet wants to keep their trucks full at all times with high-paying loads and quick access to their revenue in order to grow. Large fleet companies care about driver retention, customer satisfaction, and improving safety and compliance to stay in business while reducing operating costs (i.e, insurance, legal & regulatory risk, fuel cost maintenance, etc.). Shippers want reliable trucking companies to partner with and the ability to track their shipments in real-time. Brokers represent the shippers, so they have similar problems—reliable trucking companies to partner with and more visibility of their freight. Independent dispatchers are more aligned with drivers. They face the problems of secure and timely payment and the necessary tools to dispatch their drivers.

Sar : It feels like there’s been a sudden uptick in startup activity in this market over the last couple years. Convoy was likely an early mover in 2015. Uber Freight was started in 2017, SmartHop in 2016, Cloudtrucks in 2019, CoastPay in 2022. Do you have any thoughts on why there’s all this interest lately? If anything, I would argue we should have started paying attention to this industry a lot sooner.

Kamal : The supply chain crisis we’ve seen these last couple of years has now made the logistics space sexy. This space is fraught with opportunity because it’s largely been disproportionately ignored relative to its market size and sheer importance to our economy. The trucking industry itself is an $800 billion industry, making it one of the largest industries in North America. What makes this space even more attractive is the future outlook and the size of the opportunity. The supply chain crisis has caused many companies, across all industries and vertices, to reevaluate how they do business. They are not solely considering profit when looking at their supply chain operations. Certainty matters a lot, even if that comes at a premium. This means we are seeing business leaders having real discussions about moving away (or at least diversifying away) from an Asian-centric supply chain and focusing on rebuilding ones that are closer to home.

Sar : It's tempting to just default to “Human gatekeepers are bad! Just use software to connect buyers and sellers! Make things efficient!”. It's easy for me to hold the view that the Uber Freight and Convoy models are the way to go. Why have dispatchers and brokers between shippers and truckers and reduce the profit pool for everyone in the value chain? It’s easy to just draw analogies from other domains like hunting for apartments on Zillow. But, you actually hold the view that drivers actually like having dispatchers represent them. Can you talk more about that? If your goal is to strictly maximize per mile pay for the drivers, wouldn't you be anti anti-brokers dispatchers?

Kamal : Think of when you want to reach out to customer support because you are having an issue with your item, no one wants to spend time chatting with an AI robot, almost immediately most of us want to speak to a human customer service rep and use a chat box to do so. Companies should strive to combine the efficiency of technology, with the dynamism of humans to build something great. his is even more important in the world of physical operation. Trucking companies, especially SMBs, value dispatchers because they provide a human value that is hard to replace with technology. Dispatchers jump on the phone with carriers and brokers to negotiate prices, intervene when things go wrong on behalf of the driver, and provide back office support. Think of dispatchers as a trucking company’s secretary or personal assistant. I am sure you won't find many people who would prefer an AI robot as a personal assistant over an actual human being.

Sar : Right, I get that. Are you making the case that many drivers are better off even after the dispatcher commission because of better negotiating power. Can you walk us through the economics of an average transaction where drivers are using dispatchers?

Yes, businesses find great value in bringing in a dispatcher. Dispatchers act as intermediaries between carriers and shippers to help keep their trucks filled with freight when moving between jobs. The SMB segment doesn't need another marketplace but rather support to find the most profitable loads, sourcing from the 17,000 other brokers in the U.S or directly with shippers to increase their margin and drive revenue growth.

Although both freight brokers and dispatchers help truckers find work, it’s important to understand the differences between them. A freight broker offers services to both trucking companies and shippers, but they don’t represent them. Instead, they operate as a middleman between the two. Brokers book their profit by negotiating different rates for truckers and shippers. The higher the difference in rates, the greater their commission. Brokers with a large marketplace often set prices low on their platforms to compete.

Uberfreight, in particular, had the growth strategy of offering really low rates per mile to attract more shippers to the platform. Many of these are not profitable, non-negotiable, and put the trucking company at a loss, creating liquidity issues, which is one of the main causes of the high failure rates amongst trucking companies.

A freight dispatcher represents the trucking company in negotiating freight. They find new customers, book new loads, plan efficient routes and manage delivery schedules for drivers. Many dispatchers will also take care of back-office tasks, from customer support to billing and payment collections, and even maintaining motor carrier compliance. Above all, a good dispatch service will consistently work toward maximizing mileage and minimizing empty-load hours to increase the company's profitability.

For dispatchers, volume and negotiating for a high rate per mile are key to making more money. By booking as many loads as possible for the driver, they keep trucks moving and increase their revenue. The dispatcher gets familiar with the driver's lane preferences, rig specifications, and freight rates. Then they’ll approach shippers or freight brokers and negotiate loads and rates on the driver's behalf. In most cases, dispatchers take a percentage off of the negotiated rate. As you can imagine this process is time-consuming, and SMB trucking companies often do not have the capacity to do this themselves.

Let’s look at the economic breakdown of a typical transaction between dispatchers and trucking companies. The dispatcher finds a load from a broker, calls them to confirm it is still available, and negotiates a price based on many factors to ensure this is a profitable load for their drivers. The dispatcher confirms with the driver and acts as an intermediary between carriers and shippers. Once the load has been delivered, either 1 or 2 things will happen. If the driver does not work with a factoring company, they will typically have to wait between 30-45 business days for payment from the broker. This is a critical issue that drives many SMBs to a working capital death spiral. If the driver does work with a factoring company, the driver sells the invoice to the factoring company for immediate payment, and the factoring company takes a 4% cut. Once the driver receives payment, from either the broker after 30-45 business days or 3-5 days from the factoring company, he then pays their dispatcher a 12% cut on average.

Sar : Tell us about what you are working on! How did you think through what stakeholder you should serve and what the product wedge should be?

Kamal : Nauvus is the first platform to prioritize independent dispatchers as a pathway for growth. We do this by partnering with more than 350k independent dispatchers available in the U.S today and providing them with the tools they need to support trucking companies. We leverage the dispatchers' exciting books of business of carriers, creating a network effect as each dispatcher can bring on board an average ~3 carriers (6 vehicles ) leading to lower acquisition costs. More dispatchers and carriers on our platform will warrant freight brokers' partnership and achieve more freight capacity on Nauvus leading to better rates. This in return will attract more truckers both small and mid-size companies looking to increase revenue while removing administrative headaches. We want to later aggressively expand by offering financial, compliance, payroll, and safety products that are not only attractive and required by SMBs but also enterprise companies alike.

Why do dispatchers join Nauvus? First is cash flow. It typically takes 14 days before dispatchers are paid by truckers. This can take up to 45 days because truckers have to wait for the trucking company to be paid first. With Nauvus, dispatchers get paid instantly via factoring once proof of delivery is submitted. Second reason is streamlined operations. A typical dispatcher has to sign up for multiple freight marketplaces and use multiple tools to support their carriers. Our platform aggregates freight and streamlines communication between drivers & brokers. Our transportation management system allows them to better manage their operation and all their drivers.