The Massive HagglePosted August 21, 2016
I recently tried to buy an Audi A4 on TradeMe. I wasn’t alone: there were a dozen other interested buyers. We forget how useful auctions like TradeMe are for price discovery. They are actually a kind of group negotiation process to agree on what something is worth. The seller of the car certainly had a better experience than if he had to negotiate one on one with each of us. It was less work for everyone and offered less room to manoeuvre and game the price discovery. If the seller had told me that he had a better offer, he could have been bluffing. In an opaque bilateral negotiation, the gaming aspect overweighs the real issue. When TradeMe showed me that I was outbid, I didn’t worry about being misled. I saw the market price and could focus on how that compares to my personal needs and values.
Now Think About Trucking
So why doesn’t the commercial trucking sector have this? Why isn’t trucking capacity sold via auctions, with a neutral marketplace to enforce rules like TradeMe? It works for so many other categories of product and services, why not this one?
Bringing this kind of buying and selling to trucking requires more than just a copy-paste of existing markets. In the car example above, there was one seller and a dozen buyers. In trucking, there are thousands of hauliers with partially overlapping capabilities, all selling to a pool of hundreds of cargo owners with partially overlapping needs. And they likely do not assess the deal in the same way (such as cost per kilometre vs. cost per pallet). The result is a massive haggle that has to conclude quickly if it’s going to serve real needs. Nothing like a trucking marketplace at large scale exists today. The closest would be loadboards, little more than a craigslist of trucks looking for work.
The Problem With Marketplaces
There are dozens of marketplaces in other sectors: stock exchanges, future markets, TradeMe, and so on. They have different rules and touchpoints. But one thing they have in common is this: the object of trade is mostly a black box. In other words, you can buy a vacation coupon, house, or used shoes on TradeMe because the marketplace mostly ignores the content of the listing. The listing is just an envelope the seller fills with text and pictures. It’s up to the buyers and sellers to figure out individually and manually if the thing being offered is what they want. So, as an example, when I shop for a car I still need to click into each listing and read the text. Maybe that’s two minutes per listing, and I consider a hundred listings: about three hours of research. If I buy a car every five years, that’s fine.
Now go back to trucking. Image every load in New Zealand could be listed every day in TradeMe, with trucking companies making offers on them. There are about 25k trucking vehicles in the country, so let’s say it’s ~35k loads per day (remember, there is lots of LTL out there). Even if a haulier could read and respond to a load per second, they would need about ten hours per day just to keep up. And of course, the cargo owners then have thousands of offers to evaluate. And that’s before any negotiation: it’s just finding someone you want to work with.
In brief, it wouldn’t work. Ironically, the idea of a TradeMe listing actually would be valuable when there are a few listings, and then it loses relevance with scale. It’s like Google search results: the first page or two is useful, and the other hundred pages of results are totally ignored.
How TNX Solves This
If we want a trucking marketplace that gets more valuable as there are more participants, we need to add two things: The first is that the marketplace has expertise: the software knows about transportation and therefore can help match up the trucking providers and cargo owners who should work together based on the gritty operational details. This allows the software to do the checking of each listing, avoiding the impossibility of manually looking at every possible offer in the market.
The second innovation is to automate the haggling process. The two sides define their pricing goal and then let the software work on their behalf to negotiate in parallel with everyone they might want to work with. In the same way that TradeMe and stock exchanges streamline group price discovery, TNX achieves this in the much more complicated situation where the two sides haven’t agreed in advance on the terms of the underlying trade.
This last point is hard to understand, but crucial. From a cargo owner’s perspective, the auction is about their unique needs, such as “24 tons of palletised ambient goods from Auckland to Palmerston North”. They see TNX as a way to find the lowest price for that scope of work. The truckers see it differently. For example, one of them may see TNX as finding the highest total revenue for “an HPMV truck & trailer that is currently in Auckland and needs to be in Wellington by the end of day tomorrow”. In TradeMe, the buyer and seller are pricing the same underlying thing (an Audi A4, for example). In TNX, they are actually each buying or selling their own trucking service.
Trucking deserves better tools for buying and selling. It’s a sector that is underserved, and we feel it the most when compared to how we buy and sell other things. Marketplaces are a good tool: they work in so many sectors. But a copy-paste approach to trucking is doomed to fail and has failed in the “loadboard” model. What TNX proposes is to get the benefits of a marketplace by adding domain expertise and an ability for each side to just describe its own needs.