Research from the Rock | Next-Gen Transportation Management Systems

By: Lavina Kalwani, Daniel Dart, and Ryan Mitchell

Authored by the Rock Yard Ventures team, this piece combines insights from founder and investor interviews and extensive desk research. For more insights and updates on what we’re up to, follow us on LinkedIn and through our monthly newsletter.

A FRAGMENTED LOGISTICS INDUSTRY, PARTICULARLY IN THE SMB SPACE, MAKES SOFTWARE AN ESSENTIAL PLANNING AND COORDINATION COMPONENT IN TODAY’S WORLD.

U.S. businesses collectively spend $2.3 trillion, or 9.1% of the national GDP, on logistics costs. This is primarily driven by road freight, aka trucking. The trucking industry is composed almost entirely of small carriers, with 95.5% operating 10 or fewer trucks, and 99.6% operating 100 or fewer. The extremely fragmented freight logistics industry is responsible for moving 53.6M tons of freight in the US every day, making coordination and optimization the name of the game.

There are many ways that companies manage supply chain logistics, from manual data entry and spreadsheets to multi-million-dollar, consultant-driven ERP implementation. The Transportation Management System (TMS) — a market projected to reach $45 billion by 2030 — is a significant component of the supply chain software industry, enabling freight companies to better coordinate their logistics networks.

TMS PRIMARILY SERVE THREE MAIN SEGMENTS: CARRIERS, INTERMEDIARIES, AND SHIPPERS.

Each of these three play a unique role in the supply chain and therefore have different needs when it comes to road freight. However, their deeply interconnected nature means that they often interact with and must use each other’s software.

Shippers: These are groups who have or want the goods that need to be transported. Shippers can include manufacturers at the point of origin and retailers that ultimately sell goods for consumption–places like Walmart or Target. Shipper-focused TMSs home in on planning, scheduling, and monitoring outbound shipments to distribution centers, retail stores, or customers directly. These TMSs help shippers manage inventory levels and optimize delivery speed and accuracy.

Intermediaries: Intermediaries, known internationally as freight forwarders and domestically as freight brokers, connect shippers with carriers but do not actually own or move the goods themselves. Their value to the supply chain lies in their ability to manage interactions between other groups. TMSs servicing intermediaries optimize for price, manage documentation and compliance, and integrate between multiple carriers.

Carriers: These are asset-heavy companies, like trucking companies, that physically move the goods. TMSs catering to carriers focus on fleet management, scheduling, route optimization, and real-time tracking.

Each of these segments represents a critical link in an increasingly complex domestic and international supply chain. Each relies on its own specialized TMS to manage its specific role, ensuring the smooth and timely flow of goods from the point of origin to the final destination.

KEY FUNCTIONS OFFERED BY INCUMBENT PLAYERS FRAME EXPECTATIONS ON WHAT CONSTITUTES A FULL-FLEDGED TMS SOLUTION.

Oracle, SAP, Blue Yonder, and Manhattan Associates are a few leading incumbents who offer the following core capabilities in their TMSs.

Procurement and planning: Finding the optimal route–a delicate balance between cost and service–is a large reason why companies use TMSs. These systems forecast and simulate potential routes based on data points including mode of transportation, container/load size, delivery expectations, distance, etc. For shippers, TMS helps identify the best carriers based on pricing, capacity, and service levels, optimizing both operational costs and delivery timelines. A TMS can also integrate carrier rates and availability in real-time, allowing intermediaries to match shippers with carriers quickly. For carriers, these platforms can assist with fleet management, load optimization, and routing.

Execution and management: The logistics process involves dozens of document types, such as freight billing, bills of lading, import/export documents, and payment processing. These documents must all be completed and tracked, which a TMS can assist with. For shippers, this includes the generation and tracking of bills of lading and other documents. For brokers and intermediaries, a TMS can manage the flow of documents between shippers and carriers, keeping all parties informed. And, while the goods are in transit, a TMS can offer fleet scheduling, real-time tracking, and visibility. This part of the process also includes communication with carriers.

Optimization: Optimizing TMS performance is an ongoing process that involves the collection of data and organizing it into usable analytics, dashboards, and reports. This is a step beyond planning and execution, which generates insights on a per-shipment level basis. Holistic optimization entails the use of historic data to visualize, interpret, and utilize data to improve financial and operational efficiency for each of the stakeholders. This could include a TMS suggesting routes that adapt to seasonal demand patterns or combining orders across clients to maximize truckload space.

These features form the core functionality of most TMSs, but many also integrate advanced tools or enable custom development. TMSs also differ by the customer base they serve–shipper and carrier TMSs function like ERPs, while broker TMSs are more akin to CRMs. Common add-on features include carbon tracking to monitor emissions, dynamic pricing tools for flexible rate management, and predictive maintenance to optimize fleet performance.

The cost and time savings from incumbent TMSs are substantial: companies typically see reductions of 5–10% in transportation costs, 5–15% in freight spend, 3–4% in labor costs, and 2–7% in billing costs.

HOWEVER, LEGACY SYSTEMS HAVE THEIR DRAWBACKS — THEY ARE TIME-CONSUMING AND COSTLY TO IMPLEMENT, MAKING THEM MORE SUITABLE FOR LARGER CUSTOMERS.

Implementing a TMS is a massive undertaking. It requires, on average, three full time system implementers (often consultants) to devote a collective 5 to 6 thousand hours over 4 to 5 months. At a typical rate of $200/hour/consultant, implementation fees can easily exceed $1 million. At its worst, a TMS implementation can require 12 months of full-time work from 10+ employees.

Many companies lack the in-house expertise needed for system configuration, data migration, and software integration, leading to the need for external consultants. For example, Electronic Data Interchange (EDI) is a commonly used but often frustrating method for exchanging data through predefined file formats. While EDIs are essential for tasks like shipment tracking and invoicing, they are difficult to manage and come with many limitations, often leading to gaps that are filled by email.

Due to these significant implementation and switching costs, legacy TMSs are best suited for companies that spend $100 million or more annually on freight. Even with the emergence of options like Alyvs, which boasts faster and cheaper implementation, most legacy TMS systems remain inaccessible for businesses that spend less than $25 million in freight.

IN ADDITION TO THE IMPLEMENTATION COSTS, BUSINESSES ALSO FACE THE OPPORTUNITY COST OF EMPLOYEE TRAINING.

While a new TMS system may enhance a company’s legacy processes, the opportunity cost of training employees to use the system becomes a crucial consideration, especially for businesses with tight margins and smaller teams. Even transitioning from an on-premise system to a web-based version by the same provider can be difficult, as it requires relearning workflows and even basic user interactions. Rectangle CEO Matt Salefski explained it best when he said that the same places that have on-premises systems are the places where employees have been “clicking the same buttons in the same way” for 25 years, and they’re not going to change. For widespread adoption, solutions must simplify the onboarding process and provide enough value to justify the change.

LEGACY TMS ALSO COME WITH NUMEROUS FUNCTIONAL PAIN POINTS AND INEFFICIENCIES.

Implementation-related issues are a significant pain point for customers, but they are far from the only area of concern. We spoke with founders and industry experts to understand the various functional challenges with incumbent TMSs and opportunities for tech to address them. We summarized our findings below:

These weak points are already facing greater pressure as e-commerce demands faster delivery and freight rate increases threaten already tight margins.

THESE CHALLENGES HAVE DRIVEN WELL-RESOURCED CUSTOMERS TO CREATE IN-HOUSE SOLUTIONS AND LEGACY PROVIDERS TO PRIORITIZE LARGE CUSTOMERS, LEAVING SMBS BEHIND.

Large companies like Amazon and HP, with significant resources, are shifting from third-party TMS providers to developing customized in-house solutions to better meet their freight needs and reduce long-term costs. This trend mirrors the broader movement of businesses creating in-house systems for traditionally outsourced programs, such as Salesforce.

This shift, however, is only possible for the biggest players. A mid-sized business lacks the resources to hire a team and build a TMS from scratch, let alone small businesses that make up 99.9% of American firms. This means that the third party TMS vendors are still, and will continue to be, important providers.

A NEW GENERATION OF STARTUPS ARE EMERGING TO FILL IN THE GAPS–THEY’RE CHEAPER, EASIER TO USE, AND SMARTER.

Some startups are focused on attacking weak points within the traditional TMS workflow, developing solutions that streamline individual functions, such as document management or route optimization. Others, like Rose Rocket, are stepping in with cloud-based solutions that aim to be lighter, more accessible versions of traditional TMS software. In either case, these startups bypass on-premise installations and provide simpler, more intuitive user experiences with easier integrations. These entrants cater to SMBs that may not need the depth or complexity of an enterprise-level TMS but still require core freight management functions.

WE’RE TRACKING A HANDFUL OF TRENDS THAT ARE PARTICULARLY PROMISING.

AI and workflow automation: We’re obviously not the first watching this space, but we can’t ignore the ways AI is beginning to fundamentally change the way we work. Of all of the spaces AI will affect, it will have the largest economic impact on supply chain, with McKinsey estimating between $1 trillion to $2 trillion in value annually across supply chain and manufacturing. Startups like Rectangle and chain.io, which integrate with existing platforms, leverage AI to enhance and automate existing processes centered on data management, reducing manual entry and human error associated with those processes. Newtrul is another, focusing specifically on the procurement process and easing transactions between parties.

Accessibility of cloud computing: The traditional TMS is an on-premises system with significant hardware and installation costs. Its restrictive nature also limits flexibility and importantly, future scalability. While on-premises systems can be updated to include web-based sister applications, usage is inconsistent. Newer generation TMSs and adjacent startups allow for scalability not possible in on-premises systems. These alternative TMSs include Rose Rocket, and Alvys, which are more comprehensive solutions that focus on intuitive user interfaces. Others include Cartage, which automates the freight matching process, and Freightmate, which supports freight brokers. Through the increased accessibility these startups provide, they have expanded the TMS market to include SMBs that cannot afford traditional TMSs, serving as a lighter version for these clients.

Document digitization: Coordinating freight documents started 55 years ago, when DHL collected bills of lading and flew them to the end destination to be physically present before the freight itself. These methods evolved with the advent of the fax machine and email. Now, continuous real-time data collection and sharing enables companies such as Cargoflip to generate, share, and sign documents entirely digitally. It also enables companies like Transflo to provide mobile-based services to help drivers and carriers in the field. These startups streamline document management and reduce the friction associated with long email threads and PDFs.

Real time visibility and customer expectations: As customer expectations for visibility grow, there is an increased demand for better tracking. Just as B2C companies like UberEats have live delivery tracking as a core feature, B2B customers are beginning to demand similar levels of visibility. It’s not just a nice-to-have; real time data like this can enable companies to find potential delays and reroute before there’s an impact on delivery time. Additionally, growing expectations for faster delivery are driving greater accountability from carriers — something companies like Tive are addressing with integrated hardware and software solutions, while Turvo highlights this as a key feature of their platform.

THE WINNERS WILL USE A “LAND AND EXPAND” APPROACH — STARTING WITH POINT SOLUTIONS AND GROWING FUNCTIONALITY FROM THERE.

The winners will be those best equipped to scale their user base, starting with excellent point solutions and then building out functionality from there to boost customer LTV, minimize churn risk, and to attract new users.

WE’RE PARTICULARLY EXCITED ABOUT TWO APPLICATIONS FOR NEXT-GEN TMSS: ENTRY AUTOMATION AND REAL-TIME ROUTE REPLANNING.

Eliminating manual data entry streamlines operations in a complex, multi-company process. TMSs with efficient integration and automations would cut out time-consuming manual data entry across disparate platforms and reduce the risk of human error. Startups like Rectangle and chain.io are paving the way by offering seamless integrations that unify data from different systems and create a single source of truth, allowing for streamlined workflows and centralized operations. With the manual data entry problem being both frustrating and common, applications that address this issue save their customers time, money, and errors.

Static route-planning is no longer sufficient in a world where customer expectations around delivery times continue to rise and every delayed shipment has negative repercussions on brand image, loyalty, and product returns. Therefore, another application we see driving innovation is real-time route replanning and adjustment, which enables TMSs to respond to real-time data, model out various scenarios, and adapt on the fly. This capability, central to startups like NuVizz, allows flexibility in response to events such as weather changes, traffic conditions, or even theft — a surprisingly common issue. A TMS that can adjust to prevent delayed shipments offers its users a significant competitive edge.

CONCLUSION

The TMS industry is at a pivotal point, fueled by emerging tech and shifting demands across the supply chain. While the space has a number of major incumbents, we think market dynamics have created an opportunity for innovative newcomers.

With the emergence of AI and innovation in cloud, we’re seeing a greater interest and shift toward digitalization among shippers, intermediaries, and carriers, expanding the addressable market for startups. Our takeaways are as follows:

• The market is huge, but it is currently centered around expensive incumbents and large enterprise clients. There is a massive segment of the market — SMBs — that is overlooked and in need of smart solutions.

• Conventional workflows and TMS systems are manual and supply chains and their information flows are highly fragmented, providing a clear use case for automation and intelligent data management.

• Newcomers to the space are split into two camps: vertical solutions aimed at simplified functionality and easier integration, and point solutions addressing key pain points.

• Two applications are particularly promising: entry automation and real-time route replanning.

• The winners will use a “land and expand” approach to grow their user base before expanding their functionality to capture additional users from incumbents and other newcomers.

We at Rock Yard Ventures are very excited by the opportunity in this space and can’t wait to see where it goes.

Thank you to Deborah Mathison, Rectangle’s Matt Salefski, Autotech’s Burak Cendek, Newtrul’s Ed Stockman, Rose Rocket’s Justin Sky, and all the other founders, VCs, and industry leaders who provided their insights in developing this piece.

This article was first published on Medium. You can view the original post here.

Please reach out to Daniel, Ryan, or Lavina at Rock Yard Ventures if you’re building something cool or if you have questions or comments about the piece.

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