Two high school friends, one from Access America and one from JB Hunt (NASDAQ: JBHT), both University of Tennessee graduates, founded a brokerage in Knoxville in 2012 that is growing rapidly with a different kind of service offering. Jon Clay and Drew Johnson decided to go into business together one night over beers.
Clay was a successful broker at Access America, while Johnson, who always wanted to become an entrepreneur, had returned to Knoxville from Charlotte, North Carolina, where he had worked in JB Hunt’s Dedicated Contract Services business. Clay didn’t want to leave but was finally convinced by Johnson to take a risk; they launched Axle Logistics with just enough money to buy McLeod Software’s PowerBroker and provide a few months of runway. Now Johnson serves as Axle’s Chief Executive Officer, and Clay is the Chief Operating Officer. FreightWaves spoke to both executives by phone.
Like many new brokerages, the decision to buy a new authority number caused some early headaches.
“We were being a little naive about our brand new authority number. The first six months was begging factoring companies to work with us,” Clay remembered. “We spent a lot of time paying half up front and then settling up after the load bumped the dock on delivery.” Johnson said that Axle had to grow “slow and smart” at first, adding “we did not have a significant surplus where cashflow didn’t have to be a priority; we had to get profitable as fast as we could.”
Clay had been a broker and Johnson was a graduate of UT’s Supply Chain Management program: they both knew the 3PL sector was crowded with competition. Still, the two friends knew they could do something different.
“We fully understand what shippers and carriers are looking for and we strive to add value on both sides of that equation,” said Johnson, “There’s various ways of doing that, whether it’s warehousing or doing things typical brokers don’t do, like managing huge drop trailer pools or creating dedicated offerings that are different. We get into the weeds with optimizing people’s networks, determining where they should put their DCs or warehouses and then actually providing the space. We look to be ‘Yes people’ in every regard and that takes us down lots of paths, and we find ourselves in various niches that typical brokerages shy away from.”
In excess of 90% of Axle’s employees are supply chain or logistics graduates from the University of Tennessee, the two estimated. That academic training brings a greater level of sophistication and willingness to think outside the boundaries of a traditional broker in order to better serve Axle’s customers, Johnson said. Axle Logistics stays involved with the University of Tennessee Haslam College of Business, where the team gives talks, visits classrooms, and sources their interns.
Johnson said Axle is on a $100M run rate, expecting to close out 2018 with $80M in top line revenue while projecting $140M for 2019. Axle has 60 employees in Knoxville, including brokers, back office personnel, and analysts, and two months ago added a branch in Chattanooga, where it will add its fourth broker soon.
The depth of knowledge possessed by Axle brokers “allows us to be as consultative as our customers want us to be,” said Johnson, adding that his team helps optimize warehouse operations and design networks. In fact, Axle pushes back against problematic shippers who resist transforming to become ‘shippers of choice’ by treating drivers with respect.
“We hang our hats on great customer service,” said Clay. “I believe in the cradle to grave model, including operations and sales. We have Axle Roundtable, which is our specialized customer service training. We want to be on the Chick-Fil-A level of customer service.
A high level of boutique customer service comes with expectations for the shipper, too. Johnson and Clay said that they know firsthand how a reputation for poor warehouse and dock management can drive up freight costs for shippers.
“We’ve actually fired customers because they refused to be a shipper of choice and they were a drain on our staff,” said Clay.
“We’ll have carriers tell us ‘no, I’m not going into that facility,’ and we can’t source capacity for that shipper based on a bad reputation for wasting drivers’ time,” said Johnson. “Those loads end up going to a spot market and they pay a very high, substantial fee.”
In terms of technology, Axle uses McLeod’s PowerBroker and a customized version of IQ that ties into MacroPoint. Axle developed a gamified brokerage competition called Axle Drive in-house, where every broker has his or her own avatar and real-time analytics are displayed on screens across the office. Axle also uses SONAR by FreightWaves.
“We have an analyst who studies SONAR and freight markets, and we look at the heat maps for supply and demand on a daily basis,” said Johnson.
Finally, our conversation turned to the current freight market and the 2019 outlook from Axle’s perspective.
“It’s been booming for the better part of a year now,” said Johnson. “All carriers and brokerages have been enjoying that surge in the economy, and I think that we’re looking for that to continue, with an eventual correction in Q2 and Q3 in 2019. The political arena may dictate that after midterms. If there is a correction, we may see loosening capacity in the market, but if the Republicans remain in control of Congress, the economy could continue expanding through next year. We’re being cautious on how we’re bidding and going aggressively as we can in pricing in case we do see a fall-off in carrier costs. We don’t think the capacity side will dramatically get better.”