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Intersection of logistics, technology and venture capital – freight tech companies changing the future of freight

Take an antiquated trillion dollar industry, machine learning and artificial intelligence, investors chasing higher yields and a few industrious solutions-oriented individuals and you get an emerging industry – high-growth freight tech.

This was the conversation of the High-Growth CEO Panel at Transparency19. John Engstrom, Vice President of Investment Banking Transportation and Logistics at Stifel, moderated the panel which included: Drew McElroy, co-founder and Chief Executive Officer at Transfix (a digital freight broker); Lidia Yan, co-founder and Chief Executive Officer at NEXT Trucking (a “trucker-centric” digital freight broker); and Brad Hollister, founder and Chief Executive Officer at SwanLeap (an end-to-end transportation technology provider revolutionizing transportation management systems).

How did you get your initial funding?

“We built a business that makes money,” said Hollister. Hollister said that SwanLeap has been completely self-funded. “We’ve been able to build a business that allows our customers to pay for the value we bring them.”

Yan said NEXT wasn’t her first start-up. She originally started an e-commerce company selling American brands to Chinese customers. It was self-funded and the company was profitable after six months. Her background in marketing and her family’s background in logistics allowed the company to quickly generate 75 percent margins. She said her “happy little business” was disrupted as more than 100 new entrants came to the market providing the same service. She said she quickly realized that no matter how good your business model and execution, you need [financial] resources.

This led her to start NEXT Trucking, which required her to learn how to raise funding. After several failed attempts to secure capital, she was able to attract one investment of $120,000 that helped her to start the company.

When did you realize you were coming out of start-up phase?

McElroy said, “we haven’t.” At least that’s still the mentality of the company. He said that he believes that they have moved past some of the “messiness” of start-ups, but that they are still scrappy and have the same do-it-yourself mindset that got them started. “The day that is not [our mentality], is the day we’re doing something wrong.”  

Hollister defined start-up as broken processes and noted that in the last 18 months SwanLeap has been able to establish best practices and is in the process of gaining ISO certification.

Yan said that they’ve had different phases of start-up, from working out of her parents’ home on fold-up tables with her mother fixing meals for the employees to having four offices in Southern California and one in China with more than 150 people worldwide. She noted that even though the organization has evolved dramatically, “start-up is more like a spirit for us, it encourages innovation and allows mistakes and pushes us through dilemmas and makes the impossible possible. So that’s the kind of spirit we want to keep no matter how big we grow, we always want to be a start-up.”

How do you build a corporate culture and how does it evolve?

McElroy said that he believes that Transfix is at the intersection of a logistics company and a pure software-building tech company. “You haven’t lived until you’ve seen an MIT data scientist and former [truckload dispatcher] red in the face arguing about the best way to match truck and load.” He believes this fosters the spirit to get great solutions.

Hollister looks to self-responsibility with individuals being held accountable to objectives.

Yan said that the company just became focused on culture. Culture began to develop when they reached 60 to 70 employees. NEXT recently formed a culture committee with employees from different areas in the company working on the “driver-centric” motto.

What are the biggest enablers for building and sustaining a high-growth company?

McElroy said that you have to have a good idea in a good space with a founder’s mindset of relentless dedication to the idea and the team to achieve the execution.  

What was the thought process to start you on your idea?

Yan was never interested in logistics, even though it was the family business, until she went to the family office and saw a dispatcher and driver argue for two hours over the payment on a load. Then there was the time a typo on an order resulted in a driver from a top-five trucking company coming to the family’s warehouse where they all searched for a container for more than three hours. That was her calling to develop a driver-centric marketplace.

Where do you see the industry heading and how does the implementation of technology continue to influence the space in your view?

Hollister said, “April 28, 2019 was the day the music died. Our industry changed forever. We all knew Amazon was going to get in the freight business, but I haven’t met the person that knew they were going to get into the capacity business for shippers.” He compared it to the days when stock brokers could make large commissions on a trade with the client having little visibility. He said that today you can essentially make whatever you want on a load and it’s not clear to the customer.

“I think that changed on April 28th when I read the FreightWaves announcement that Amazon is going to offer capacity at 30 percent below the market,” said Hollister. He sees this as the opportunity of a career for third-party logistics providers (3PLs) to re-define your value proposition with your customers. He believes that the days of transactional spot freight are done and that the 3PLs have the insight to help shippers navigate freight markets through technology. He sees supply chain engineering as a way to gain share with shippers who he believes are willing to pay more than the hidden margin for freight solutions.

McElroy said there is a significant amount of venture capital interested in the market. He believes truckload will continue to seek technologically advanced 3PLs as a means of driving increased equipment utilization. If the digital brokers can continue to add scale, there will be just a few players left when it’s over. He doesn’t expect to see just one winner, but likely five to eight companies with some niche peripheral players.

Yan believes that the influx of capital and new start-ups in the industry makes it ripe for disruption. “Everybody is seeking an opportunity to reduce the cost and looking for a solution to make the logistics supply chain more efficient.”

Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.