MoLo’s big bet on service

MoLo’s obsession with customer service came to a head during the first big surge of COVID-19 freight in late March, when Americans from all over the country raided grocery stores, stocked their pantries and prepared to isolate themselves at home. At the time, MoLo’s book of business was about 80% food and beverage, and the brokerage specialized in finding dry and refrigerated trucking capacity for essential shippers like Aldi and Anheuser-Busch. The number of loads customers tendered to MoLo nearly doubled as its carrier reps, now working from home, scrambled to find capacity on unfamiliar lanes and deal with new shipper requirements that mutated based on the latest public health guidelines. 

Spurred on by an ambition to become the fastest-growing freight brokerage in history, MoLo’s sales reps bid aggressively on contracted freight in 2019, ballooning the size of their accounts. MoLo hired and hired, took on interns, and expanded its office space. Silver’s family bought out MoLo’s previous investors, putting long-term, strategic capital to work in the business. But COVID turned the market on its head: Now MoLo’s customers were shipping far more loads than they had planned for, and few other providers were willing to put in the work hunting down trucks in the middle of a pandemic.

Pivoting during the pandemic

“The second half of March was the most chaotic period of MoLo’s three-year history, at least until August,” Silver said. “In a matter of days, we bought 300 extra monitors as well as other equipment to ensure every employee could be safely set up to work from home. Before we could even take a breath in our new work environment, our volumes nearly doubled. We pulled people from every department to support the execution of the freight. Our COO and directors were staying online until 1 a.m. nearly every night with so many of our sales and operations folks. We didn’t know how long it would last, we just knew failure wasn’t an option. There was a tremendous amount of pride around the fact that we were directly impacting our country’s ability to prepare for this unprecedented pandemic.”

Then in April, the market flipped again: Many workplaces were shut down and demand for transportation crashed. Spot rates reached historic lows. The lull created a much-needed breather for a MoLo team that had exhausted itself in March. But, as rates tanked, MoLo saw an opportunity to differentiate itself again, this time by taking care of its carrier partners.

“Rates were lower than we’d ever seen,” recalled Matt Vogrich, MoLo’s president and chief operating officer. “Other brokers were posting loads for 50 cents per mile, and apparently covering them. It was sickening behavior to see. Drivers were putting their lives at risk and brokers were tripling their profits at their expense.”

Vogrich made it clear to the carrier leadership team that they had an opportunity to take care of drivers when others were taking advantage. MoLo’s buyers instituted a $1-per-mile minimum on all their lanes to take a stand against what the company felt were predatory, shortsighted practices. MoLo ran at 14% gross margins in April and May, Vogrich said, but could have hit 20% margins if it had pushed rates down as aggressively as other freight brokers. At the same time, MoLo donated approximately $62,000 to the St. Christopher Truckers Relief Fund, exceeding C.H. Robinson’s contribution.

The soft market didn’t last long. As summer approached, the trucking market grew hotter and hotter. Confined to their homes, with vacations and sports canceled, Americans spent more money on goods. Retail and e-commerce volumes grew at a dizzying pace, and about halfway through June it became apparent that there weren’t enough trucks to satisfy the demand. Eighteen months of unfavorable business conditions for trucking carriers — from the first quarter of 2019 through the middle of 2020 — had bled the market dry of capacity. Now, with freight volumes growing, trucks were getting more expensive, and MoLo’s philosophy of never giving back contracted freight and never asking to raise a contracted rate out of cycle was being tested.

The market tightens and MoLo’s margins narrow

“If you can consistently deliver a level of service above and beyond the expectations set, you can not only grow, but you can grow profitably,” Silver said in a Zoom interview. In a companywide meeting with his team, he put it differently: “Today, we’re watching our competitors count their margin dollars. Tomorrow, they will watch us move their loads.”

At MoLo, June was somewhat difficult. July was really hard. And August was “a freaking nightmare,” Silver said. As truckload tender volumes hit the highest levels ever recorded, it was clear that spot rates would spike well above where most contracted freight had been priced over the past 12 months. 

3PLs were faced with a choice: Honor their commitments or initiate what have been euphemistically called “difficult conversations with customers.” Rumors throughout the industry made it clear most brokers were choosing the latter. Shippers were being forced to accept rate increases out of cycle. 

“It feels like we’ve been waiting for this moment from the day we opened our doors,” Silver said. “This is the first time we’ve been large enough and had enough freight to really be a competitive player in the market. Everyone services their freight in a soft market because it’s easy. August 2020 was the first time we could show the world who we really were. Or maybe a better way to put it is that the rest of our competition would show the world who they really were.”

Despite mounting losses on contractually committed freight, Silver was gaining confidence. He watched as other 3PLs gave back awarded freight, loads that often ended up on MoLo’s boards. Once again, the freight brokerage industry was bailing on its commitments. As the summer wore on and carriers out of Los Angeles started naming their own price, Silver doubled down. He was increasingly convinced that MoLo’s brand of unquestionable customer service was the only way to break the recurring cycle of false promises, suspicion, excuses, lies and mistrust that characterized the relationship between most shippers and their 3PLs.

The problem was that keeping its promises was costing MoLo a lot of money. Revenue had exploded again, and now the 3-year-old company was on a $275 million run rate, up more than 200% from the previous year. MoLo’s portfolio of customers was more diverse as its reps had sold hard into paper and packing customers facing high demand, but MoLo’s average gross margin compressed to a razor-thin 4%, not enough to cover its operating costs. Silver estimated that servicing his top 10 customers was costing MoLo an additional $1 million a month, and if capacity stayed tight through the holidays, sticking to his word would cost the company $4 million to $5 million more than planned. 

The human toll of ‘service-always’

But MoLo’s net losses weren’t keeping Silver up at night — in his mind’s eye he could see a world where MoLo was a truly indispensable transportation partner and would be appropriately rewarded for providing premium service. What was bothering MoLo’s leadership team was figuring out how they were going to hold their team together through an unprecedented supply chain crisis.

“It’s not fun to come in every day, work your butt off, and lose money on 30% of your loads, especially for what may be weeks or months at a time,” Silver explained. “Every rep feels that. That’s the downside of this business model. Executing a ‘service-always’ approach can be exhausting, mentally and physically. To make this work, we have to be better than everyone else at execution. We will give up a few percentage points of margin by always servicing our freight, and we have to make that up somewhere. It eventually needs to be working smarter, not harder — leveraging technology to automate as many internal processes as possible. But the passion can never die. Everyone’s gotta believe. And for people who don’t believe in the model, frankly, there are a million other brokers out there to work for that will take a more profit-obsessed approach.”

Silver had to get creative to keep morale high through difficult operating conditions. Knowing that margins would compress significantly in August, he allocated up to $100,000 in bonuses to be won in contests centered around account growth, new account starts and other service-focused metrics. For instance, reps earned points toward the contest for unsolicited positive feedback given by customers about MoLo’s service, and those points were converted to dollars.

MoLo’s leadership knows the business has to be long-term profitable. They are confident that can be done without compromising on their core values. Silver said MoLo is targeting EBITDA profitability in 2022, but that profit targets could shift based on the freight market.

“We think we can change the way shippers look at freight brokers,” Silver said. “We don’t think it’ll be easy and we know it’ll take years to achieve. Building a reputation doesn’t happen overnight, especially if it’s a reputation of excellence. Over time, we believe the loyalty we’ll build with our people, our drivers and our shippers will yield profitable results. We will never be the most profitable brokerage in the market on a per-load basis — it’s just not possible if you always service the freight. However, we can have healthy profits and own a massive piece of market share. Maybe all of it one day, if we do this right.”