FreightWaves continues our exploration of Chattanooga’s vibrant freight culture: today we visited Steam Logistics, an international freight forwarder founded by Access America alumni in 2012. Steam is located on the second floor of a building on Market Street, across the hall from Reliance Partners.
Steam was originally intended to be the international arm of Access, whose customers were requesting international service offerings. The idea was that Access America would act as Steam’s business development and feed its customer base into the new freight forwarder, allowing it to scale very quickly. However, in 2014, Access was acquired by Coyote Logistics, and Steam found itself on its own.
Despite early obstacles, Steam was able to achieve a 50-60% topline revenue growth rate for every year of its existence. Listed on the Inc. 5000 List of the United States’ fastest growing private companies in both 2017 and 2018, Steam Logistics reported $19.5M of revenue in 2017.
FreightWaves sat down with CEO Jason Provonsha to talk about Steam’s story and how they’re trying to change freight forwarding. Provonsha led sales at Access America before joining Steam.
“It took us a few years to figure out how to put it together,” said Provonsha. “In traditional freight forwarders, everything ends up getting siloed: the ocean, air cargo, import, and export roles are all performed by different people. We wanted to offer a holistic service, a single point of contact that would own the customer relationship regardless of mode.”
Provonsha noted that this model came from Access America, where a single broker would acquire freight from the shipper and source capacity to cover the load.
“We like the accountability. The person who makes the promise, keeps the promise,” said Provonsha. “Our thesis was that the industry had relatively low expectations around service, which is something we had always been passionate about. The result has been basically zero client turnover, and a great referral network,” said Provonsha.
Taking a model from domestic truckload brokerage and applying it to international freight forwarding was not without friction. Provonsha told us that the shift was akin to owning a laundromat and deciding to open a movie theater. For one thing, freight forwarding is exponentially more complicated than truckload brokerage, and offering a holistic service with a single point of contact meant that Steam would ask more of its people than traditional freight forwarders. That’s meant the leadership team had to develop a hefty six week training course called Steam University to get their employees ready to manage international trade flows.
Steam’s intensive training program allows them to prioritize mentality over industry experience when it comes to new hires. Provonsha’s criteria was reminiscent of a truckload brokerage: Steam looks for ambitious, entrepreneurial people who are “aggressive enough to push us, so we don’t have to pull them.”
While freight forwarders occupy a similar position in the marketplace as truckload brokerages—they’re both intermediaries—and have similar exposure to market volatility, there are many differences between the two businesses. Freight forwarders only work with about twelve major maritime carriers, which can be good and bad; it’s easier to source capacity but forwarders have far less leverage when it comes to negotiating rates. Freight forwarders also have much longer sales cycles, with twelve to eighteen month cycles being common, and the contracts negotiated in March and April every year are much firmer than contract freight in trucking. That makes successful freight forwarders more strategic and meticulous than fast-paced, transactional domestic truckload brokerage.
“We aren’t ringing bells every five minutes,” said Provonsha.
Provonsha said that about 75% of Steam’s business was ocean freight, which tended to be lower margin, and 25% was air freight, which is generally higher margin. Two thirds of the business concerned imports, which is typically lower margin, and a third was in higher margin exports. Gross margin percentages in freight forwarding are generally wider than in domestic truckload brokerage—where 12-15% might be typical in brokerage, freight forwarders can enjoy margins as wide as 25-30%, because there are so many more moving parts.
Like freight brokerages, all of the client-facing teams at Steam Logistics, whether they’re in outside sales or planning, earn incentive-based compensation with uncapped opportunities based on business development.
The overall landscape of the freight forwarding industry resembled brokerage, Provonsha explained, with lots of small players dominated by a few giants. He didn’t hesitate to announce Steam Logistics’ ultimate goal: “We aren’t shy about saying we want to be a billion dollar company.”