Some people simply expand on the family business. Others apply insights and lessons learned to solve age-old challenges in new ways. But if they’re truly fortunate — like Transfix CEO and co-founder Drew McElroy — they garner tens of millions of dollars in venture funding from those who understand how revolutionary the new system is and help move it down the road.
Transfix is a digital freight broker, focused on executing truckloads on behalf of its customers. The secret in the sauce, however, is that the system is based on its own mobile application: McElroy calls it “the first digital-native brokerage.” Its pricing algorithm uses machine learning and data points including load times, past shipments and weather, routing drivers in ways that are most efficient and make them the most money. Drivers wait less and drive empty less, helping companies like Target, Unilever, Barnes & Noble Booksellers and Anheuser-Busch increase visibility into truckload shipments, gain data insight and reduce costs.
“We create value by eliminating waste,” McElroy says. “On every dollar spent on shipping, 30 cents are wasted. If we can lower that to five cents using technology, that’s 25 cents on every dollar. If we can do that in a way that genuinely creates value for everybody who touches it, that’s what makes me spring out of bed in the morning.”
McElroy isn’t the only enthused party; the company, founded in 2013, was named to Forbes’ list of Next Billion-Dollar Startups and its $78 million in funding came from leading venture capital firms like Canvas Ventures and New Enterprise Associates.
McElroy contends that the challenges in today’s shipping market and the oft-discussed trucking shortage aren’t really about a lack of drivers — and it isn’t all Amazon’s fault, either.
“Everybody says there’s not enough truck drivers,” he says. “The genesis of that is human nature. When you need a truck and can’t get a truck, you assume there has to be a shortage of drivers. It makes logical sense. I would surmise, as is often the case in life, that reality is much more complicated than that.”
Truckload shipping, he says, is “a giant commodity marketplace.” The challenge is that unlike other commodities, it can be a black hole leading to “confusion, obfuscation and general wastefulness.”
“It may be true that there are not enough trucks in the United States,” he says. “But 25-35 percent of the drivers’ time is being wasted. Either they’re sitting and waiting, or worse, they’re empty. Before we say there’s a shortage of trucks, why don’t we get a better utilization of the trucks that exist? It’s like saying the heat is not working because it’s so cold, but the window is open. Let’s close the window.”
It is, to be fair, a large window; the American Trucking Associations reported that 2018 was a “banner year for truck tonnage,” with the largest annual increase seen in two decades. In 2017, ATA reports, trucks hauled 11 billion tons of freight and motor carriers collected $700 billion.
The challenge is that much of the industry still uses outdated processes, with more than 90 percent of carriers operating six or fewer trucks, and individual drivers still working hard to find the next load. It doesn’t help that drivers can become pawns in the game of highest-possible profits in a competitive landscape.
“Truck drivers work their butts off,” McElroy says. “To not have respect for that is not just bad business. It’s bad human-ing.”
Much of the industry still uses outdated processes, with more than 90 percent of carriers operating six or fewer trucks, and individual drivers still working hard to find the next load.
Probe deeper about McElroy’s respect for drivers, and he’s quick to tell the tale of his father, “a hooligan” from Brooklyn who took a job on the midnight shift at a trucking company receiving dock after serving with the Marine Corps and eventually worked his way up to vice president of national accounts. He founded a freight brokerage firm when McElroy was a baby, “so I was around it all the time growing up,” he says.
“My dad was a hell of a person, a tough dad at times, but he had so much respect for human beings that he did the right thing. Truck drivers are trying, most of the time, to do the right thing. But they usually get their butts kicked by whomever is in power, and it’s not them. Dad didn’t like bullies. He knew that you run a business to make money, and if the way you make money is by screwing over other people, that’s not good business. That was all I ever heard.”
It’s not hard to imagine, then, that McElroy was able to grow his network of individual drivers by speaking their language. He initially got rig owners to download the app with offers of pork chops and beer, spending time at trucks stops and attending the annual Truckers Jamboree at the Iowa 80 Truckstop to raise interest and tap into the drivers’ entrepreneurial mindsets. Some 216,000 drivers have signed up.
It is, in many ways, a just-in-time solution for drivers; the Federal Motor Carrier Safety Administration’s electronic logging mandate, aimed at stricter enforcement of federal hours-of-service regulations, continues to bring challenges to the field.
Zipline Logistics released the results of a survey of more than 150 carriers in October 2018; in the year since the mandate had been rolled out, 77 percent of carriers reported being much more selective in the shippers/receivers that they were willing to go to, 54 percent have changed how long they’re willing to wait at a shipper/receiver and 80 percent said there were now facilities they would no longer load out of because they simply take too much time.
For individual drivers, having access to more opportunities and more efficient routing could mean more take-home pay and greater job satisfaction. On the other side of the table, shippers can use Transfix to better understand costs and, as a result, make better decisions.
Mark Young, director of transport procurement for the Anheuser-Busch Companies, recently joined McElroy for a SupplyChainBrain case study. In the video, the men talked about how Anheuser-Busch has been able to move from a transportation pricing focus to price benchmarking, in which Transfix can provide a price on each truckload, demonstrating either an opportunity for savings or a validation on “how well you buy,” McElroy says.
“It’s a key component of what we’re really trying to drive, which is transparency between shipper and carrier, so that both can benefit… . The more that we can expand on this transparency, the more we can drive efficiencies, and that’s going to translate to a better cost,” Young said. “But it’s also going to have other impacts. It’s going to have a better impact for the driver, how much time that they waste waiting to get loaded… . Time is money for our carrier partners. We know that.”
In addition, the greater the transparency, he said, the more empty miles can be eliminated, and carbon dioxide emissions can be reduced — and the more efficient the supply chain network can be all around. Working with Transfix, Young said, has uncovered gaps in the company’s metrics and has helped them better understand how it all translates to cost.
‘THE OPTIMIZED SOLUTION’
Executing truckloads on a client’s behalf is a process freight brokers have done for decades — but still typically do via phone or email.
“What differentiates us from other companies is the way we do it, and the experience that it generates for the customer,” McElroy says. “We don’t make lots of phone calls to find one driver for one truck. We algorithmically say, ‘How many trucks are there? How many loads are there? And what is the optimized solution in terms of dwell time and empty mileage for this data set?’ In so doing, we create a better financial result from an ROI perspective for the carriers, which unlocks a lot of things for us.”
Anheuser-Busch, meanwhile, sees “flawless execution.” If a problem in transit is anticipated, Transfix notifies Anheuser-Busch, so there’s no scrambling with a missed delivery. Transfix co-founder and CTO Jonathan Salama, who began building the Transfix platform in 2013, wrote on the company blog about beginning to see the impact of artificial intelligence on both shippers and carriers “as all sides of the equation become more accustomed to (and reliant on) 24/7 visibility, robust analytics and a more actionable supply chain.”
He named three impacts in particular: automatically and efficiently determining fair, reliable prices for thousands of shipments in less than a minute, learning driver preferences over time so they’re served only the routes they want, and the provision of better economic data at both macro and micro levels, since freight trends serve as lead indicators of the health of a variety of industries.
“We’re just sort of watching this business cycle happen,” McElroy says. “I can tell you, with definitive certainty, the conversations we’re having are maturing. Three years ago, the conversation was, ‘What is a Transfix? What are you even talking about?’ The second year, some of this came from the competition: ‘That’s never going to work.’ The conversation now is, ‘How do I get some of that?’ The narrative has become how digital freight is clearly better than analog freight, and about the best strategies for digitizing the supply chain.”
There is a sense of inevitability to it all, he says, as shippers continue to look for improvements and efficiencies — especially in the age of Amazon and increased customer demands.
“If you’re a big retailer or in consumer packaged goods, your strategy is defined in relation to Amazon,” he says. “That’s not our problem. But we can help you. You, as a retailer, can no longer rest on your laurels. That’s just not the case anymore. Amazon is just pushing other companies to be the best they can be. You either have to be the best from an efficiency standpoint or a customer service/experience standpoint. Or, ideally, both. To do that, you’d better be pretty good at putting the widget where it needs to be, when it needs to be there.”
In the early days, McElroy says, Transfix took a hard look at the way things had always been done.
“We said, ‘This is dumb.’ Our strategy now, from a sales perspective, is that all we need to do is give you a taste. The minute you get exposure to digital freight, the genie is out of the bottle.”
Fiona Soltes, a freelancer based near Nashville, Tenn., loves a good bargain almost as much as she loves a good story.