Ep. #19: Felipe Capella

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I agree that that's how it's pronounced , so we're going to give it a shot and see how we do . Mr Felipe Capella , perfect Capella , 100% . I heard Capella and I was like I don't think that double L is that sound on the last name like this .

So after 10 , 11 years practicing law across Latin America and the US , I got tired of it , as a lot of us do , and I always wanted to start something new where I always had this kind of desire to really run a business .

And my colleague and friend , ricardo , was kind of going through the same process , but after 13 years at Goldman Sachs , just kind of having the same thing like a corporate job for more than a decade . Right Then he was living in Goldman and we were talking . I had my own ideas , he had his ideas .

One of his ideas was actually Freight and looking at the industry . He actually participated in the reorg of a wire sea back in the days . So he thought there was a great opportunity in this industry and then I thought his idea was better than mine . So I joined his journey and here we are almost 10 years later . What was your idea , man ?

You don't want to know . I thought there was an opportunity to kind of digitize promotional marketing , sweepstakes and promotions and all that kind of stuff . I actually got excited about it . But again , I think Ricardo's idea was a bit more tangible .

If you will , gigantic time right in the US , lack of technology , huge fragmentation , so you kind of checked all the boxes for a new venture , if you will .

I like to take risks and I like the business world .

But again , here we are and I was thinking about this this morning , right , because it was kind of running , and then Andrew was going to ask me about this and I'm going to say that and I was reflecting on this and actually I'm going to practice law for I don't know 10 years , but now I have 10 years of freight experience , so actually freight is kind of

overtaking my law background little by little .

Let's keep it real . Nice Is loads mark a freight broker .

So , yeah , when we started the company back in 2014 , again , ricardo and I come from out of coming from out of industry we had some naive thoughts , if you will , but also some , I think , some good ideas as well , on how to kind of insert technology in the relationship between shippers and carriers , right , and we hired a bunch of software engineers .

And then we realized , you know what ? This industry is much more complex than we thought . This industry has a lot of tribal knowledge that we are unaware of , and then we need to start hiring this specialists people with 10 , 15 years of experience to guide this project , right . So we kind , of course , corrected through our journey .

We over-indexed on the technology at the beginning . That was a mistake , by the way , right , make mistakes , as you know , while building companies and then we kind , of course , corrected throughout the years .

We were very focused at the beginning on launching instant pricing for a full truckload right Vi-algorithms I think this was not something that was widely done in the US because you're taking principal risk on the transaction because we don't have the instant pricing from carriers , as you know , right .

I am curious when LoadSmart was starting and when Ricardo said to you hey , this is what I think the opportunity is . What was that ? It was centered on the instant pricing or were there other aspects to it in general of what the business was going to be ?

on . So we started just with this basic concept . We did not have any specific product idea to begin with , and then in the first kind of six months to 12 months , we realized why do people keep calling each other to get quotes and orders , slash standards , why can't we just give a price by algorithms ?

And then when we were asking people from the industry back then they were saying because you don't know the price right , in order for you to give a fixed price or a firm price to a shipper , you do have to have a lot of volume on a specific lane , so you have high search and T or you have a track on hand , or something like that .

What if you produce a price with algorithms , try to predict how much we would pay on the carrier side , and then we stand behind the price no matter what .

And people thought we were crazy and remember back in the days CH Robinson looking at it and saying , hey , these guys are going to go bankrupt very fast because brokers are not supposed to take the risk of the transaction in an electronic way .

If you will and we love the stock brokerage analogy Remember back in the 2000s or in the 90s , if you will we see these YouTube videos and I'm old enough to remember people transacting on the stock brokerage floor , just yelling at each other right , giving quotes and buying an Apple for $100 , I will buy 100 of those .

And then 10 , 15 years later everything was electronic and you have prices that fluctuate automatically . In order to buy or sell something just had to click a few times . We were like , hey , why can't we go towards that route ?

And I think and the problem is that we have to do predictions on the carrier side , right , and then we have to stand behind our price when we show it to the shipper , and when the shipper likes the price in books , then we go to the carrier side and try to find a carrier and hopefully the algorithm was right .

But if the algorithm was right , great , we make money . If the algorithm was wrong , maybe we lose money . And that's , I think , what people were very uncomfortable with .

And the general idea is that by doing that we can distribute the product very fast , by plugging it into the TMSs right and go to I don't know the large TMSs in the country , go to Oracle , manhattan , whatever .

You have hundreds of very large shippers using those TMSs and if we can plug there and have all these quotes coming via API , we can quote automatically in 200 milliseconds each one of these quotes and send the price back .

So we kind of have no touch from any human and I don't have to have a huge conversion because if I have enough volume , even if the conversion is low as long as I'm not touching it . It's a great business model and I think we were right in some ways and wrong on others .

I think we were right on the direction that was after the direction and I actually think , as I'm predictiously , I know we can maybe talk later on how early in the business .

That's actually been adopted by a lot of the industry is kind of automated pricing to customers , integrating through the TMS and providing that kind of API pricing . So I'm curious , when were you guys first doing that ?

But let me ask you this because it is interesting to me , because I'm curious from the sales side . You're now going , so you're going to a BlueJ or E2 Open and say , hey , get us in with your customers and let us do API pricing here .

That's an interesting approach because I'm curious how the shippers initially responded , because it's not often that the TMS provider actually has a say or necessarily pull . I mean , they certainly have some influence in that they have relationships with the underlying shipper who's paying for the freight .

But if I were to just call my friends at BlueJ or BlueYonor and say , hey , get me in with all of your customers , they don't exactly just say yes . So I'm curious what was it like ? Did that help you get in with more customers early , or was there more pushback ? How did that ? What did that process look like ?

And we're saying like , if we have instant pricing inside your own TMS , the shippers don't have to leave your TMS , they can do everything within your TMS and TMSs . Actually , they like the story . But what they mentioned to us were a few things . First , almost all of the TMSs back then were completely out of the cloud .

So they were saying like , sure , but pretty much all of my customers are in an on-premise instance of my TMS that is in order to integrate . The super manual process is going to take a million dollars in 12 months . Right , that was first .

Second , they said and I have a line of 100 people that are pitching me with something because they know I have the customers right . So I'm like the supermarket and you want to put your product on my shelf , so get in line , right , convince a few shippers . And you were right .

We found out it was much easier to actually convince the shippers and make the shippers push back or push that solution into the TMSs . That's how it happened later on back in 2018-19 . We actually convinced Ina Hauser-Busch and these guys are very sophisticated and great operators across the board . We love trying new things .

They love trying new things and they are very good operators , not only on the transportation side but across the whole company . And then we designed a specific process for that .

We had our API architecture already all done , so they used our architecture and they actually asked us back again in 19 , saying , hey , do you guys mind if we invite the other so-called digital brokers with this capability ?

And that point in time , I think , was transfixed and Uber-free , and we're like no , if that's what it takes for us to go ahead , sure , let's do it . So I think at the beginning was the three or four of us sending prices to Ina Hauser-Busch .

So you needed the other digital brokers to catch up and partake in that as well , or regular brokers , wherever you want to call them . Otherwise , it's not interesting to a shipper . If they can't get at least three or four to participate , then they can't sell that upstream to their broker , absolutely , absolutely , and other problems that we had .

So our system was just kind of processing and sending it back and we realized that they could not really make a decision on a load by load basis because it was generating a lot of manual work internally . So all we did was to create dynamic rules based on the business outcomes that the company was expecting and putting that in our API process .

So we would only send out rates that were checking five or six or seven rules that the company had . For example , a do not send me any quotes if it is above 10% of the previous 60 day average , because we think it's too expensive . Do not send me any quotes . I don't know if you have already sent a quote in the past two hours .

So we built all the business rules . So now we were sure , or they were sure , that all the quotes that they were getting had already all the four or five or six check boxes that , as a business , they were expecting .

But I think you nailed it when you say like if you have only one or two , or even three or four , in all honesty it's not enough , because Shippers want to see a representation of the marketplace in terms of services and price , and I think they think they probably right that only three or four or five brokers do not represent the market in general in terms of

services and price .

What's happening today , which is very interesting , is that now that you have many more brokers with that kind of capability some sort of sophistication , which varies a lot , but probably have at least 50 , 60 , 70 , I don't know how many brokers that can do that nowadays Shippers are becoming much more comfortable relying on this set of brokers as a good representation

of the market , and that's what I think . That's one it .

On the other end , as TMS has created their cloud based version right in the from 2019 until 2022 I think Manhattan was was around 2022 and then large enterprise accounts start to migrate from their local instance on premise to to the cloud based version , which are actually , was also not easy , because after ten years of high customization on premise , it was not

easy to migrate to generic cloud based TMS . That's another issue but it's . It's a movement that is happening and it's not gonna stop .

So as she was migrated to cloud and as more brokers are able to present this dynamic pricing , she proceed this as a , as a representation of the market , and they get start relying only on API pricing for her spot Transactions and I think in a few years , maybe three years , maybe four years you're gonna see the majority of 4 to 100 companies only Transacting via

API for their spot loads .

industry because I think that what it does is it . It certainly decreases the , the amount of time an individual is spending Managing pricing for an account . But they're still doing it just in a different way . It's less load by load and more kind of .

You're now kind of the man behind the curtain , just kind of Managing the dynamic ruling which I think most of the companies that have this service now can also manage it in a dynamic way where you know when a market ship .

You know basically right now , let's say it's late February Produce season is getting ready to start in the next three or four weeks out of the south , so you'll see people start to iterate their refrigerator pricing to add 10 , 20 , 30 percent on loads originating out of the southeast right . But those are things you can do day to day .

You just Won't be doing it as much on a load by load by load basis , if that's making sense .

These are other brokers that have been doing this for two years or they're relying on on on other Market solutions . Right , they have , again different levels , but you're right that there's always a human component . Right , these things are not like fully automated , that no one is looking at it .

Right again , when , when weather Changes if we have I don't know Some unforeseen events , or if the market swings too fast , you have people that are controlling the macro , if you will , of the pricing algorithms there , either by region or by commodity type . Again , maybe seasonality changed earlier than expected , right , so we have to tweak the the system a bit .

So you're right , I think even in the least sophisticated of the cases you have , you don't have to tweak this on a load-by-load basis , right , so it's definitely . It's definitely something that's happening right now , and you can also ask yourself what's if this is gonna change Anything dramatically or not . Right again , spot market is still . What ?

15% of the of the overall volume through the , through the cycle , and if we're talking about fortune 500 accounts , it's even a subset of that right . So I Don't think you're gonna see a dramatic change in kind of the brokerage world if you , if you , if you will . But I think you're gonna see a dramatic change on on on brokers .

They rely on the spot market For enterprise shippers

, that's . That's a niche that is highly affected by this and it's , it's well , that's for one , that's it .

I think you know , if you think about the ideal profile and everybody is different obviously but Having contractual business with an enterprise shipper that you have good carriers on and you can offset with One of two times the amount of spot business like that , that tends to be a pretty healthy customer profile for for companies .

But I'm curious , I think this example , specifically API pricing , is a really interesting kind of microcosm for Technology advancement in our industry . So if you think about kind of , how low smart are you ?

And Ricardo approach the industry and said , hey , you know , as you first started it wasn't like you had this fully baked idea of exactly how you were gonna innovate . But you said , hey , this industry huge tam Lack of technology . Let's just put all of our energy into it and see where we can innovate . And one of the first things is the API Pricing .

And so when I think about the maturation of that over the last nine years or eight years that you've been doing it , at first you were the only one and it was hard to get traction early because there wasn't enough Competitors partaste participating as well .

Then there was probably a few years window where you had a pretty significant leg up and advantage Because you were the first and they had the most sophisticated at that point . But what happens when we get to like now , where Many or most brokers can offer this service ? Is it no longer still a competitive advantage ? Is that representative of ?

And again you made a point about Everybody's different in terms of what they can offer here . So someone who's just using off-the-shelf tool that doesn't have enough data supporting it , they're not going to be as effective with their price as you spending eight years building around it to get the right data inputs To get the most effective price .

But what I'm asking is is this a sign of a challenge in in kind of innovating through technology that you know , even as you create it , you know they're gonna be other vendors who try to replicate it and offer the same service to competitors .

Do you get to a point where , having spent all the time and money building it , is it worth it because others can offer the same thing and it's no longer ? But does this make sense ? Kind of how I'm thinking about this .

And I think people do not realize that , at least in the technology , actually , for For every company , every startup people talk a lot about like first movers advantage , right , but what people don't realize there's always , there's also a thing a penalty for first movers advantage , and I kind of I felt it on our end because was 2015 , 2016 , the right timing to

launch this ? Nope , it was not . It was a bit too . It was three to four years too early , right ? So because the industry wasn't ready , it wasn't ready . So , and you think you're gonna change the industry by yourself ? You're not . Yes , this industry .

Others who thought this is the guy who's trying to get rid of all the people in the industry not you specifically , but I'm just saying you .

You have naysayers and you have supporters , but it takes enough people Participating , whether in terms of sharing their feedback or also wanting to do it themselves , before someone is gonna say , okay , we can do this , we can try it .

Angry at me , saying like , hey , you thought this was a great idea . Where are the customers ? Right , so , and we , so we get this already had to do this upfront investment , right , that did not generate actual results until later on . So that's when I say we pay the price for it . Of course we get some , some benefits out of it as well .

Right when , when things got going in 18 , 19 , 20 , we're Pretty much the only ones there , together with other two or three guys . And now , when we're going to shippers fortune 50 shippers they loved it . Well , this is super innovative , let's do it , let's integrate , let's integrate .

So now I'm integrated with the most of the fortune 100 comp is on the spot side right , which , again , I , I benefit . I benefited from that as well . But to your point now things when technology becomes a bit more commoditized , if you will , you have to do something else .

Right , and although I do , I do see a benefit of again , now that we have enough brokers , that the shippers can see this as a represent , a true Representation of the marketplace , that I can just stop doing things manually . Of course does not not always .

You're not gonna have 100% of the spot there because you have , like one of cases , right , you have Different types of fray , but a big chunk or a large chunk of it will be moved , I think , only for API , and Remember how many brokers we have today in the US , andrew , you think the number changes all the time .

I use the number 40,000 is a large number , make it up and you know that's what I'm committed to .

I also think that not all brokers can just adopt it . If you have a , if you're running a brokerage of 10 , 15 , 20 people , it's not always easy first to pay for this off the shelf Technologies of softer cost , right , it's part of your cost structure .

Secondly , have to have someone dedicated , as you mentioned , to do the pricing management , if you will right , you have to go out there . Usually , even the , the companies that are offering the instant pricing or dynamic pricing technology , do not offer the API connection to the TMS's , so that's another Complicated part of their journey .

You actually have to go to a large shipper and say , like a , I also want to be part of your API , I think . And after a search , a number , they just say like no , I haven't right , I have 20 , 30 , I don't , I don't need another one , right ?

So I think what you're gonna see is that the bottom 10 or 20 percent Of brokerage and in terms of size and sophistication , I think we'll have a lot of difficulties , kind of catching up not only to this trend but other technology trends , right , and they , I know this could be something that triggers More consolidation in the industry and less fragmentation , although

people have been talking about this stuff for 20 years , god knows right , but again it could . It could be the case that the bottom 10 percent , 20 percent of these 20 , 30 , 40 , whatever thousand brokers , we'll have a difficulty competing the next in the next years .

Maybe I think there's so many , there's small guys , but I agree with you that I could see how , over time , this could become a barrier to entry , not this specific service offering , but like service offerings like this that are either expensive to build or reasonably expensive to pay for off the shelf , to a point where it's not going to be like whether you

weren't grandfathered in because you didn't get to the party in time , or you know it's a year or two , three years from now . We're just starting your brokerage . You got to buy these tools and it's just not worth it to make the initial investment , because I think that's part of why there's so many today . It doesn't cost anything to get going , really .

I mean , it's very inexpensive . So I Do ?

But as more technology becomes kind of the standard of the industry right it's gonna be maybe the barrier of entry will increase , because not only have to have X , y and Z , you now have to have an adult API , scheduling you have to have , and these things pile up up to a point that maybe to start a brokerage , the package that you have to have , maybe you

will need a cybersecurity right . Maybe you're gonna need I don't know Other compliance aspects that become a bit more complicated for you to implement . So , as the whole industry gets more and more sophisticated and adopts more technology , again , maybe the barrier to entry will just become a bit tougher . And then you kind of the tapering of the life , yeah .

This is a completely new thing to you . So freight itself is new , and you're hiring a bunch of very talented , smart engineers and telling them to build and say , hey , first thing we're going to build is this pricing product . And what you said was you know , they finished building in 2016 or wherever .

And then they looked at you and said , okay , where are the customers ?

And what I'm curious about is you know , I think you and I approach this industry in a similar way , but also very different , and we both were committed to the idea that we could , you know , make pricing commitments to customers without knowing necessarily what our cost of the carrier was going to be , but that this was a different way to do it , and for me

was , we did it more obviously people based , in terms of we weren't applying that much technology to the decisions , but we did have that kind of risk tolerance and commitment of saying hey . What I would tell my team is hey , make the commitments , execute on them and I promise you it'll help us grow in the long run .

Customers will love this service we're providing and this will work and we will be a very successful big brokerage one day as a result .

And my question here is around as leaders in a business executive CEOs , whatever you know we have a story to tell to get by and we have to get people to pick up what we're putting down and to put in the effort whether it's to build software or to just show up and execute on loads for a customer and the way that we keep buying , the way that you build

culture and maintain it is the things we as executives tell our team . They have to kind of come to fruition If we say , hey , go and do this work and , as a result , it's going to help all of us grow , it's going to help the business grow .

I got to see in our case where I would tell our team , hey , put in the work now with these customers and they're going to give us more business . It'll be a chance for us to hire more people , promote more people build new teams and so they did it .

You know , they put in the work and then the customers came and we grew and blah , blah , blah story ends it works . What I'm curious is about is what happens when you do tell a team , hey , go do this . They don't . You don't necessarily have the answers . You're trying to build something that you haven't seen work before .

So you're trying to get buy in and you say , go build this for me . And they say , okay , great , we built it . Where are the customers and like how ?

What is it like navigating that as a kind of new executive in the industry , trying to get buy in from people , knowing that you're trying to do something that you don't know if it's going to work or when it's going to work or how it's going to work ?

Does there's what I'm saying kind of makes sense in terms of kind of I'm trying to get into your head as a new leader in the business , trying to get buy from your team and try to build things that they haven't seen before and nobody's really seen before ? Yeah , I think there are two things there .

And so I did not have this issue of a large team of logistics professionals looking at me and saying like , hey , this guy has no idea what he's doing , so that that , that that that was not an issue at the beginning , was also a mistake , as I mentioned , right , I rather had that team that will tell me , like even if they were saying you shouldn't do instant

pricing , but I could try to do anyways , but they would have saved me all their 10 mistakes that I made throughout the journey that I could have done better if I had the actual talent with experience . But at the end of the day , again , you fail many times , as you know , right , you try different things .

This is I don't consider this specific one a failure . Actually actually think we're just ahead of time a bit and if if that's the case , it's okay . But I have other 10 , 10 cases throughout our history in which we just failed trying something new , right , and I think the team knows that we're trying something new .

I think the team understands that there is a component of failure by by trying something new and I have always pitched the people to embrace this type of stuff right , we fail and we learn with it , then we improve and we're trying something , something new , but but of course it becomes more difficult as the company grows , right ?

So I think then you understand how difficult it is to create more like disruptive , disruptive things as a very big company . It's much easier to fail when you , when you are like 20 , 30 people than when you are 500 , 1000 .

Right , so I do understand loudest is this dilemma that really large companies have , because , to your point , if you're very large company and you tell people like hey , here's the path we're going to do , this is going to be amazing , and you fail , right , you lose confidence .

The team starts to kind of think that you know what you're doing really right , maybe they're better off simply sells , and then you have to manage this like 500 people , all of different , with different departments , right , with different aspirations and different concerns , and becomes much more difficult to kind of swing for defenses , if you will .

So again , it's just an interesting part of the journey , I guess .

And if you're willing to say , hey guys , we're going to build this thing , I don't know what the result of building it will be . I know that we've done all the research that suggests this industry could use more technology and that there seems to be a gap in this pricing arena .

But come with me along the journey and like , let's build it and see what happens . I think that approach versus kind of a more like hey , I'm the CEO , I know what I'm doing , like this is going to work , follow me , and then , if it doesn't work right away , you lose by in that way . So I do .

I think that's just an important call out is the more honest we are with our teams from the onset , it just that helps get the buy in . So people want to go along the journey with you , knowing that failure is an option and it might happen .

, absolutely .

And again around 2019 and 2020 , maybe 2020 , when I looked at the amount of money , effort and investment that we were allocating to technology right after I don't know , five years or six years and we're trying to understand what was the ROI there we started to realize that there were kind of diminishing returns into that in allocating technology for , for for our

brokerage operation . Why ?

Because I have some theories around it , right , because I think , at a certain point , the most valuable and complex part of a brokerage workflow is actually the interaction between the brokerage and a third party , right , being the shipper or the carrier , and it's much easier to automate the simpler tasks that are just internal to your brokerage , right ?

Hey , I don't know , running like doing some internal pricing or or by scanning a document or entering some some some other internal stuff , then actually automating efficiently and interaction with again with a third party that usually does not have a cloud software . They can actually I mean , I'll be able to build an API do something of that regard .

So I realized you know what , like I'm not sure spending all that money into internal workflow automations is a good use of our for resources . Anymore , sometimes you would automate a task internally that would cost 20 cents , but you're using a software engineer salary that is very high . Right to automate something .

Is actually you better off just having someone someone do it manually , right ? And then we started to shift all of our R&D allocation and change our technology to be more customer facing Right . I think that was when was .

So it was a complicated time to navigate the expectations and an identity of the company internally . To your point . So was that we ?

But , like , walk me through that mentality and what was going through your head , what you were seeing from customers that made you kind of navigate that change .

But at a certain point , again after six , seven years of allocating a lot of resources there , we we realized , you know what , do we have anything else to build here ? Right , of course we do have a lot of things to build , but are they worth pursuing and realize , like , maybe not Again , because the industry I would love to automate , I don't know .

I was calling carriers back in 2018 , 19 saying like , hey , we want to send our loads , the loads that we have to move directly to your software , right , I don't know the McLeods of the world or in , so you can see in front of you , you can see the planning of your trucks and I'm going to insert my load opportunity and you can just accept or just reject ,

you don't have to even or you just ignore , right , and we couldn't do it because the carrier software was not ready for that . The carriers were not ready for that .

So , the really transformative stuff , again around 2018 , 19 , 20 , I think we realized , you know , at a certain point we're just kind of punching a knife , as we say right , trying to move things and spending a lot of money trying to move the whole industry and the ROI is just not great there .

And we realized you know what we have always been attack companies since the beginning . Why don't we leverage everything that we have built , plus other things , and offer software as well to our customers ? And that's what we started to do back in 2021 .

And now software represents around 40% of our companies gross profit , which helped a lot , especially during last year , right , with a huge market downturn . At least I had a software revenue stream that's kind of stabilizes the business right .

Now we have probably the largest I think the largest dock appointment solution in the industry OpenDock right , running 12 million appointments a year , more than 3,000 warehouses using it . We have a mid-market , cheaper TMS called Shipper Guide for companies that have I don't know between five and a hundred million dollars of free to spend a year .

We have now a nav track , which is a computer vision yard management solution . We have a carry TMS like a planning for small and mid-sized fleets . So , again , all of these things combined represent around 40% of our GP today , which I think was a good move .

But to your point , internally is a question of managing the team and keeping people excited and have a very firm and identity , if you will . It was not easy , right , not easy . I think nowadays people bought into it and they're starting to see a lot of the cross benefit that that generates .

Right Now we're talking to a customer , especially on the mid-sized side . You don't need to talk only about moving that load from Atlanta to Jacksonville , right , you can ask them about the how's your warehouse doing ? How are you guys scheduling appointments ? Do you guys use any TMS ? Are you happy with your TMS ?

Or you're handling your loads through spreadsheets so you can engage more , being kind of a solution seller than a transactional seller , and I think people are now seeing that that brings a lot of benefits .

Again , as you can see that these things feed out of each other , right , when my brokerage team inside sales by just calling a mid-sized shipper , again there's a much more interesting conversation that they have because we're not just trying to move a load , we have other types of solutions that are broader to the company .

For companies that use my shipper guide , tms , because I have all the data and I see all the data , I can go out there and have conversations about service levels that they're having in certain regions . Right , and again , data analysis in terms of optimization and the managed transportation team allows me to be just deeper into the supply chain of a shipper .

I have learned a lot just joining the managed trans folks in the calls and in customer meetings . It's really impressive how these guys that have like 20 , 30 years of experience on the managed trans site the depth and the complexity of the whole transportation world .

Once you add again all the different parts of it right Warehouses and the whole supply chain and I think we're going a lot towards that direction as well . How can we solve more and more complex things with this combination of services , with the brokerage capabilities and optimization through the technology angle ?

Right Again , I think our idea is to be more and more like a solutions company to our shippers

. It's not that I'm saying like I'm not going to be a broker anymore . Actually , I think we're still a small broker in the grand scheme of things and we can be . We should be much , much larger and we're working on that .

Get out , if I could back , if I could go back and hire like people like Andrew Silver , back in back in 2015 , 16 , I think we will be in a different position today .

But again we learn with our mistakes and again that's the kind of position that we have towards our future , which is again slightly different than we have been if you compare to where we are the first two , three years of the company .

And because I think that gets understood to be a number of things .

Aren't you better off just offloading your whole transportation department , if you will , to a company like load smart ? Because we come with Expertise , we have much more volume than you have by combining all of the different customers that we move freight for , right , we have all the actually all the technology .

You don't need to go out there and and buy or subscribe to a TMS . You don't have to do a dog schedule . I come with a tax solution and I manage All your transportation needs internally here , right ? So you kind of outsource your transportation department to us . Yeah , that's the simple . That's the simple answer To that .

And again , because of volume , right , because of expertise as well , we think we can do a better job than a lot of companies out there . I actually think you know , honestly , given the feedback that we have been receiving of the managed trend site , the very few companies are better off under 75 million dollars . Our freight span .

Very few companies Are better off . Having their own transportation team , I think in most cases is more efficient in terms of trust , overall transportation cost and balance sheet cost . Right , because you have to have a team Handling your transportation . You have to hire those guys . You have to Do there's benefits involved . There are recruiting right .

There's like turnover and churn and have to have a recruiting team Hiring more people . So all these things do you really need to have that in your balance sheet Right ? So I think we come over and we kind of say like no , what , let us handle it . We're gonna handle procurement right . We're gonna make the optimization decisions .

I think we're different from other managed trans companies as well because we do Optimization on an ongoing basis . I think the very old school managed trans guys Currently are very like a . We come in , we optimize your current transportation network and modes and they just relax it back and wait for three or four years for the customer to complain .

We do optimizations are monthly basis . We do a this month . I think we're better off just moving these types of loads to rail for the next 45 days , because the service requirement for this specific type of loads are very high and you have we have like 27% price reduction .

Let's just do it for 45 days , then we move it back right and we keep doing forecasts for next 12 months to see what is the right mix of spot and contract .

So we're doing this again on an ongoing basis and that has been the best feedback that that I think the company has received In 10 years in all honesty , and I see the value that we add , because it's not like on the brokerage side . You add a lot of transactional values right and they're very like a . I helped you move that specific load there .

Okay , good , thank you , yeah , the price was okay . And then you do it again and you do it again on the managed trend side . If you can deliver which you often can a 15 20% cost reduction out of the overall Transportation yearly transportation cost . Sometimes , again , if you're running $50 million , you're talking about Five , ten million dollars of cost reduction .

It goes directly to the bottom line . This is an amazing value prop , amazing . It's kind of a no-brainer right . So I'm very a bullish About this managed trends concept . It's just a very long sales cycle to convince the company to kind of Hand it over to you , as you can imagine .

You know , one of the next things I wanted to really get one of the future states I envisioned when I was still with Molo was getting into managed trends , and part of the reason that I was bullish on it was centered on the people and thinking about what my operations folks would look like , sitting in the seat on the other side of the table managing the

freight for these individuals . Because whatever side of the tape like the individual who has experience working in a brokerage Operationally is very good at that .

I mean that that day-to-day job that requires kind of that fast-paced dealing with complex problems , multiple problems at once , like we are wired to do that well , and so I do think that More shippers were benefit by having brokerage minded people on their teams doing that .

So that's kind of why I envisioned when I looked at the people who were tendering those loads , I was like man , I feel like if my team were doing that for them , things wouldn't be more efficiently done . It's kind of my take on it . I'm curious .

So you know what great looks like , what a horrible looks like and you , and also I think there's an basic advantage that that some people do not realize there's some . When you we're , when you're a brokerer and you're providing service to specific shipper , sometimes you handle 3% of their volume 5 , 10 , 15 , 20 .

It's very rare that you're gonna handle more than 25 , 30% of your volume .

Right , when you're managing the Companies transportation through the managed trends aspect , you have a hundred percent of the volume under your Umbrella and it means that you can do a lot of interesting things In terms of optimization , right , you can kind of put that together with other two or three Similar companies and then you can have it can kind of make them

share the benefit of having all this volume , moving similar lanes or having kind of back halls . So there again , you just have much more volume to play with and and it comes with a lot of potential benefits as well .

It's much more difficult to do that , running a brokerage in which you have just a very small piece of each Shippers of business and they have to put all these things together like it's . It's more complex for sure .

Also , again , as everyone knows , is a is a great revenue stream , very high margins , like 90 , 90 , 95 percent margins . So that's one and second , because , again , it takes some time for us to develop our own stuff . We say like a , how can we speed that up ? I had to . How can you start offering things ? They're very valuable to companies sooner than later ?

And then that was this opportunistic Acquisition of open doc . What people do not realize ? That when we acquired open doc , it was part of a , a Tech architecture that I will call it , I don't know , old school , something from the 80s , if you will , the open doc . Yes , okay , I'll just stop there .

But the but what we decided to do , it had to do that we rebuild , opened up from scratch from zero , right ? So while we had it running With the current customer base , we rebuild the whole thing from scratch and then we migrated all the customers from the old Architecture and product to the new one . That was freaking difficult .

Let me tell you again , we had a thousand customers . So migrating a thousand customers in nine months or so was a was a gigantic effort that we actually finished in the in December of last year . And of course , you can imagine that the amount of data that I have today as well . Right , andrew , like I , have 12 million appointments a year .

I know exactly what trucks are getting full and empty where . So there is an interesting data play as well To that . But again , it's a combination of our Decision to offer software to to companies and trying to offer something as soon as possible . Second is opportunity of open doc being a company that we could acquire .

Right , that was the right place at the right size that we could afford . But again , it was not easy , right ? And it's not . People think that people love the software concept . People love like oh , we are is great . It's a stable business , it's 95% margins and people forget about all the bad things right up front investment .

And I was actually talking to a to a , to the other silver , the senior silver , one of these days and he was telling me that it was much more difficult than he thought Building mastery because of the upfront software investment that you have to make . That's also true for us , right ?

We on the shipper TMS , we invested three years up front of software development and at a certain point you kind of banging your head against the wall , telling like I should not have done it . Why did they do it ? You know , I allocated millions of dollars into the stuff and I haven't sold one because the products are ready yet .

Yep , you just piling , piling up , you know , good money on top of bad money and like Seeing that all there was a big mistake . Of course , when it starts to generate results , oh , this was actually a good thing . But it's very difficult and you have a maintenance right , you have to have like 99.99 , 99% Uptime .

That requires a certain , a certain investment in terms of platform Headcount and architecture . It's not easy . People think it's easy to like sell soft , or is definitely not , and for us has been also a learning journey , if you will .

It creates for an interesting potential puzzle and understanding how to put the pieces together in a profitable and High execution way for customers . Because , like you said , you're 12 million appointments I don't remember the time frame for that , but like that's a lot of trucks that you know where they are when they're there .

You know , just thinking from a simple feeding that data into the , into the brokerage , to supply capacity is a huge win . Or you know who else could that sure that data be sold to ?

I'm curious how you're thinking about , of All the products you now have , what , what do you see yourself tying in in the future ? Like what ? What more could be done ? You know , is it factoring , is it ? I don't know . I'm just trying to think of other Revenue streams that can be leveraged From the existing kind of foundation . You know .

Even today , there are some of our offerings that are Difficult to scale and then we ask ourselves , say , how can we scale this specific thing ? And they're no obvious answers . So I don't think . I think today we're trying to scale our current offerings . That's what trying to do and if we , if we , if we're gonna add anything .

The only new thing that we're working right now is really a optimization models . There are a bit more kind of out of the box , if you will , so for companies to upload their data into an easy , Easy , in a easy way and see business insights coming out of that . They're more executable right on the transportation side .

So we're investing a lot on on the AI , like leveraging some large language models again , combining Managed transportation and technology and trying to have kind of managed transportation in a box , if you feel something that helps you . If you don't want to hire a managed trans company , you want to keep executing yourself as you .

At least you have the software companion , the Guides is like a . Have you looked into Outbound northern California ? Your service has degraded 7% in the past 60 days . Yeah , I think you're overpaying these three carriers . Inbound Southern Florida in the past 40 days compared to industry benchmarks .

Yeah , I think there's a consolidation opportunity here in Dallas based on your data for the past 90 days , because you had all this LTL coming in . So I think AI Optimization is something that I get super excited about and we are we're investing a lot there . That makes sense . But you tell me .

You tell me if I , if you , if you have anything , or if you know what any . This is off the puzzle .

Because , remember , for me I was coming purely from a brokerage standpoint and you know , we weren't trying to kind of reinvent the wheel or create something like we certainly didn't . We didn't raise a hundred million bucks to . You know , we didn't have that investment in technology that we were personally making .

But I was always thinking , okay , what is it that I can offer to this customer that is different than what they're getting today ?

And you know , there was , there was a point when we were looking at a driver loyalty program and the the thought behind it , pretty basic , was the more a carrier hauled with us , the more we gave them , whether it was in terms of additional money on loads , or we talked about Trying to leverage eventual scale to get discounted on tires or fuel or , you know ,

factory offering , whatever it may have been . And so we started working with this driver loyalty program and I started talking to customers about it , because that's kind of how I Tested things was . I'd go tell a customer , hey , we're thinking about this , what do you think ? And that was one that customers really liked .

But what we ended up seeing is it wasn't worth it . We they couldn't figure out a way to make it work in a way that that , like it was economically made sense or that it was any value to the carrier .

So we stopped selling it , and by stop selling it , I mean I had probably Socialized it to 10 or 15 customers like , hey , there's what we're thinking about . And then I stopped . But my point is like I'm curious , you know , and I think too , about when we were selling the business and trying to find the right strategic partner .

I was thinking which company makes it easier for us to get new business ? There was a lumper , one of the larger lumper businesses . At one point we talked to them and I was like , okay , they have access to like if we could sell cheaper lumping services with loads that we haul , then like that'll help us get new business .

So like I was constantly thinking like that . So what I turned it back to is like , as you know , I see how , between OpenDoc with the appointment services and Having the shipper guide with the room TMS , like man is trans . You've kind of got the makings of something a customer would be interested in .

I'm curious what you're hearing Like when you go and you start selling these . What are the things that you hear ? Prospects are like this is interesting , this is different . I like that you combine these two things . That's kind of what I'm curious about .

For a second , in a way that can maybe generate some good financial outcomes as well , right , and I remember I think Uber Freight launched something , convoy launched something , we launched a few things and I think everyone struggled at the end of the day because I think people didn't see any specific meaningful financial results first .

Second , I think people understood that selling stuff it could be a package , could even for free but selling whatever , even for free , for carriers is very difficult , very difficult . It's still a long sale cycle . It's still a bit to be sale right . So , third , like they have their own ways of doing things right .

The technology is not necessarily a top of mind for many of the small fleets . Operating margins are very tough on the carrier side , so it's not that they have a lot of money to spare , right To pay for . I don't know . We have a carrier , tms , which is actually great . I look at it . The product is like this is amazing .

If I was a carrier and had 20 , 30 , I would use it like all day long , and so the product is great . But when you put that into a business model , right , you still have to sell it , you still have to pay the salary of the guy who's selling it , you still have to charge money that pays back the sales costs , right , and you have like .

So whenever you add all of the oh , you cannot charge a lot because the operating margins of carriers are very small . So you have low ticket , long sale cycle , right , b2b , general hurdles that you always face . When you put all of these things together , it's like oh , this is a very difficult business to make it work .

So I think it's kind of the fuel concept and tires . It's a similar story , right , it's just like it makes sense when you think about it . When you turn that into a business model and put all the costs and hurdles that you have , it becomes a much different story and much more difficult to execute .

Again on the shipper side , and what we're hearing from customers is that they like a lot . Again , the best feedback that I've been receiving so far in the past year or so is our managed trends approach Because , again , when you implement something and the customer sees like 15% savings after 60 days . It's just like the CFO is unbelievable .

It was like , oh , you just saved me $2 million . This is a strong value proposition and again , we're coming with our technology as well . So people , a lot of this , as you know , a lot of these mid-sized shippers even sometimes we talk to a shipper . One of these days they were earning $200 million out of spreadsheets .

Why , I think because people have this impression that adopting a TMS is a super painful process and it's gonna cost you millions of dollars . Because of the large legacy providers , they're more focused on the enterprise side . That takes six months a year to implement . Yeah , they charge you like a half million dollars professional implementation fees .

So people have been kind of traumatized by those large TMSs and I think for us we're trying to target the mid-market implement something in 30 days , 45 days , pretty much no implementation costs , very easy training . Ui , ux is super modern , right , because the product is super modern . So I think we got something going on there as well .

So I'm happy with the direction , but we're still learning a lot as an what ?

So we're gonna deliver like 10% savings immediately on your LTL . You're actually buying very badly out of taxes . They don't know it , right , because sometimes it's very sporadic . Sometimes they have just a team of one or two . They're super focused on delivering stuff on time . So it's not .

They don't have the bandwidth to kind of keep checking on an ongoing basis . As you know the market , sometimes the change is faster than what we think and there's a lot of volatility . So they don't have the sophistication to keep brokers and carriers honest and having kind of a competitive pricing , if you will .

So when you start piling up all of these things like , hey , why are you sending out I don't know these two pallets on Tuesdays and Wednesdays , right ? Why don't you ? Is that expedited play here ? Or why can't you just combine these things and send it on Wednesday ? Do you have a service ?

Oh yeah , no , I never looked at it , but of course there are only two , one or two guys . They're already kind of drawing right . So I think , again , a lot of these things combine . These are not , again , it's not magic right , and it's not something that's completely . I'm gonna re-optimize your whole network .

It's not that it's just implementing a lot of the best practices that we can do , because we have , again , an analytics team here . We have our technology that we run these models , we have economists that keep forecasting rates for next six to 12 months . Right , so we can do the hey , you should move .

I remember one customer , for example , that they had just acquired a company and they wanted , because they were afraid of rate fluctuations , they wanted to lock in contracted rates and I think there was January 23 . And we're like rates are going down , so you should not lock rates right now , you should wait at least six months and then we reassess .

But they were about to sign contracts with very high rates and it was like , no , you have to do the forecast to see where the market is going and make your spot versus contract decisions . So these things , again , we take it for granted because we're in the industry and executing every day .

But for these companies that are kind of in which transportation is not what they do for a living , they usually manufacture stuff , right . They usually they have other things that are the core business .

Transportation is not the core business , it's our core business , right , so we can go out there in a much higher level of sophistication and implement some things that may be obvious , some other things less obvious , but we're just coming from a much better position to do that .

We definitely take for granted how much we know because we live and breathe this stuff and , as you said , other folks but especially in that kind of small , mid-sized range , that five to a hundred million like the individual managing freight for them , they don't not have all the tools that their fingertips and support , resources and support to understand the market

the way that you and I might . I am curious , though . Data and media is an interesting thing in our space in that it's become so prevalent .

There used to be an advantage as a mid to large size broker to have all your own data , and there still absolutely is , but one of the advantages was , as markets shifted , you could capitalize on additional margin because you saw the market shift before your customer did .

So your comment about in January of 23 , you had a customer who was contemplating a 12 month rate commitment to you , and you could have made a ton of extra money by just accepting that .

What I'm seeing changes those are fewer and further between , in that more companies are seeing data happen or seeing the news happen , live , and so they're able to change things quicker , and I'm curious if you see that being a challenge for intermediaries , brokers there's companies in this space that data is becoming so much more accessible and the media is playing a

bigger and bigger role that some of that benefit to having information is being deluded because others are able to get the information just as quickly . I'm curious if you see that as a trend or a problem or some impact to the industry , or if I'm , who knows ?

Once you have huge fluctuations , usually the intermediaries are a better position to know what's gonna happen because they're leaving that on a day-to-day basis and position in a way that they benefit from high volatility . So , in theory , high volatility is good for intermediaries , meaning high volatility is good for freight brokers .

And well , I think what you're saying is that as volatility becomes more transparent , right , and everyone knows what's going on , the benefit of the intermediary shrinks . I would not disagree with that .

I would not disagree with that and I actually think which is kind of in a similar concept that investors actually usually thought at least investors from out of the industry that the brokerage game was all about sourcing and carrier , sourcing and carrier .

But they forget that there are kind of a list of 10 or 15 tasks that a brokerage does that the shipper does not wanna do , right ? Oh , you have to collect PODs and they did not send the POD . You have to call the driver and blah , blah , blah . So there are like many of these things that the broker is responsible for .

And as technology takes over little by little and again an incremental basis , right , I do believe that the value prop of the broker decreases a bit . Right , because once you can start doing things via API , right , oh , you don't need that cost anymore . That means that you don't offer that value anymore for the shipper , right ?

So the intermediary value prop becomes more complicated . So I think people have to think what's gonna happen with brokerage in the next five to 10 years .

I mean , you have probably a better perspective than I do of the past the past 10 to 15 years in terms of overall margins , right , but do you think , for example , overall margins again , when I see this very large brokers out there making 27 , 20% out of the LTL intermediation , I just don't think that's something that will continue for a very long period of

time .

Do you think it's gonna be a constant thing from the future or do you think it's gonna come back to where the margins were like 15 years ago ?

I think we're gonna see the margins trend down and I think there will be riches and niches , as people like to say , and that certain things refrigerated type freight you might see margins go up . Flatbed type freight the stuff that gets more challenging as technology allows for more stringent requirements .

I mean , I just saw recently and I talked about this in the last episode but there's a shipper now one of the Fortune 100 , who's requiring that refer loads provide updates every 15 minutes on temperature , and while there are carriers that can operationalize that without issue , there are not as many brokers that can do the same .

So I just think it's gonna be interesting because the technology , the data , is going to maybe allow managing volatility to be easier for shippers , so that brokers lose some of that in intermediary gain , but at the same time it also may craft more difficult management of freight , because now it's like okay , well , I want , since now it's possible to understand that

the refer temperature every 15 minutes , that's now a requirement for you as a broker .

And now it's like , okay , some brokers are gonna say I can't do that , I'm not gonna partake , and others are gonna say I'm gonna make the investment to figure out how to do it in a way that I can still make money doing it , and then their margins might go from 15 to 20% on that business because there are fewer players participating .

What happens to those kind of bottom 10% brokers Once all these kind of new requirements kick in , new technology or new sophistication , if you will , items that are required by shippers when they keep kicking in right , can you still manage a broker that has 5 to 15 , 20 people or that becomes actually too complicated and too costly and people are just better off

finding a job someplace else . You know , yeah .

I think people always come back to our industry as cyclical and you know , what goes up must come down and of course the market will recover and rates will go back up , whether it's in six months , 12 , 36 , I don't know , I don't subscribe to the general it'll be six months approach that most companies just throw out there .

To begin with , like that's a number that has only gone up over time , and I think the rise in in rates , in in what we saw on COVID , was unprecedented . So I think you combine those two things , it makes sense .

With an unprecedented upswing , we would see an unprecedented downswing add in the fact that there are more brokers than there have ever been before , and that number has only gone up . So isn't there a point where there's too many and there's just not enough rate to go around ? I don't know , I could be wrong , but that's kind of I just think there's

. I'm curious what you think about the current market conditions and if maybe there's a wave of Brokers going under soon more convoy type situations , or if that was more of a one-off .

So , and this year , the same thing . A few , a few events that I went to in January of February Same optimism 3p , alz , brokers , carries Nope , we think it's gonna be second semester . It's a .

We have been , I think , one of the most pessimistic ones out there since earlier last year and I still think when people talk about the second semester recovery , I don't think it depends how we define recovery . Right , I think on our end here at load smart , we think we're gonna see incremental improvements Through 24 .

They're not major increment , so things are gonna be . Think it is gonna be slightly better than last , last year , because , again , if you take a look at the supply side , it is are still like too many , too many carriers , too many brokers . And I do again other the convoy side against the whole .

This is a whole different story , but not only convoy , right , you have , you have been seeing the past six months , lots of brokers and lots of carriers Going under and getting out of business . And that's a natural part of the cycle , right , and it does have to happen For the , for the , for the cycle to rebalance .

But people , people have to realize that it's part of this , not it's part of the cycle . If it doesn't happen , then we have a problem , right . But again to your point , the supply is leaving Market in a much slower pace Than everyone would would think . Therefore , like again when we project the rest of the year , we are being very conservative .

Let's talk about the current state of load . Smart , are you guys in a good , healthy spot where you're going to keep running ? You got plenty of cash to keep going . Get to where you're trying to go . Are you going to need to go get more money soon ? Or like where things look for you for the next 12 months or so ? What's the focus ?

Yeah , but again , uber , fray and convoy have had a very different path compared to us . We have never subsidized shippers , ever . We never thought that was a good idea to begin with and we ran the same calculations .

By the way , we're like that that it doesn't end up on the in the long term , right , our we always manage our cost structure In a very disciplined way . Uh , that , there's a reason why I moved from new york to dc . Right , because you cannot run a brokerage out of freaking new york city . That's chicago or dc . Sorry , to chicago .

Yeah , I was like , wait a second what do you mean dc ?

So we're not planning on fundraising ever again , at least Not necessarily , or not having to fundraise Right . Of course , if the circumstances change and people are excited about what we're doing and we see a benefit of doing it , sure , but we're not planning for that . Our financial plan Counts with the current money that we have , which is a lot right .

I think we're better off than maybe 90 Out 95 of other brokers . I'm not sure how many brokers have 110 million dollars in cash in the bank , um , plus no debt . And , uh , again , we're still investing a lot in technology . We have more than 100 something software developers here . We think we have the right path . We have , as you know , the .

Our investors are not the cool venture capital california guys , right , like sick kaya , and blah , blah . Whenever I went after these guys , we have the hardcore logistics folks like mursk , tfi , csx , ports , america home depot . These guys are like Logistics specialists and we're super proud of that , uh , that shareholder base .

Right , to act a little bit more aggressive or to always kind of rate if anything happens , you just raise another round , right ? So I again , I don't blame always the , the business operators , because business operators and people like us , we're also driven a lot by incentives .

Right , if I do x , y and z , then they're gonna come here and invest more money and then I can grow even more . Sure , I'm gonna do these things that , right , because that's how I'm incentivized .

So I I'm just glad that we ended up in this , this position , and that was and I give a lot of credit to record as well he was the one that I was always going after .

This type of guys Merse sports , america and those guys are not easy to convince to invest , right , there are like Big companies , right , their business is not investing actually , right , so it's always difficult to make it happen .

But I think that that was a good thing for our company at least kept us much more Honest , if you will , and not always counting with the next raise , and I'll share like burn money . Yeah , yeah , buy your way into the marketplace Like I don't like . Uber passenger did right , but completely different industry , right ?

Uber passenger , like local business , yeah , you can spend 20 , 30 million dollars to get to 30 , 40 , 50 percent market share in a specific city when you do freight . In order for you to get to 10 , 20 , 30 percent , you have to spend what subsidizing shippers . You have to spend what two , three billion dollars in its time .

You have to spend what two , three billion dollars and it's just not , yeah , it's just not doable . It's not a business model , right ? So , uh , yeah , I think , uh , I think we were a bit more conservative , if you will .

So we're like , ah , we're gonna pay this amount of money to these guys , like it will be 100 worth it , right ? So , uh , hiring People are making your founding team having a lot of in industry experience was something that I think we missed and we paid our price .

Uh , for years trying to correct that , and I think today again , 10 years later , we have the probably right mix figure . But , uh , yeah , but we suffered a lot of the beginning , so I think that was a lesson learned for

sure .

You know , when I first asked you if you do this , you asked if I'd be nice . I'd say I was fairly nice .