18-WHEELERS AT APP SPEED
As a child Drew Mcelroy learned about freight brokerage. at 36 he’s doing to the $700 billion trucking business what Uber did to the taxi industry.
As a child Drew McElroy learned about freight brokerage. At 36 he’s doing to the $700 billion trucking business what Uber did to the taxi industry.
At 12, Drew McElroy was in trucking. His parents ran a freight brokerage operation out of a spare bedroom in Milltown, New Jersey—connecting truck owners to companies that needed to move goods—and he helped out by working the phones.
Fifteen years later, a light bulb went off. Weren’t truck brokers doing the same thing that Uber and Lyft do? They match rides to vehicles, minimizing wasted miles, and use algorithms to set prices
on supply and demand. “I realized, Holy crap, no one is doing this,” McElroy says. “There is a clear path to changing this entire industry that isn’t that complicated.”
It was a smart idea. Trucking is a $700 billion market, and the bill for moving full truckloads in the U.S. runs to more than $500 billion a year. In 2013, four years after that aha moment, McElroy cofounded Transfix, an online freight marketplace that uses algorithms and machine learning to give fullload shippers better prices and truck owners better routes. The timing was good. Truckers, largely middle-aged men, had recently begun carrying smartphones and were willing to install the Transfix app.
Some shippers—companies that need to move stuff—have their own fleets of trucks driven by their employees. Walmart is one. But these are exceptions. Most trucking is done by contractors, and the vast majority of that by small operators who are desperate to keep their rigs full to cover the financing on those trucks.
Transfix, based in New York City’s Garment District, is on track to collect $100 million in shipping charges for 2018. It will remit the lion’s share of this gross revenue to people who own the vehicles.
With venture funding of $78 million from such firms as New Enterprise Associates and Canvas Ventures, the 140-employee business is worth roughly $800 million, gaining it a spot on
Forbes’ 2018 list of Next Billion-Dollar Startups, one of two trucking companies to make the cut. McElroy, the company’s chief executive, and his cofounder, Jonathan Salama, its chief technology officer, have stakes that are probably worth $50 million each.
McElroy believes the company can reach $1 billion in revenue, with double-digit operating margins, by 2021, helping customers like AnheuserBusch and Unilever manage their logistics while also enabling truckers to make more money by reducing the time they travel empty.
Since trucking was deregulated in the 1980s, some 18,000 freight brokerages have sprung up; the largest player, publicly traded C.H. Robinson, has less than 3% of the market. The potential for technology to streamline this work explains why digital freight brokerage is irresistible to venture capitalists.
Which means, of course, that Transfix faces competition, not just from Robinson but from newcomers like Convoy and Uber Freight. “This is one of the industries that venture loves,” says Ben Narasin, a venture partner at NEA, who personally invested in Transfix’s seed round. “I’m always surprised when I see any industry this big and antiquated.”
McElroy, a 36-year-old with auburn hair and bright blue eyes, was born in Paterson, New Jersey, where his father, Danny, who had served as a marine, was a dockworker on the midnight-to-8 a.m shift. The family struggled when McElroy was young, but his parents’ freight-brokerage business eventually became successful enough for them to send him to the Lawrenceville School, a prep school in New Jersey.
McElroy never quite fit in at the aristocratic institution and spent weekends hanging out with his childhood friends and drinking beer in the woods, but its academic rigor made Georgetown, from which he graduated in 2004, seem easy. “It is still today, even with Transfix, the hardest thing I have ever done,” he says.
McElroy returned to the family business after college. His dad was diagnosed with cancer in 2009 and died less than a year later. McElroy shelved his dream of an Uber-like startup long enough to help his mother get back on her feet—she’s still running the business— and then left.
McElroy took a 50-page business plan to San Francisco and slept on friends’ couches while he learned how to start a tech company. “I hustled,” he says. “It was my real-world M.B.A.” In 2013 a venture capitalist at Venrock who had also attended Georgetown introduced him to Salama, a Paris-bred consultant at the firm.
Salama, now 32, had worked for Gilt, an online retailer, and Cherry, an on-demand car wash startup (subsequently acquired by Lyft). At Cherry he worked on building a marketplace that incorporated GPS tracking to match people who needed a car wash with those who would do the job. But his ideas for new companies went nowhere. “They were either good ideas but not in a big enough space or simply bad ideas,” he says with a laugh.
McElroy met Salama one evening in Brooklyn and pitched him on the idea for a digital freight brokerage. “It was like a great first date,” McElroy recalls. “I said, ‘Let’s talk in a couple of days.’ He was like, ‘You do all the thinking you want, I’m going home to start building the technology, and you tell me if I should ever stop.’ ” A week later they incorpobased
Take a look at xPO logistics, a $17 billion (revenues) firm that is, I surmise, destined to either crush or buy out the doughty little enterprise featured on this page. There are two reasons why, in the business of moving goods, spoils go to the big guys. one is a matter of queuing theory: The more trucks and customers that are attached to a system, the more efficient it is. The other is that writing algorithms is a large, fixed cost. If you doubt that, try solving the traveling salesman problem (shortest route connecting N cities) on your home computer.
William baldwin is the investment Strategies columnist for Forbes.