Dot-Com, Backed by Yellow Corp., Brokers Shipping Services
Irvine-based Transportation.com has a jump on its competitors in at least one respect: the Internet start-up is funded in part by one of the nation’s largest freight transportation companies, Yellow Corp.
And that partnership comes with what Jim Ritchie, the company’s president and chief executive, calls “million-dollar crumbs”,customers that get referred to the dot-com when Yellow Corp. can’t meet all their needs.
“(We) pick up what some may consider crumbs,” Ritchie said. “But crumbs from a $3.5 billion company are worth millions and millions of dollars.”
Transportation.com is betting that this relationship will be one reason it survives amid a sea of online competitors in the transportation industry that have either folded or filed for bankruptcy.
The dot-com, which provides small to mid-size carriers and shippers with online transportation-related services, was born under the wing of Overland Park, Kan.-based Yellow Corp. before it became a separate online company in February.
Transportation.com celebrated its newfound freedom in March with a $30 million round of funding from its former parent, Yellow Corp., along with TL Ventures, a venture capital firm, and EnerTech Capital Partners, a private equity firm, both based in Wayne, Pa.
For the first six months, Ritchie said, business was better than expected, with net revenue of about $6 million and a net loss of about $8.5 million. The company’s forecasts for 2001 include revenue of about $40 million and a net loss of about $11 million.
“We’re forecasting a profitable run rate by the first quarter of 2002,” said Ritchie, who spent two decades at Ryder Integrated Logistics Business in Yorba Linda where, as vice president, he and others worked on a business model similar to Transportation.com.
In the meantime, the company is ramping up business, looking to form more partnerships, eyeing possible acquisitions and seeking a second round of about $40 million to $45 million from strategic business partners rather than venture capitalists.
“We won’t go to the financial institutions at first,” Ritchie said. “We’re strictly going to other companies that will help us grow.”
As for acquisitions, the target companies, especially if they’re online, must have certain things: deployable technology, a revenue stream and a path to profitability, which is what Transportation.com feels it already has set in place.
The company is banking on its business model and management team, which is run by industry experts with previous experience at Ryder and Yellow Corp. rather than “Internet people,” Ritchie said.
Having experts with “vertical knowledge” of the industry was one reason TL Ventures backed Transportation.com in the early days, said Bob Keith, TL Ventures managing director. TL also has a seat on Transportation.com’s board.
“Assuming we survive and prosper, there will be no question in my mind that the involvement of Yellow Corp., one of the big industry players, is going to be a major reason,” Keith said. “The senior management at Yellow has been personally involved in this thing.”
Transportation.com has carefully positioned itself as a technology company,not a trucking company,and tried to reinforce that perception by relocating its headquarters from Overland Park to Irvine.
The company employs 123 people in offices nationwide, with 12 in a 3,800-square-foot office in Irvine. About 18 more will move to OC tin the summer, when the company moves its finance group from Kansas. Its technology center, with 45 employees, will remain in that state.
“The trucking sector is so large and highly fragmented that it is a fairly attractive opportunity for high-tech and Internet-related companies to penetrate and create some value,” Ritchie said.
But Transportation.com did not want to be seen as a “rusty old trucking company” from the Midwest and lumped by the market into an industry that has difficult times in a tough economic climate because it’s asset driven, Ritchie said.
The dot-com in fact has no hard assets like trucks, warehouses or cross-docking stations. Instead, it brokers carrier services at volume-discount rates to shippers, Ritchie explained. Although Transportation.com gets a chunk of cash from each transaction (the company places a 6% to 8% markup on rates), shippers are still paying less than they would on their own, Ritchie said.
It also provides shipment management and consulting, and its Web site includes classifieds and a used-equipment auction site. Transportation.com takes a percentage of equipment sales, and in its first six months facilitated the sale of more 1,000 pieces of equipment, but the company did not say how much revenue the auction site generated.
Transportation.com spent $3.6 million in its first six months on advertising and marketing to build its brand. It also spent $3 million with a consulting service to find out what carriers and shippers want. Both, according to Ritchie, can benefit from Transportation.com’s technology, which allows them to streamline back-office paperwork.
But Transportation.com, with partners like Volvo Trucks North America Inc., Arrow Truck Sales and Dun & Bradstreet, is careful not to solely conduct business over the Web. People in the transportation business want faces behind the names.
“We believe that shippers,because it is their last chance to touch their customers,really want to know who they’re doing business with,” Ritchie said. “Transportation is still one of those businesses where companies want to be able to see somebody. From that perspective we have sales offices spread throughout the country.”
That approach is going to be critical to Transportation.com’s future, according to Keith, who added that completely changing the way companies do business has become “unrealistic.”
“So-called old economy players in existing businesses are simply going to end up using the Internet as another way to do business,” he said.
“Transportation.com is not trying to displace anybody or change things in a major way,” Keith said. “They’re simply offering people another way to do business.”
The biggest challenge to the company will be successfully executing its business plan and ramping it up now that it has a series of services and products in place, Keith added.
But that’s not the only thing staring Transportation.com in the face. The company must also remain focused as it juggles opportunities, which include the possibility of licensing its software technology to trucking companies that want their own branded Web sites.
And, Ritchie said, it must concentrate on managing growth. The company, which plans to add 26 employees by the end of the year, is spending about $700,000 to build an online quoting process for the international side of its business. Through a partnership with Netherlands-based Frans Maas, Transportation.com ships to 42 different countries, and sees room to grow.
“To manage growth, if all we do is throw people at it, then we’re not driving the kind of efficiencies in our business that we want our customers to drive in theirs,” Ritchie said. n
