Hitting The Big Time

Small online companies that prospered in the recession are poised to grow more as the economy rebounds

Many parts of the freight industry do business today as they did decades ago, with agents manually capturing information, preparing bills of lading in triple or quadruple copies, and checking on shipments by telephone. The main piece of technology in the office is the fax machine.

That's all going to change if is a sign of things to come. FreightQuote is a site where small and midsize businesses can enter details about their shipments, name the origin locations and destinations of the freight, and quickly obtain competitive quotes.

Carriers aren't hanging around online to bid for this business. FreightQuote has used its power as an aggregator to negotiate the best rates with a variety of haulers. Its quote-generating software then calculates a rate based on the information a shipper entered and returns a list of possible carriers.

FreightQuote is "the Travelocity of heavy freight," Barton says.

Photo by Bob Stefko
Timothy Barton, founder, chairman, and CEO of FreightQuote, compares the site to an airline system for checking flight times and prices. "There's no Sabre system in the freight-hauling industry," he notes.

Barton learned the value of applying new technology in specialized niches during a stint in the telecommunications industry. He was a co-founder and president of UWI Association Programs, a telecom company that built long-distance affinity programs, and president of Network Long Distance Inc., a switched-based carrier. In 1998, the latter was merged into IXC Communications Inc., which established a coast-to-coast digital fiber network, buying rights to unused fiber-optic cables already in place. From this experience, Barton learned how a new entrant can get a profitable toehold against much bigger competitors such as AT&T and Sprint Corp. He was determined to apply the lesson to freight shipping, and he created a company around a freight-quote system using hundreds of thousands of variables. "I was seeking an industry that needed a better way of doing things," Barton says. "Think of us as the Travelocity of heavy freight."

Starting FreightQuote in August 1998, Barton spent the first nine months trying to come up with a quote system. He learned enough math and coding while obtaining his master's degree in finance from Louisiana State University to build basic applications. By building a system that calculated rates based on the shipper's origin ZIP code and the freight's destination ZIP code, he could base rates between any two points in the country on an array containing 42,000 ZIP codes. Behind such a calculation, Barton had 18 levels of pricing by different freight classifications, with up to eight weight classifications, resulting in a possible 220 billion possible rate quotes.

In some cases, customers want a combination of transport methods, moving a shipment from train to truck and maybe including a flight leg as well. FreightQuote's quoting system brings back a straight truck carrier rate, followed by higher priced, but often quicker, air rates.

"More options can't hurt," Barton says of the complexity. And though he hired developers, they were oriented toward building the Internet interface. His developers preferred to have instructions on what to code, not come up with a bunch of algorithms, he says. "I was the designated math guy," he recalls, and he put his algebra and calculus skills to use.

The business had troubles early on. At first, FreightQuote had too little traffic volume to command discounts from haulers and too little experience to quote every shipment correctly. "We didn't have all the logic figured out," Barton says. Barton spent $2 million of his own money funding the company's first 18 months. Unprofitable shipments provided an environment in which he learned rapidly. The goal was to offer on FreightQuote a rate more competitive than an individual shipper could get going directly to a carrier. FreightQuote made its profit on the margin between the rates it quoted and the rates it negotiated with carriers.

As a traffic generator, it soon commanded discounts that averaged 25% off what a hauler might quote individual shippers, Barton says. But for the first 18 months, it was hard to quote every shipper a set of rates that were both competitive and profitable to FreightQuote because of the inaccuracies in customers' estimates of their loads' sizes and weights. In addition to length, width, and height, the system has to have an accurate estimate of density to return a good quote, Barton says.

FreightQuote has online competitors, but they tend to be small, specialized sites that can't compete with FreightQuote's two- to three-second response time in quoting rates from anywhere to anywhere in North America. "In the bubble days, we had maybe 100 competitors," Barton says, but most of these companies died in the dot-com crash. FreightQuote has venture-capital backing from Morgan Stanley Dean Witter Private Equity and Menlo Ventures. Its main competition is established freight brokers that have connections and knowledge of the industry, Barton says. The company has tried to grow by acquiring these "old-school freight brokers," he says, but didn't find many that were good targets.

Paul Randall, traffic manager at Nitram Energy Inc., a supplier of vent silencers for compressors, uses FreightQuote not only for its competitive rates but because he knows the freight charge immediately. That lets him bill his customers for deliveries much faster, with a single invoice that includes the freight charges. "Instead of two invoices, I send one and save a lot of time collecting," Randall says.

FreightQuote's 2003 revenue is up 45%, approaching $66 million, compared with $45 million last year and $33 million two years ago. The company has 280 employees, 28 of whom are in IT, and it was No. 5 on the Entrepreneur/Dun & Bradstreet 2003 Hot 100 list. --Charles Babcock

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