Loadsmart is dominating digital freight brokerage—its CEO explains why

Loadsmart, founded in 2014, is a startup in the red-hot digital freight brokerage industry. It has a valuation of $169 million and raised $19 million earlier this month.

A spate of techies have jumped into trucking brokerage — including Uber Freight, Convoy, Transfix, NEXT Trucking, and so on.

Loadsmart takes a different tack on freight brokerage. Rather than attracting thousands of independent truckers and small companies, the New York-based startup aims for strategic partnerships with large industry leaders.

CEO and cofounder Ricardo Salgado told Business Insider more about his vision for Loadsmart. Salgado previously spent nearly 14 years at Goldman Sachs.

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Rachel Premack: There are so many startups in the digital freight marketplace industry. What makes Loadsmart different？Ricardo Salgado: So, number one is that we lead with technology complimented with strategic partnerships to move more with less. And what that means is if you look at our DNA, 40% of our team are engineers and data scientists, so everything that we look at, every problem that we try to solve for is prioritizing or is from a technology lens.

How can we automate all these flows and processes, right？ How can we aggregate all this data so that we can overlay these networks between shippers and carriers and makes sense of them in a digital format so we can move more with less？

If you look under the hood, you see that our engineering firepower is pretty strong. That's number one. Now that has allowed us to attract industry leaders because ultimately if this is not just software, we're also moving a physical asset.

Salgado: And as we're moving a physical asset, part of our strategic IP, if you can compliment or can put software with strategic assets that are scarce in value then that's an ideal situation.

Our technology has allowed us to attract industry leaders. Those would include the largest ocean shipping line in the world, Maersk. Depending on the trade flow, they have a 18 to 22% market share of all containers coming in.

You have our partnership or investment from Ports America, which is the largest ports operator in the United States. Roughly 30% of the containers come in and out through their ports.

Read more: Oracle is joining Amazon and Uber in the race to digitize the 'antiquated' $800 billion trucking industry

You see our partnership with the largest TMS out there — Oracle and One Network — and others down the pipeline as well. There's our announcement with, for instance, self-driving trucking company Starsky and there's more that we haven't announced in that element.

(Our) Nerd Herd, which is what we call it here internally, has attracted or built phenomenal technology to attract these ecosystem of strategic partners, and I think that that's something that we haven't seen out there as well.

Loadsmart is focusing on 'industry leaders' — not attracting as many shippers and carriers as possible

Salgado: For us, the land grab hasn't been, “Let me acquire as many clients as possible instantly.” For us, the land grab has been, “Let me actually attract the industry leader.”

Because once you're in there, you're very entrenched with that and you can do some powerful things with them. We prioritize attracting these industry leaders versus just acquiring customers.

Having said that, we've acquired these customers. Loadsmart has 22% of Fortune 100 clients that use full truckload services have registered with Loadsmart, (including Coca-Cola and Kraft Heinz). When we meet with the right person at any Fortune 500 client, 82% of the time we acquire the customer. That's massive.

When they see the technology, they look under the hood and then they see the ecosystem strategic partnerships, that magic formula helps us attract them. They see it's not just another freight broker. There's nothing wrong with another freight broker, that has been done before and done very successful. It's just not us.

Loadsmart's leadership doesn't see freight startups Uber Freight or Next Trucking as competition

Premack: Given all that, who is Loadsmart's competition？

Salgado: We actually don't view the other digital free broker companies as are our biggest competitors or the incumbents. It's actually, funny enough, our own clients that decide not to digitize.

What's good for other digital freight brokers or the incumbents is good for us. And I think there's space for absolutely everybody. It's not a one winner-take-all type of market, but we all need to push toward digitization. It makes our whole industry much better.

Read more: FedEx is pivoting to e-commerce. A C-suiter explained to us how the delivery giant is doing it differently than everyone else —and what's behind dumping Amazon.

So, it's the decision not to digitize that is our competitor. That 18% that decides not to digitize or do something in that format (are the competitors). That's how we view the competitive landscape.

Premack: So, would you even consider yourself part of the DFM industry or outside of it？Salgado: I mean, we're just doing it differently, let's put it that way. We definitely are within the DFM world, we have similar customers, similar carrier base, we just are tactical and strategic in doing it more via technology by digitizing, by building those highways programmatically and by attracting this ecosystem of strategic partnerships

Loadsmart isn't focused on attracting mom-and-pop truckers like other startups

Premack: We were talking earlier about B2B versus B2C, and the way other freight startups talk is almost a little more B2C, like they're trying to attract especially as many truck drivers as possible. So your stance is definitely different from what they're taking.

Salgado: I can share with you that 50% of motor carriers that have 4,000 trucks or more have registered with Loadsmart. That's insane.

If you have the demand like we have, they want that. They want a shipment in the right direction at the right time for the right price. And if you have the capability of accessing that, not only via an Excel or an email or a CSV, but programmatically, it becomes more scalable. Right？ What we're trying to do is build a true trucking platform, not just another freight brokerage operation.

I'm not saying that the incumbents are going away. There is a need for them. But I do think that you're going to see that movement where there's massive consolidation. There are 15,000 freight brokers in the United States. It's still a massive number, even though obviously it's super fragmented. We know the largest one is a public company, C. H. Robinson and they have 2.2% of the FTL market out there. But if you look at that middle piece, it's even much more fragmented.

Read more: Here's why FedEx ditched Amazon and is throwing itself into powering Walmart's e-commerce aspirations

They need to adopt certain technology to automate as much as possible, then that will push them toward even further consolidation than what you've seen historically.

Major brokerages don't care about Loadsmart — or any other freight startups. Here's what Salgado thinks about that.

Premack: When I've listened to the earnings calls of those incumbents, analysts don't really press them on these new startups. Do you find that kind of interesting that these traditional freight brokers aren't really worried about these new startups that are entering？Salgado: My comments are around what incumbents, and this is not exclusive to this market, but I think that in today's world, if you're not paying attention to the technology you're going to be left behind.

The response of the market, and this is traditional, is that they'll go out there and say, “Listen, we have the brand, we have capital, we're massive, and we spend significant amount of cap-ex in that industry. We spend multiples of what all these startups spend.” That's what you'll go out there and do.

I think that it's not only about the amount of capital that you have to deploy in research and development, it's about the culture that you have, the DNA, and the legacy systems that you have to maintain.

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If you've been operating for 100 years or 50 years, there's certain amount of legacy code — or if you aggregated and consolidated a bunch of different codes that don't talk to each other, there's a ton of maintenance that happens. You can easily spend 80 to 85% of your R&D spend just maintaining these 22 systems that don't talk to each other. That's very different.

In China, they skipped going from desktop to laptop to tablet to mobile. They went directly to mobile. They don't have any of these legacy systems, so they're faster to bring the latest technology and it's more nimble and flexible to do and innovate ultimately.

We're a relatively new company. We don't have these legacy systems. We just look at it with today's eyes and with the latest technology. So, 100% or 95% of our R&D capital goes to innovate.

It's similar to SpaceX. SpaceX was the first one to put a rocket out there and land it safely. That's a company that was born in 2002. It's a 17-year-old company. Now, why couldn't others go out there and do it？ There were others that were built in 1916 and 1906 that have the brands, have all the engineers, have access to the contracts and they could have gone out there and deployed that, but they did not have the DNA and that culture to go out there and do that type of innovation.Premack: But then on the other hand, J.B. Hunt 360, for instance, does have quite a bit of market share. Some say 360 is actually the technological leader. So what about when these incumbents have actually been succeeding in the DFM area？Salgado: If I asked the question, who had industry leading rocket technology in 2005？ They would say, “It's actually a Lockheed Martin or Northrop Grumman or Boeing.” Those companies were born in 1916, 1906, in the early 1900s. They would have said, “Yeah, Tesla doesn't have it.” I have 50,000 engineers, a budget of $10 billion, and I know the government.

But who was the first one to go out there and do that？ So that's how I respond to that. I'm not saying that they don't, it's just that we live and breathe pushing the boundaries of innovation.

Profitability has been elusive for many DFM startups — and it is for Loadsmart too

Premack: Another big question about DFMs in general is the profitability side. Is Loadsmart profitable now and if not, when do you see that panning out？

Salgado: So in our strategy, historically there's two strategies, right？ So to answer your question directly, we are profitable. We do generate a gross margin.

(Note: Loadsmart's press team later clarified to Business Insider that the company is not profitable. It refuses profit-losing loads and maintains profitable margins on the shipments it does take. Salgado told The Wall Street Journal earlier this month that Loadsmart is on track to achieve profitability by 2023.)

One model is — let's raise a lot of capital to hire an army of people to get some customers to scale to $300, $400 million in gross revenues at a negative gross margin and then turn it on and then have some profitability. To get wholesale pricing, you need some type of wholesale volume. So, there's a move to go out there and I think that's the journey that some of the historical players in this industry have gone out there and done that.

Read more: Uber's trucking division has hemorrhaged hundreds of millions of dollars. Here's why the tech giant is betting another $200 million on freight and opening a dedicated Uber Freight HQ.

And here you're seeing us saying that we just haven't subscribed to that. Ours has been more — let's do it from a tech perspective, not by brute force through capital to subsidize initially to go out there and do it. But there's nothing wrong with either way.

Loadsmart is about moving more with fewer assets

Premack: What else should I know about Loadsmart？

Salgado: We're the nerds. We're the nerds. Like seriously, we are the nerds. We're the nerd herd. We're the geeks. We're the nerds. And we love to geek out. We have a quarterly hackathon and we all get together and build phenomenal products and look at our capital structure.

Our mission is how do we move more with less？ And what that means is how do you wake up in a world in five years and move 20% more goods with 20% less assets, right？ And it's all a data problem, right？ It's aggregating this fragmented, poorly visible data between shippers and carriers to really overlay them and match them so that we can optimize the asset utilization.

It makes no sense that human beings buy cars that are, on average, used by 1.1 people, but their capacity is five people and they sit in their parking like 95% of its life.

So for us, if you overlay that from a trucking perspective, the same thing. If you look at a truck, that truck is manufactured to run 24 hours a day. But the reality is it's actually run 35%, 40% of the day, right？ Part of the time obviously the driver can't drive it because he needs to sleep for obvious reasons.

But part of it is because it's running empty, right？

Premack: Or detained, or whatever.

Salgado: All those things. But how do we create that？ How do we build everything programmatically so you're connected to the warehousing management systems, so you're connected to the TMS sites.

You can really scale up and live in a world that is much more autonomous, self-driving, and do autonomous shipments with no human intervention. That's at the core of what Loadsmart is on.