Deal To Watch: Disrupting a Trillion-Dollar ‘White Whale’: Freight Shipping

Summary

At time of publication, May 30, FreightPal had raised $35K

Investors have gotten rich in recent years by investing in “disrupters.” Enterprises that profit by bringing new processes and efficiencies to age-old industries. And while Blockbuster has given way to Netflix and the Blackberry has ceded its crown to the touch-screen iPhone, there is one industry that has remained relatively unscathed: shipping logistics.

Overview

While consumers can go into a local post office or UPS store and get a competitive shipping rate, the same is not true of commercial freight which still operates more or less than same way it always has.

Startup FreightPal wants to change this by automating practically every stage of the freight logistics process.

No “disruptive” path is over easy. But FreightPal and its investors have a genuine chance of bringing freight shipping into the 21st century.

The startup plans to do this with a surprisingly simple process (supported by unimaginably comp lex technological capabilities):

1. Shipping or 3rd-party logistics provider logs into FreightPal.
2. The client can then price-compare prices for multi-modal service offerings.
3. Once an option(s) has been chosen, the commercial freight shipper can book, print labels, and track the entire shipment online in real time.

By bringing technological efficiency to a process that has historically been painfully negotiated person-to-person FreightPal increases the margins (and drastically cuts time spent) of all stakeholders.

We’ve heard this tale before.

Many can still remember when retail prices were questionably high, and no one ever knew if they were getting a “good deal.” FreighPal aims to bring transparent efficiency to the freight shipping industry every step of the way including air and seaborn shipping. If successful, it will be just as easy to ship ones’ goods around the world as it is to price-check a local retailer on Amazon.

Freight shipping was a $2.43 Trillion industry in 2017, of which ~4% ($100 billion) went to technology investments and shipping management platforms. FreightPal is moving quickly to capitalize on this $100 billion opportunity. Though it’s still very early days, FreightPal revenues last year were up 31% from 2016, and clocked in at $1.65M. In Q1, the team continued to show that its gaining momentum as ARR was around $2.96M or $740K in quarterly revenue.

Bottom Line

It seems as though FreightPal is an early mover in this sleepy industry with a differentiated tech-enabled offering that will enable it to capture a sizeable portion of the market relatively unabated by competition.

Management plans to do this by offering shipping providers (the ship owners and cargo plane operators of the world) increased, hassle-free customer growth and commercial freight shippers lower overall rates. For its role as middle-man, FreightPal charges a sizable 20% markup on ships as well as set-up fees once a customer signs on.

Amazingly, this still gives freight shippers a lower overall cost (shipping providers benefit from lower customer acquisition costs) – a sure sign that the company’s technology is uniquely differentiated from current solutions. The fact that they have over 200 enterprise customers also signals that willingness to pay exist, and should not be a deterrent to continued customer acquisition.

Companies that can help freight shippers manage the end-to-end process are in demand these days. That is why companies like mega-shipper XPO Logistics (NYSE: XPO) has seen such rapid growth. It would not be a stretch to call FreightPal the Alibaba (NYSE: BABA) to XPO’s Amazon (NASDAQ: AMZN). Bezos & Co. owns and operates the warehouses and inventory – much like XPO and its massive fleets. Alibaba and FreightPal, as tech-powered middle-men, avoid these hassles and enormous capital investment needs.

Management

The CV’s of management are also noteworthy. FreightPal’s Founder & Chairman is one Michael Rasmussen, who grew Rock-It Cargo LLC from $25 million to $300 million in revenues as its President and COO before it was bought out. CEO Chris Dominguez has, amongst other accomplishments, taken a startup from concept to $27 million in revenue before it, too, was acquired. With the right experience, management is ready to capitalize on FreightPal’s addressable market.

Management expects the proceeds from this funding round to give the company the growth it needs to build an at-scale, cost-efficient business. Though the offering has moved slow to date, we like the fact that the team already has strong market traction and can achieve 8 figure revenues in the near future. The sizeable margins could even drive the business to be profitable sooner rather than later, though that is to be taken with a grain of salt as the appetite for continued growth is always there. Lastly, this is an organization with technology that could be highly valuable to large shipping and logistics organizations who do not have the in-house capability to build this tech themselves.

Rating

The fact that large customers speak highly of FreightPal such as, Old Dominion Freight’s Director of Expedited Shipping Steven Hartsell who said “FreightPal is amazing! Our team can quickly, and cost-effectively, price, book, and execute time-sensitive shipments on their easy to use, self-service ePlatform,” is another check in the box for why this is an offering worth considering.

At a $10M pre-money valuation in a sleepy industry where getting to an ARR of $10M is not out of the question within 2 to 3 years, the valuation seems well within reason for a company at this stage. The lack of industry excitement is likely helping to provide a more palatable valuation for a company at this stage.

Between the large market, fair valuation, experience of the team, market traction, and few competitors FreightPal is a BUY.

Note: This deal is only recommended if you can still effectively diversify into several other investments despite the higher $10K minimum investment.