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Drew McElroy is the chairman and co-founder of Transfix, a transportation solutions provider. After seeding the idea of the first freight marketplace, McElroy has helped Transfix mature from an industry upstart into Forbes’ “Next Billion Dollar company.”
Prior to founding Transfix in 2013, McElroy was president of Priority Distribution Inc. (PDI), a mid-market transportation management and third-party logistics provider (3PL). He officially joined that company as director of business development in May 2004, but had been working with his parents at PDI over the summer since he was twelve. He helped the company scale from three people to 20 people and grew revenue by four times. PDI was one of first 3PLs to work with SaaS and TMS. McElroy previously served as president of the New Jersey Roundtable of the Council of Supply Chain Management Professionals (CSCMP). He earned a Bachelor of Science in Management and International Business from the McDonough School of Business at Georgetown University. He currently resides in Manhattan.
David Maloney, Editorial Director, DC Velocity:
Freight markets continue to wrestle with the last mile. How will the holiday season test our supply chains? And retailers prepare for an avalanche of returns.
Pull up a chair and join us, as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm David Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by DCV-TV. Five channels of streaming video are yours for the viewing on DCV-TV. Major improvements have recently been made to the DCV-TV platform to enhance the viewing experience, provide greater search capabilities, and to expand the capacity of the video library well beyond the 3,000-plus videos already in the archive. Be sure to check it all out at DCVTV.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin: how are freight markets holding up in what has been a very challenging year? To answer that question, here's Ben with today's guest.
Ben?
Ben Ames, Senior News Editor, DC Velocity:
Thanks, Dave. With us today on the show, we have Drew McElroy. He's the chairman and co-founder of Transfix, a digital freight-matching marketplace. And before founding Transfix, in 2013, Drew was the president of a 3PL, Priority Distribution Inc.
Thank you for being here today, Drew.
Drew McElroy, Chairman and Co-founder, Transfix:
Hey, man, how are you, man? Thanks for having me.
Ben Ames, Senior News Editor, DC Velocity:
Perfect. As Dave had mentioned, we're here today to talk about some of the biggest challenges in the sector. We're referencing the last-mile delivery trends and challenges, especially as we head into the holidays. And to open things up, of course, the elephant in the room is the pandemic, which has affected nearly every aspect of our lives. But how have you seen it impacting last-mile freight patterns?
Drew McElroy, Chairman and Co-founder, Transfix:
Well, I think as you said, the story of the day is the is the pandemic, and I think it's impacted, you know, sort of the first mile, the middle mile, the last mile. It's affected pretty much everything, right? And so, you know, I guess there's two implications. The last mile is ultimately the result of the success of the first and the middle mile, and I think we've seen that, you know, the volatility of both the demand and the availability of facilities and labor has been pretty wildly volatile. And so, you know, where the freight is coming from to sort of stage for the last mile has certainly changed, and then, you know, that can cause its own set of challenges.
But I'd say obviously, the, sort of the biggest issue is just the sheer volume. You know, I mean, I think we've been in a world that's been tilted, and increasingly tilted, towards e-comm[erce] for a long time now, and I think that the pandemic has just exacerbated those trends. And, you know, there's, there's a real question about whether the last-mile infrastructure is ready to keep pace with the sort of the demand volume that exists today in this, in this sort of perfect storm.
Ben Ames, Senior News Editor, DC Velocity:
Right, right big time. And talk about kicking things up a notch, now we have the winter-holiday peak surge is right around the corner--or some people would say that it already started, perhaps because Amazon held its Prime Day in October, delayed from July. So, looking at some of those stresses that we were just talking about, how can freight markets handle the extra volume that's about to hit?
Drew McElroy, Chairman and Co-founder, Transfix:
Yeah. So I mean, it's interesting that, you know, the word "peak" has taken on an entirely new meaning this year, right? Th sort of, you know, the the old conversation about peak is, you know, "How steep will the curve be?" Well, I think this year it's—the curve, the shape of the curve is a little bit TBD right? And it sure looks like it's gonna be a very intense one, but I think there's more potential volatility in the shape of the curve this year than we've ever seen, too.
But having said that, you know, i things continue on the path that they're on—which is to say, whole lot of volume—you know listen, I think the reality i that the, sort of the providers, whether we're talking about, you know, UPS or FedEx, or really whomever, the market, I think, is actually quite good at sort of naturally calibrating the sort of volume flows as much as it can. And the primary lever for that is price, right? I mean, the system is not going to break. It's just a matter of who's going to be able to pay up to make sure that their goods get, you know, get the sort of priority place in the network, because that's what happens, right? If there's too many goods to go through, they'll either—some packages will either get kicked out of the network, or, you know, it'll take that much longer for them to ultimately reach their end destination. And if, you know, if you're the, you know—right, I mean, we talk about these concepts in aggregate, but a the end of the day, you know this all exists in the trenches. And if you're Company A, you know, you're not necessarily thinking about the network beyond the sort of four wall of, "Can I get my box of good delivered to my customer?"—whatever may be in that box. And you're competing, if you sell sporting goods or soda or high-end cell phones, or whatever it might be, you're competing with everybody else for space in the network. And it's limited. And the sort of throttling mechanism is ultimately going to be price. And we're starting to see some of that with these increases, but I think it may just be the tip of the iceberg.
Ben Ames, Senior News Editor, DC Velocity:
Yeah, interesting. And we certainly have seen some rising prices. It's a tough season right now to be a shipper, going by some of the statistics that we've seen come out in recent weeks.
Drew McElroy, Chairman and Co-founder, Transfix:
Yeah, I mean, I, you know, I think that's interesting, right? Like, you know, you know, the sort of, the historical way this works is that we live on this pendulum, and, you know, one month somebody's eating your lunch, and the next month you're eating theirs, and sort of one of the things that we're always talking about that, at Transfix—but I think a lot of progressive companies are—is, you know, how do we sort of get off of that, that seesaw. We all forecast what we think is going to happen, but the velocity at which you can compare your forecast to what the data says is actually happening, and sort of recalibrate on the fly, that's sort of, again, how do you stay in front of the wave, rather than having a crest on your head?
And like I say, having, you know, sort of data-oriented partners, and then flexible execution partners, I think are sort of the philosophical ways you do it. You know, practically speaking, on a tactical basis, one of the things that I personally believe, here in 2020, should be table stakes, but not quite yet, is just, I mean, as silly and simplistic as it sounds, is having visibility to the look at granular visibility to the location of your shipments in real time. And sort of the exception management that goes along with a proper rollout of that technology, right? If you actually know where things are, and you know when they're supposed to be where they're going, and you know if they're actually going to be there on time, and you can deal with that proactively, that's a real good start, right? It's a heck of a lot better to deal with that than if you wait till the, sort of the receiver calls, you know, yelling about the missed delivery appointment, two hours later, and then you're, you know, you're scrambling. So I mean, there's both philosophical and tactical ways to sort of get out in front of this,
Ben Ames, Senior News Editor, DC Velocity:
Got it. Got it. Yeah, great advice.
The third leg of the stool in this conversation, of course, is brokers, which is sort of the spot where Transfix fits into it, and many others. We're living, right now, in an age where you both have sort of established traditional brokers and also the sort of new wave of the digital freight-matching platforms. Either way, how were brokers handling some of these challenges we've been discussing?
Drew McElroy, Chairman and Co-founder, Transfix:
Yeah, I mean, you know, I think it sort of goes back to what I was saying, right? You know, we, those of us in the middle, you know—I mean, I don't want to speak for anybody else's business—but I would say the proper philosophy is to be that of a, of a true conduit, right?, of goods and information, and the rest of it. And it's amazing, right?
Like in 2020, I mean, we're here, you know, in a pandemic, pre-peak, and all of the research and all of the data that that we conduct, there are, there is a very, very wide gap between those who I would put—the shippers who I'd put in the "have" category, and those that I would put in sort of the "have not" category, and that gap is continuing to widen. And, you know, I mean, I personally think that the supply chain is, in many ways, what's going to determine overall success and failure of these brands, right? I mean, if you can't deliver your goods, whatever they may be, to your customer—and by deliver, I don't mean, you know, to their home. It may be to their home, but it may be to the store shelf, where they want to pick it up and buy it; it may be to their car in a parking lot outside of your store, where they've ordered sort of, you know, ordered online and pick up in store—having these capabilities is, you know, table-stakes expectations for the consumer in 2020.
And, you know, all the research—and we've done some pretty extensive studies—there's a lot of shippers who just are not there yet. And so, you know, whether it's us or somebody like us, if you have partners, who are not just tactical, right—like, if you think about this, How do I get my truckloads or my, you know, my pallets picked up and delivered?, and that's the extent to which you strategize about it, I would say you're, you're starting from behind. You have to take a strategic and holistic approach to your supply chain, and how do we both make sure that we're, you know, optimizing for long-term cost, and sort of like flexibility of delivery, right? Because those are the two things they have to balance.
And, you know, I would make an argument that a marketplace that is not constrained by owning assets or by favoring one class of asset versus another and is purely data-oriented, and you know, non-biased, I guess is the best way to say it, is just determining what the best outcome is from an efficacy perspective for everybody, that's a good start, right? I mean, that's how you start to take control of your supply chain, and, you know, hopefully, you know, you view it as, you wag the tail. The tail doesn't wag you, from a shipper's perspective.
Ben Ames, Senior News Editor, DC Velocity:
Right, right. Got it. Good, great, great details about this. Drew, we really appreciate your joining us today and explaining some of those challenges and issues. Thank you for your time.
Drew McElroy, Chairman and Co-founder, Transfix:
My pleasure. Thanks very much for having me.
Ben Ames, Senior News Editor, DC Velocity:
We've had Drew McElroy here on the podcast today. He's the chairman and co-founder of Transfix.
Thanks a lot.
Back to you, Dave.
David Maloney, Editorial Director, DC Velocity:
Thank you, Drew and Ben. Now let's take a look at some of the other supply chain news from the week.
Victoria, you reported on the pressure that retail supply chains are under as we begin the holiday peak. What are they doing to try to cope with all of the anxiety that's coming up?
Victoria Kickham, Senior Editor, DC Velocity:
Sure. Thanks, Dave. And thanks for having me.
This is very much in line with what Ben and Drew were just talking about, just the idea that there's no shortage of stories about the pressure that retail supply chains are under, as you say, as peak season shipping gets underway. And as they were just talking about, it's largely due to the massive acceleration of e-commerce activity we've seen over the last six months.
So, something interesting that I saw this week, a survey that kind of revealed an interesting aspect of the story: There was another freight broker and 3PL, GlobalTranz, surveyed about 150 retail supply chain professionals. And they found that nearly half of them are worried that their companies will be less profitable this holiday season, and about 60% said they don't have the resources they need to meet customer demand. And another interesting finding was that 64%, I think it was, said they've dealt with more late or failed deliveries than what's typical in the last few months. So it's really a story about resources, and sort of developing your partner network, as as our interview earlier talked about, too. And that's kind of where people are really focusing right now.
David Maloney, Editorial Director, DC Velocity:
Did the report detail the main causes of these issues? For instance, is it the sheer difficulty of serving the increasing online order volumes?
Victoria Kickham, Senior Editor, DC Velocity:
Exactly, Yeah, for many, the problem is that they've been pushed into offering services they didn't provide before, really. It's really about resources. Things such as last-mile delivery and, you know, customized services that they weren't accustomed to doing before. About 80% of the respondents said that today they have to provide these services: customized services, easy-to-use technology, a vast transportation network, 24/7 support, all that kind of thing. And these are things that some companies already had in place as part of an existing omnichannel strategy, but many others, as we've heard, were sort of in the process of developing that, or hadn't started it at all. So people are, companies are in different places when it comes to developing their approach to this business and their ability to handle the volume.
The underlying message is, you know, that they're going to continue to be tested, supply chains, and companies are going to really have to focus on their their own capabilities and work with their supply chain partners to meet these different services' demands. I know in a minute Ben is going to talk about his reporting on returns. That's one aspect of it. There's also, you know, sort of increased reliance on outsourcing different functions, and things like that. So I think we're just going to hear more of this as the season continues.
David Maloney, Editorial Director, DC Velocity:
Yeah, it certainly will be a holiday season like no other. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity:
You're welcome.
David Maloney, Editorial Director, DC Velocity:
And as Victoria just mentioned, of course, with e-commerce sales we're expecting this holiday, it means there's a lot more attention on returns. And Ben, you did write a couple of stories on how companies are preparing for that process that no retailer really likes, but we all have to deal with returns. So what did you report on?
Ben Ames, Senior News Editor, DC Velocity:
That's right, Dave, that as e-commerce grows, so do returns. There have been a lot of statistics over the years that of course it's more common to have returns in online shopping than it is in in-person, and that's just part of the deal, because people can't hold and feel what they're buying before they put it in their cart. But it's very expensive for retailers, because they have to transport them back into a DC, they have to inspect them, they have to grade them, then figure out if they can get them back on shelves, and all that takes more time and labor.
In fact, it can be so expensive that unless an item that somebody buys is a high enough sale price, some companies even don't bother having the consumer return it, they'll just have—tell them to simply keep it or donate it to charity or throw it away, so. But in the last couple weeks, we've seen some interesting developments on how some companies are finding new solutions around that.
David Maloney, Editorial Director, DC Velocity:
Can you give us a couple of examples of how that works?
Ben Ames, Senior News Editor, DC Velocity:
Yeah, absolutely. And this is really interesting, because it touches a lot of our own personal lives as well as business. But there's a reverse-logistics solution provider called Happy Returns, and they unveiled, this week, a partnership with FedEx, so that Happy Returns will offer its returns services in more than 2,000 FedEx Office locations. Those are the street-front stores where FedEx handles shipping and packaging. And that's more than four times more locations than Happy Returns had previously had. And it also has those other ones at retailers, brick-and-mortar stores, shopping malls, and campuses.
So, from a shopper's point of view, the process starts when the shopper clicks onto the retailer's website and they receive a QR kind of barcode, texted or emailed to their smartphone. And then they just drop those items off at a nearby FedEx Office site, scan that code, and walk away. And that's pretty similar to services that you see if you order something from Amazon.com, or if you're returning a cable box [to] Verizon.
But what Happy Returns does is that they aggregate all those items at the FedEx Office store for multiple merchants, and they put it into a single shipment. So that reduces the cost of the process for all the retailers. And they send those aggregated shipments into a regional processing hub, where Happy Returns organizes the sorting and the processing of all those commingled objects.
In another example, we saw an approach from a startup that's called FloorFound. And they have a platform the return of oversized goods, like furniture or like home-gym products, that a lot of people are buying during the pandemic lockdowns. So, FloorFound has partnered with a lot of third-party logistics providers, like J.B. Hunt, like Pilot Freight, so they have a network of trucks and warehouses, and when a customer wants to return a couch, say, likewise, they contact the retailer and then FloorFound arranges for the 3PL to pick up the couch, bring it to a warehouse. They inspect it, and then they initiate a resale process, and that can actually go through the original retail[er]'s website again, but the item doesn't have to be there physically, so that they've you know, cut out an entire leg of the process there.
So, it's really interesting, those two different approaches to saving some costs on a reverse-logistics chain that I think we're all going to be seeing a lot more of this season,
David Maloney, Editorial Director, DC Velocity:
Right. Well, those really sound like some interesting ways of handling returns. Again, a messy process that no one likes but has to be done. Thanks, Ben. We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out.
Thank you, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity:
Thanks, Dave. Always a good conversation.
Victoria Kickham, Senior Editor, DC Velocity:
Yes, you're welcome. Thanks for having us.
David Maloney, Editorial Director, DC Velocity:
And again, our thanks to Drew McElroy for being with us today as our guest. We encourage your feedback on this topic and our other stories. You can email us at podcast@dcvelocity.com.
We also have a special free offer for our listeners. You can get a complimentary copy at this year's State of the Retail Supply Chain report. This annual review of retail supply chains is a result of research collaboration between Auburn University's Center for Supply Chain Innovation, the Retail Industry Leaders Association, better known as RILA, and DC Velocity. This ninth installment of the study covers highly relevant topics that impact success or failure in the hyperspeed omnichannel retail environment and its pandemic-fed acceleration. So download your free copy by going to DCVelocity.com/retail. Again, it's DCVelocity.com/retail.
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