A VC in Vacationland

A few years ago, getting freight rate comparisons from major ocean, air, rail, parcel, express, LTL or TL carriers was a major headache for companies trying to shop for lower shipment costs. And if you were a small shipper, it was difficult to get a return phone call.  Recently, a plethora of Internet-based companies have emerged–FrtRate, carrierstore, ediscountfreight, uship, networkFOB, logisticshq and freight trucking to name a few who are working to provide higher levels of service and better rates to small companies.

Freightquote is the largest web-based service that provides quotes from over 50 major carriers, along with automated dispatch, tracking and documentation, among other services.  They have attracted serious investors, including a $70 million stock purchase by Great Hill Partners in December 2006. They also have a exclusive deal with eBay to provide shipping services to auction customers and sellers.

RedRoller is a newcomer to this space, offering a web-based freight rate comparison service like air travel comparison sites, such as Travelocity.  RedRoller’s no-cost service allows shippers to book orders and pay shipping costs on its web site.  They also sell shipping supplies on the site. They have raised $2.2 million from 59 investors since 2004.  Shippers can look up prices and services offered by a variety of regional and national carriers, including the U.S. Postal Service, FedEx, Overnite Express and DHL Worldwide.

FutureFreight, which is trying to establish a freight futures market in the U.S. (without much luck), is a natural extension of these sites.  Being able to forward purchase capacity at guaranteed rates, with the option of being able to trade these contracts in a marketplace if you needed to decease or increase commitments would provide much needed hedging tools for shippers looking to ensure capacity availability.  Rumors are that the CBOE is also actively looking at developing a futures market for certain types of freight haulage, primarily in the basic commodities space.

This is all well and good for the shippers, but it got me thinking about whether this space is a good investing opportunity.  Great Hill Partners has a stellar reputation for picking winners. I do think their late stage investment in Freightquote will pay off, as they are likely to be sold or go IPO in the next few years. But I would not invest in any of the new start ups.

Here’s why.  These services only provide modest savings over base carrier rates. A benefit for sure for many shippers, but it does not give them access to the deeper discounts available to volume shippers. What small shippers need is access to a consolidated purchasing network of shippers that will let them have increased leverage with carriers. There are such networks under development and that’s where I am putting my money.  More on this topic when these companies come out of stealth mode.