Disruption in freight shipping industry could give Twin Cities startup a way to grow

Brian Johnson knows about the billions that big logistics firms like C.H. Robinson, Uber Technologies and privately held Convoy Inc. have spent on technology and automation in the logistics industry.

Just like in the taxi-cab industry the "Uberization of freight" was supposed to upset the apple cart of traditional logistics brokers. While there has been a lot of disruption in the sector — especially with the pandemic — a big shift has not yet occurred. It still is highly fragmented.

Yet the big players like Eden Prairie-based C.H. Robinson are still betting on automation and other tech advancements.

But Johnson — who spent about 25 years working for C.H. Robinson — and his partner, Dave Buhl, are betting that the continued disruption in the industry will give their company, ProServ Logistics, a niche. They believe a human-focused service for smaller truckload or less-than-truckload orders, instead of a mostly automated model, can be their niche.

Johnson and Buhl still think ProServ can be a $100 million company. In 2019, the fledgling company brought in $15 million to $17 million in revenue. Last year, ProServ had $24 million in revenue, Johnson said, and estimates $30 million this year.

ProServ concentrates right now on a few freight categories such as flour, paper, salt and nursery stock. The categories aren't sexy, Johnson said, but they also are not targets for cargo theft either.

He's heard the naysayers who believe the high-service model isn't scalable, but he disagrees, especially with some of the tech-heavy companies that have faced big hurdles this year.

Convoy Inc., based in Seattle, is a digital trucking marketplace and has raised more than $1.1 billion from investors. But in February, it announced its third round of layoffs in the last year.

Uber Technologies admitted in its fourth quarter earnings call that its freight business isn't where it was expected. In January, Uber Freight also made layoffs.

And even though it was started as a cloud-based digital marketplace for freight, Uber spent $2.2 billion in 2021 acquiring Transplace, a 20-year-old provider of managed transportation services.

Analysts are still convinced of Uber's position in the logistics industry. Subhendu Behera, a research analyst with boutique research firm CrispIdea, wrote recently that Uber's freight business is underappreciated.

"Long-term, we expect the freight segment to boost the topline and serve as a key engine of growth for the company," Behera wrote.

C.H. Robinson pledged to invest $1 billion in technology over the next five years. Last week, the company reported first quarter results that reflected the softening market for freight transportation services over the last year. The company's chief operating officer, Arun Rajan, told analysts on their earnings call they were still committed to automation.

"Increased digitization and automation are key elements of delivering a superior customer experience as well as operating leverage," Rajan said

Johnson contends there are too many variables in the shipping industry for digitally native companies to sweep through as quickly as ride-share platforms swept through the taxi industry.

Johnson believes there is as much art in the industry as there is science. Some data just doesn't fit into algorithms, he contends. The exceptions and knowing the workarounds to those exceptions is how he can provide 90 to 93% coverage of his loads, he said.

ProServ is gaining traction, adding additional services and a few new employees.