Trax CEO: Transportation spend management is next technology sector to see a boom

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New uses for technology excite us, and the rise of transportation spend management has caught our attention.

In the last year, we’ve explored leasing technology that lets businesses track all of their disparate lease contracts and manage end-of-term issues so they save money and reduce risk. And we have an ongoing focus on contract lifecycle management (CLM), where solutions increasingly make the contract a living, connected document that brings it out of the filing cabinet or out of someone’s email to make it a central piece of daily transactions. Spend Matters call this CLM technology space commercial value management, CVM.

To further explore technology and transportation, we talked with Hamp Wall, the CEO of Trax Technologies, a transportation spend management firm that comes from a private equity merger of two family-owned businesses. Trax focuses on FAP, the freight audit and payment space, and transportation spend management (TSM), which is the technology that targets activities once a shipment is picked up from the shipper and delivered to the customer. Solutions that stop just before this process are called TMS, or transportation management systems. They handle processes internally but stop once the shipment leaves the building.

“Transportation spend management is at the place that e-procurement of indirect goods was 20 years ago. We're at the birth of the industry,” Wall said. “It's where the consolidation of providers is just beginning. Private equity is just now entering into the space with a much bigger presence.”

Wall started at Trax in November, a few months before the coronavirus crisis hit. So he’s seen how transportation has been affected by lower demand and then a shift in demand. More people want products shipped to their homes, and some manufacturers — like pharmaceuticals and makers of protective medical gear — have more need for transportation and delivery than ever.

In a Q&A, Wall gives a view of where this technology sector has been and where it’s going.

Q&A with Trax CEO

Spend Matters: Could you talk a little bit about your background in procurement and spend management?

Hamp Wall: I started in 2000 running a procurement BPO business. Seven years in, we had a partnership with Perfect Commerce. Later, we acquired Perfect Commerce, which was owned by Apax Partners. That was where I entered the software space of e-procurement and business networks, because within the Perfect Commerce portfolio was the Commerce One IP, which was the original marketplace technology. I ran that company as CEO from '07 to '17. In that time, we did five acquisitions, and then sold to Proactis in 2017, when I then became the CEO of Proactis and lived in the UK for about 18 months.

Proactis did spend analytics, contract management, sourcing, procurement, business network, electronic invoicing. They do the same stuff that Jaggaer, Coupa and Ariba all do as the foundation of their business.

How has the procurement technology market changed since you started?

It's been through quite a bit of consolidation. I think there are five substantial players, and those are going to be the winners of the majority of the business. It's Proactis and Coupa and Ariba and Basware and Jaggaer. I think those with more international horsepower will continue to win.

You started at Trax last November. How did your procurement career dovetail with TSM, transportation spend management?

When I was at Proactis and Perfect Commerce, we never contemplated transportation management as a category. Coupa doesn't play there. Ariba doesn't play there. The only one that dabbles in it is Jaggaer because of an acquisition they did a long time ago called CombineNet, which was built as a sourcing platform around transportation.

While companies like Proactis, Coupa and Ariba focus on sourcing and procurement, at Trax we are committed to helping global organizations take control of their freight data, the financial influences of freight and carrier performance to optimize transportation spend globally.

If you look at e-procurement, everything starts with a purchase order and then becomes a shipment, then becomes an invoice, then becomes a receiving. And all those things can check against each other to see if what they shipped is the right quantity, the right amount and is charged correctly. There's an originating document that the buyer generates called the purchase order.

For a transportation expense, there's no purchase order. There's no originating document.

It starts with a shipment that's prepared by one of our customers, by a “shipper,” if you will. It goes to the carrier who picks it up. They prepare a bill of laden, which is their first estimate of how much it's going to cost to deliver. And then at the end, the final invoice has all kinds of accessorial fees and/or inaccuracies. Things like bad weather, fuel surcharges, second delivery, wrong address, incorrect item dimensions or wrong ZIP code all impact the final invoice.

So many things can change.

When the final invoice shows up at the shipper, with no corresponding original document, what is an organization to do to make sense of it all? Freight bills generally have a 25% or so error rate — sometimes you've been overbilled, or you've been underbilled, or you've got these hidden charges. At Trax we believe the beginning of transportation spend management starts with freight audit and payment (FAP), which we have been doing for 26 years, but the real evolution within a company lies in the management of their freight data much more broadly.

Often, large global companies negotiate services and rates with their carriers. And all of this information is put into a rate table, which has thousands of attributes, that basically says what an agreed-upon price is based on those attributes, like weight, distance, speed and special handling for example. Freight audit providers then audit the carrier invoice against the shipper’s rate table and assist the shipper with any correction or recovery resulting from that audit.

Gartner says there are 20 FAP providers that they track in the industry, which has been around for roughly 60 years. The majority of them are small providers and are able to service only a single country and single mode. For example, they're just in the U.S. and they just audit parcel freight like FedEx and UPS. Or they just audit a different region and just LTL, less than a load.

Trax is the largest transportation spend management solution provider that provides freight audit services for all modes all around the world, regardless of mode type or geographic complexities. We work with the largest, most global, most complex organizations.

Do you rely more on technology than some of these smaller operations?

We audit over $15 billion worth of freight bills currently. So, yes, our technology is central to our operations and to the customers’ success. But it’s also the dedicated teams we have across the globe leveraging that technology with and on behalf of our clients every day. Trax is the largest privately held transportation spend management solution provider in the world. Our global reach and our singular focus on our clients’ success allow us to focus on delivering service and technology that is best of breed and aligned with what our clients need — from freight audit to transportation advisory services.

Do you have a financing component as well?

We provide bill payment services (called, “TraxPays”) for some, but not all of that $15 billion. Many of our largest clients choose for Trax to pay their carrier invoices for them, but some prefer to manage the payment process in-house. While there are several distinct benefits to the TraxPays service, unlike some of the banks in this space, our earnings aren’t dependent upon that service, so we leave it to each customer’s choice. However, we are very excited about the future in this space as we prepare to launch a new supply chain finance program, in partnership with a soon-to-be-announced strategic partner. Look for that announcement early in 2021.

What about contract lifecycle management? The new thing there is that they're trying to make the contract a living document so that everything is checked against that instead of just putting it in a drawer somewhere that somebody would have to go look up later. Are you doing anything with contracts?

The foundation of transportation spend management being freight audit, so yes we are constantly auditing freight bills against the shipper’s contract with a carrier. But that’s just the beginning. Over the past two years, we have launched three modules that begin to transform the customer’s transportation spend program from reactive auditing to proactive optimization.

The first is called Rate Manager. Rate Manager is the collaboration platform, where carriers can come in and load their rate tables for our customers. It houses the contract, so it doesn't author contracts like a traditional contract management application. It's the repository of the contract and of the rate tables, providing approval workflows, audit trails and support for spot quotes, to make sure rates are always current and accurate.

The second is called Accrual Manager. Using Accrual Manager, our clients’ finance teams are able to dial in their accruals for shipments that have shipped but are not yet billed, reducing the risk of significant G/L corrections in the future. Accrual Manager accomplishes this by leveraging the rates in Rate Manager to effectively price each shipment based on the ASN (advance ship notice) information and including the expected accessorial charges. This creates an accrual file that is usually within pennies of the actual charges, helping the finance teams at the customer properly state their earnings as well as ensure they are maximizing their strategic investments instead of conservatively padding their carrier commitments.

And then we have an analytics module. So just like the e-procurement vendors have spend analytics, we have transportation spend analytics. Because we audit the invoice, we have all the data around all the shipping experiences. All of that data is fed into a reporting and analytics tool so our customers can better prepare for the future and make better decisions about their transportation programs.

Is that a logistics optimization tool as well?

Yes, the freight and financial data of a client wrapped in an analytics/BI package is a powerful tool for our customers. We can figure out things like zone skipping or how to package and box material better, how to ship more efficiently and how to plan for future events or seasons.

There's a big software industry called TMS, or transportation management systems. That's a $30 billion industry by 2025. Those companies help you prepare the shipment to go out the door. But once it goes out the door, their job is done. We don't do that. We pick it up after it's shipped and start with the invoice.

All of that data about how you're getting invoiced by the carriers and how the carriers are performing can be packaged so you can make better decisions: What modes to use, what zones to optimize for, what is the right carrier mix and much more.

Does Trax contract with companies like FedEx or do they have their own internal transportation spend management?

In our engagements with our clients, we deliver technology and services that make it possible for them to get the most out of the relationship with carriers like FedEx. And many times, that means we make it easier for carriers, like FedEx, to work with our clients.

How long did it once take to do an audit and get the correct amount? And how short is that amount of time today?

What most of the smaller, single region and single mode providers in our space do is set up offshore offices and have a lot of people who go through the invoices by hand — but that limits both the extent to which the process can be optimized and the ability to scale to serve bigger, more global and more complex clients like ours. Having global processes, and transportation spend insights, at scale and centralized for you is proving to be a differentiating factor for our clients among their competitive set.

The answer is that Trax audits millions of invoices in split seconds. That's the power of what our technology does. This also frees up our experts and our clients to focus on higher and greater issues or opportunities for success.

So, you can return credible information back to the clients much faster?

Seconds. Seconds.

How does the market look for transportation spend management — especially considering the coronavirus disruption?

I read an article that said COVID has advanced e-commerce by four or five years.

We are lucky in that we work with the biggest, most global, and most mature transportation programs in the world. We have big retailers that embraced direct-to-consumer, technology companies making everyone better during this time, and pharmaceutical companies saving lives via a variety of shipping tactics. Again, we oversee millions and millions of shipments weekly. And it's some of the biggest brands on the planet.

So if you look at COVID, I think it’s been a terrible thing socially and in terms of our health all over the world. But it has also been a forcing function for many businesses and industries — and we are no exception to that. We shifted to working remotely within days and saw very little disruption in that respect, but we had to find new ways to meet with and serve our existing and prospective clients. I think in some ways it's going to help our business. It's going to drive evolution in our industry.

Transportation is growing at 10 times the rate of inflation. It's 18% organic growth in just the industry alone, so it's growing rapidly. It's becoming probably the third highest category of spend beyond direct and indirect goods.

Everybody expects things to be delivered to their house.

And businesses are buying in lower quantities but more often.

All of that is driving more shipments more frequently. You think about the number of transportation companies now I mean, there are 139,000 third-party logistic companies across the world now.

Doing that last mile of delivery?

Yes, correct, there are little mini warehouses preparing the shipments for the last mile. Truckloads come in, and it's fanned out to all those local customers, businesses and consumers.

It's so different and complex. The challenge is the technology to do the audit part of the invoice, because we're not per se sourcing or procurement. It begins with the invoice, so it's a foreign concept to everyone else where everything starts with the creation of the purchase order.

The criticality of transportation spend management is only starting to be recognized by many global shippers. Those who do see the ability to deliver real customer value and differentiation through their transportation management strategies. As a first mover, Trax is positioned well to help those companies achieve that faster and first.

Where do you see this category in five years, in 2025?

There's money starting to flow into our space. Investment money. Which is going to accelerate the rate of innovation and adoption.

Trax is private equity owned and in the last 90 days or so, two other private equity firms have come into the transportation spend management space. There's a lot of private equity money going into the transportation management sector (TMS), which is again the shipment management technology. And those investors are also seeing the gap that exists at the invoice-data level. So we believe we're at the beginning of an industry consolidation.

I think there's going to be a lot of money coming into the sector. I think there's going to be a roll-up of providers. Trax will probably launch an acquisition program to begin consolidating the space. And I believe that there will be other companies acquired by private equity to do the same thing.

The same thing took place in the e-procurement sourcing space. You look back 20 years, there were hundreds if not thousands of e-procurement guys.

Proactis today is made up of probably 15 or 20 companies that were all e-procurement guys that are now one company. So I think that's what you're going to see here is the same thing. First, it'll be consolidated to 10 providers, then it'll go to who are going to be the top three or four leaders in the space.

This industry is following the same trajectory as procurement technology. If the only difference between us and procurement is the procurement guys were born out of Commerce One and Ariba with technology. The transportation management industry's been around for 60 years driven by family-owned manual invoice audit shops. But in terms of investing in technology to automate these processes and drive transportation spend maturity, we're the leader.

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