Episode 40: The Future of Agriculture Freight

Kearney Klein knows carriers don’t want to spend more time sourcing loads. He knows farmers and grain buyers want faster access to freight, with more clarity around rates. He’s seen how the whole agricultural transport industry could benefit from a digital platform for managing business. That’s what he came to Indigo to build: a logistics network for the future. Hear what his team is working on, and how it connects to the Grain Marketplace.

TRANSCRIPT.

Rodney Connor: Excited to have Kearney Klein on the show today. He's the head of North American Transport here at Indigo. Kearney and I get to interact quite a bit here. So happy to finally get you on the show, Kearney.

Kearney Klein: Hey. Good morning, Rod. Happy to be here. Exciting always to talk about our story when I get a chance to, so thanks for having me.

Rodney Connor: It's funny. I always think about, we hired a general manager at my last job at a co-op. And he came in and he was kind of asking where his head should be, or I can't remember exactly what the conversation was, but he was like, "What should I focus on here?" And I told him, "Hey, you're the head of a transportation company now. That's what you do." And he's like, "I thought we were a grain company." I'm like, "Grain companies are transportation companies." I imagine that resonates with you, Kearney.

Kearney Klein: Yeah, absolutely. It's interesting. When you think about ag as a business or as an industry, it really is about logistics. There's not one single transaction that happens in the ag space that does not involve the movement of grain physically from one place to another, outside of the futures and the financial aspect and hedging of the business. So from that perspective, really, it is all about logistics after all, isn't it?

Rodney Connor: Yeah, that's right. Basis is freight, right? That's a huge chunk of it. So we watch that every day. Just curious, Kearney, first, if you would, tell me a little bit about you and how you came to Indigo.

Kearney Klein: My previous employer was the head of corporate development for a large industrial gas company. And that's not an industry that many people know about, but industrial gases are things like oxygen and nitrogen are used in many, many different businesses. Part of that business is a liquid bulk business, and you may see gas trucks driving around the country. It's a huge logistically intensive kind of business. So my background on logistics, at least as it relates to industrial settings, was partially developed there. And prior to that job, I was a consultant for a strategic consulting firm in Boston. And one of my largest clients was one of the ABCs. And while I was working with one of the ABCs, I helped them establish their global risk trading group, which sat over the physical operations that were in each region, as well as establishing the framework for their global logistics operations.

Kearney Klein: So that's where I got introduced to ag and absolutely loved it. I loved the trading aspect, the commodity aspect, but the importance and how much it really underpins so much of our everyday lives. And if you talk to someone on the street, they know remarkably little about this massive industry that involves so many people, and it's so important to what we do on an everyday basis. So I absolutely loved it then. And when I had a chance to speak to folks at Indigo, there was no doubt in my mind I had to come be part of.

Rodney Connor: Oh, that's awesome. Yeah. I don't know if you know, my dad's a truck driver. He has been driving a truck for 40 years. Farmer as well. So freight definitely top of mind at the Connor family farm here. But curious, I don't know a lot about the ag freight space, to be honest with you. What kind of market opportunity are we talking in ag?

Kearney Klein: Yeah, when we think about ag freight, obviously there's many modes there, including truck, rail, barge, and vessel. Right now, we're really focused on the truck aspect of this in North America right now. And we look at the truck aspect of that. Every bushel of grain that's sold there moves at least once in that ecosystem that we're talking about here. And we're not only talking about grains, but we're talking about non-grains and things that move in like assets, like hopper trucks, which is a really big part of our focus right now. Hopper trucks are used for a lot of these movements. And grains are used a lot of times in one part of that movement. But on the other part, there are other things that are non-grains, like feed, like in some cases could be gravel, sand, fertilizer often moves in these kinds of assets.

Kearney Klein: So the market opportunity, when we think about both the grain side of that and the non-grain side of that, we're thinking upwards of somewhere in the $15 billion range for North America, could be somewhere around... It's tens of millions of moves a year, a number somewhere in the 60 million load range. That can vary depending on sand loads that vary. And fracking influences those figures. So it's a fairly sizable market. It's a big sandbox for us, even though that market itself is really only 10% of the total transportation market that the folks like Uber and Convoy are really focused on, which is that other 90% of the road space. That's distinct from the ag space. It's a different asset altogether. It's a different operating model, quite honestly, and different economics.

Rodney Connor: Yeah. So it's obvious, I think, to me about how those are the same, and where Convoy sits in ag. What are the things that make it unique? What are the things that keep those guys out of capturing that last 10%?

Kearney Klein: Physically, what happens when you go into a facility in a Dry Van world, which we call the tractor trailers that you see on the road, when they pull into a facility, they could have five, 10 docks there. They have multiple docks. The system itself has different kinds of disruptions and what happens in the ag space. So that flexibility in the system, for the example, one example being several docks, allows the road space, the vans to come in and operate with some bit of flexibility. In the ag space, when we see in the movements that are happening at these different facilities, in many of these facilities, they have one pit, which is typically what the hopper drivers pull over and empty into. To build another pit is quite a capital investment. And this industry has not invested in these facilities. The economics haven't been there. There's a data difference also in terms of how they think about the load that they're actually addressing in their system.

Kearney Klein: They typically think about orders that go on a pallet that go in a truck. We're talking about full truck load, a number of different commodities, whether it's rice, corn, barley, wheat, something else. Each of them has a different number that would fit into a truck. So the data systems and the way that they architect their solutions is different from what we would be doing in the ag space. So those are some key differences there that I believe are significant when we think about the nature of our solution and how we go to market versus how they would go to market.

Rodney Connor: Yeah. So when we talk, Kearney, it's a lot of times about the modeling of that freight. So I'm always talking in cents per bushel. I want everything you tell me to be in cents per bushel. How does that compare with the rest of the industry? Because one thing that... I'm asking for cents per bushel, that's not even fair because cents per bushel is different between corn and soybeans, so the most basic transaction. How does that compare to the rest of the industry? How do they quote stuff?

Kearney Klein: Yeah. So if you think about an average over the road freight rate, they're very different. So if you think about an average trip value in the van world, it would be somewhere, I'm guessing, so don't quote me exactly on this, maybe $1,500 range, something like that. In the ag world, it's much less. You're talking several hundred dollars. The commodity you're carrying, if it's a truck full of corn, could be $3,000. Lately with prices, maybe it's four to $5,000. But in the van world, it could be a million dollars you're sitting on, whether on finished goods and so on. So the insurance requirements, everything is a very different tranche of activity there.

Kearney Klein: And the availability of generally of capacity of where people are putting their trucks. So we see trucks move from one part of the country to the other during harvest to follow the work. And if you're short in an area, they'll require an increase in payment to bring a truck down, which is called bounce, to move from one location to another. And that is typically what you see when you see a big difference in freight rates. It's how much does the driver have to move, which is called a bounce, while driving empty? And we believe that is the big pain point and the big opportunity that we can help solve with the transport solution.

Rodney Connor: So I use the term deadheading a lot. Is that bounce?

Kearney Klein: That's exactly right. Bounce and deadhead are used synonymously.

Rodney Connor: Okay. And so it's a supply and demand thing, just like anything else, it sounds to me. How volatile is that? How often do you see hourly rates change in any given region or whatever?

Kearney Klein: They do vary by region quite a bit. And that variance by region has a lot to do with what we call skew, which is the amount of flow coming into an area versus the flow coming out. And if there's a lot of flow coming into a specific region, for whatever that might be, so if you're in green deficit, for example, you'll see grains and flows coming in for a certain rate. If there's a lot less coming out, any driver in that market is going to be clamoring to capture that outbound freight to get a trip home. So that outbound, whatever lane is in deficit, typically is priced much, much cheaper because you have much more competition vying for that.

Rodney Connor: Yeah. We saw a good example of that when fracking was hot. So where I'm from here, we have a sand quarry that's really good, for some reason, for that fracking. And we saw the same thing, man. One day we woke up and all the trucks were gone. They were all headed to North Dakota. There was no supply. And we saw trucking rates go up, for sure, 25%, not overnight, but boy, it felt like overnight.

Kearney Klein: Yeah. I think you could see that because the relative value of sand fracking operation, shippers would be willing perhaps to pay up. So if drivers can make more hauling sand, they will go seek that revenue which will increase the prices for other commodities that are sharing that same asset, which you're talking about there to be a hopper bottom or some cases a dump. Yep.

Rodney Connor: Who are we trying to target and get on our platform?

Kearney Klein: Yeah. So we spent the full year of 2020 really working on that user experience in Marketplace, which is the user and Grain Marketplace. When they come to transact, we wanted it to be simple, easy, intuitive for someone to choose transport. The next one is the buyer or the shipper. So a lot of our buyers on marketplace, we love to give them the option to buy five farm and have us deliver that grain for them on marketplace, just as easily as they would do anything else.

Kearney Klein: In addition to that, for loads that they have that aren't on marketplace, because in many cases, our buyers are buying grains, but they're also processing those grains and shipping other things outbound, or they're moving grains from one place to another, we're offering, on the transport platform, the ability for them to log on as a shipper and post those loads in our platform, for which we will match them with a carrier at a competitive rate to help them. And the last part and the really, really critical part, and I think it's one of the things that we believe differentiates us is the carrier itself. The carrier is really a key customer for us.

Rodney Connor: And when you say carrier, that's a group of trucks? What should I think about when I'm thinking about carriers?

Kearney Klein: Yeah, so we don't discriminate there actually! A carrier for us could be a broker. It could be a fleet with a group of trucks. It could be an individual owner operator who manages their own work. What we see a lot in the ag space is we call sort of loose federations of folks that work together. It's interesting. We spoke to many, many carriers and we asked them, "How much time do you want to spend finding loads? Do you want to spend more time?" The great majority of them, 75 plus more, they want to drive. There's a small percentage of them that actually would like to find loads. So we consider them the dispatchers of the group. And I think our tool is really helpful for folks like that, that work in groups of fleets of five or less, to really act efficiently and operate efficiently with tools that normally would only be accessible to bigger companies who can afford an investment in a large software platform.

Rodney Connor: Yeah. And that's where it gets really hard is those midsize carriers. Man, so I've spent a ton of time talking to these guys. I should say my least favorite thing in the world, I think, is dispatching and lining up trucks to make grain transactions. So you're talking about a truck driver, I've got a few of my head. I'm not going to name their names right now, but I agree with you that all they want to do is haul. The necessary evil that they have to do is come up with rates, come up with, when and where do I have to be there? And then me on the other side of that as being a buyer for my whole career is, this is a necessary evil for me too. This is what makes that transaction happen.

Rodney Connor: So I want the green delivered to a location. A farmer may want to pick it up or whatever. We had tons of logistics to deal on our end. And that phone call... It was always a phone call between me and a guy that I really liked and respected, and that was fine, but neither of us actually wanted to have that call because it's just math for the most part. So my experience, I would call these guys and say, "Hey, I need some corn hauled. Can you do it?" And the question always was, from them, was, "Who's it from? Where's it going?" And I would answer that question, while they were driving down the road usually, hands-free of course, but usually it's owner operator. And he says, "All right, how many miles is that?"

Rodney Connor: I'm such a shortcut guy, Kearney. So when he's asking, "Where am I picking it up? And who's it going?" I think he's asking a few things. One, he's asking, how far is it that I'm going? He's probably asking, what kind of setup in my loading at? Is this is a six inch auger? Or is this an overhead? And where am I going to? To your point, is this a place with one pit or six pits or whatever? And then he's, while he's driving down the road, trying to calculate this freight rate somehow. So that is chaos to me. I'm used to that. It's also the industry norm, I think. So how are we changing that? How are we making that more efficient?

Kearney Klein: So let's talk about finding trucks. For us, we have a large network of trucks that have signed on to our facility. And they've done that by downloading our app. They can download the app. And then once they're on the app, they have access to loads that are exclusive that others can't find except through the app. And those are the loads through grain marketplace. The other piece is managing delivery. So the app allows us to agree on a freight rate between them. It provides all the information that's important. So some of the things you asked about are, Hey, am I going to a place where there's long wait times? If there is, there needs to be a rate adjustment versus another location that perhaps doesn't have this. So in our experience, we try to provide all of that information that's critical for the driver to make the decision about, "Yes, I will commit to this and I understand what I'm committing to."

Kearney Klein: We have a team that's focused on ensuring that the elements you mentioned, which is the distance, where am I loading, how am I loading, where am I taking it to, are clear to the carriers before they commit to a rate. And we have a very good track record with this on our team. Carriers can fall of a load. It happens. But it happens for us very rarely. Of the 10,000 loads we did last year, you can count on your hands the number of times that happened to us. So you're talking about less than a one in 1,000 load thing, which is something we're pretty proud of.

Rodney Connor: Yeah. Nice. And to go back to my example I gave about this phone call that nobody wants to make, all I ask from you, Kearney, as being on the marketplace team, is that you get me those rates in real time, transactable inside the marketplace, and you guys do a great job of doing that. And what that does is eliminates the need for that phone call. Farmer wants to lock in a price. He just wants it picked up. You already know that rate that that's going to be done at. And if he chooses to transact, it's done.

Kearney Klein: It's done. And then once you commit to that, Rodney, as a shipper, you have a dashboard where you can see the status of that load. The other part of it is, let's say you commit to a load two weeks before it's supposed to start. Two weeks goes by. You have to make that other call, to say, "Hey, are we still on like we agreed two weeks ago? How many trucks? Are they there?" Those kinds of communications are the things we hear from our customers that are just time sucks for them. By using a platform, the drivers can check in, you can see it on your dashboard, there's no need to make that call because you can see when the trucks are rolling. And that visibility saves a lot of time for all parties and just reduces the amount of phone calls.

Kearney Klein: In addition to that, when the driver is done, instead of having a physical scale ticket, they can simply take a picture of that scale ticket on their phone. That information and data comes back through the platform, and the dispatcher for the carrier, if he's working for a fleet, can approve that. Once they hit approve, it's an automatic invoice into transport and they'll be paid within 10 days. And the shipper can see that status on their dashboard so they know that these deliveries have been completed. So the parties don't have to call each other to just verify what they already agreed actually happened, which we know is a big, big part of their time each day. We hear this constantly.

Rodney Connor: What are they going to do with all their extra time, Kearney?

Kearney Klein: They're going to grow their businesses, Rod. That's what we hope they do. One customer told us... There's a customer that we have who is a merchandiser who told us they are so happy not having to spend literally about 18 to 20 hours a week managing trucks, that now they can spend more time building their book of business. And that's the kind of customer anecdotes that we love. And we think that's the efficiencies that we can create through our tool.

Rodney Connor: Yeah, anytime I talk about efficiencies and getting rid of phone calls and doing all that kind of stuff, everybody jumps right to that we're trying to get away from relationships or have a computer become self-aware. That's not the goal. Right, Kearney? I'm a people guy. I like talking to people. I'd just rather talk to people about stuff then when the truck's going to show up, or, to your point, something we've already agreed we said we're going to do and now we're just going to reconfirm that. That's not fun for me. So back to the other 90% of the industry, I can't help but think... I'm going to use Swift as an example here just because I see so many of their trucks around here. I imagine they're integrated with those places they're going. That feels like something the industry really has a pulse on every single one of those trucks and all that. That just doesn't exist in the ag industry today, does it? Or does it?

Kearney Klein: No. And in fact, that is probably the biggest opportunity we see for us here is the integration into core systems. So there are a, and I'll say a handful because there's more than that, but if you talk to a lot of our customers, in terms of the systems that we're using to manage their businesses, you'll see some of the big name ERP systems out there, without naming names, that are familiar to managing contracts in the ag world. And their problem has to do with a system that they use to dispatch and manage their fleets and the accounting information that comes from those transactions being put into their ERP systems to manage their books and manage their business, or to manage their risk positions. So for us, a big part of when we're working with our customers who want to leverage the platform is the integration into those systems. We understand that. It's an important piece of our offering. And it is a must have.

Kearney Klein: Otherwise, what you end up having is another tool. And the industry is full of point solutions. If you did a roadmap, sort of a universe mapping, which we have done of solutions to address each little pain point, whether that's booking loads, tracking shipments, payments, they're all existing in separate spaces today. We're the first platform bringing together all of that into one unified experience which brings both finding capacity and then managing delivery and payment all into one, with a kicker: it's integrated with a grain marketplace. So those three, the intersection of that functionality to us, we believe, is very unique. And the part that we see a really important, as it relates to transport, is that if we think about finding and managing trucks and what we would call the core transportation management system functionality, TMS, which involves, "Hey, I can book a load, I can track a load. I can do some payments." We believe that, in some ways, is table stakes.

Kearney Klein: Now, it's somewhat new to ag in many ways because it hasn't had that integration digitally across that whole user journey. So we're bringing that. We think that's great and we see a lot of value being experienced and realized from our customers on that. But in addition to that, what Indigo is bringing is what we call our trip builder. It's a patent pending AI and optimization software that sits behind the platform itself, which then optimizes... If you think about a bunch of lanes that exist in possibilities in our network, you throw them all on a plate like spaghetti. This optimizer creates lanes to reduce the problem that we talked about at the beginning of the session, which is reducing deadhead. It creates efficiency lane geometries that reduces deadhead and maximizes the revenue per day for carriers, which has the overall effect of reducing freight rates and creating a more efficient ecosystem.

Kearney Klein: So while the TMS functionality that we've talked about is that the user level that you and I have been talking about, "Hey, I spend a lot of time calling trucks. I spend a lot of time managing my deliveries." That's a user optimization and efficiency experience that we're improving on. We, at Indigo, through integration with the marketplace and trip builder, the artificial intelligence sitting behind it, are taking that a step further to the network and ecosystem that you're a part of, to optimize your interactions with that ecosystem, to create a better outcome for you, in the form of cheaper freight rates, and to create more efficiencies in that ecosystem, in terms of less deadhead, which aligns very, very nicely with Indigo's overall mission. Not only good for the consumer, good for business, but good for the environment. That, I believe, is our key differentiator from other solutions that are out there today.

Kearney Klein: We have this trip builder. It's being used behind the scenes. And our plan is to bring that out into the product, so customers can use that sometime over the next year. But it's already an operation sitting behind the scenes today to help us provide good solutions for the customers that are on the platform today. To me, that's a big part of this, and it gets to that integration play that you asked originally in your question, Rodney, because integrating all those facets together is really what's going to bring that solution that we think is a game changer for the industry, versus yet another point solution to be offered here.

Rodney Connor: Yeah. I appreciate you making that bridge to the sustainability piece too, Kearney. I think that's lost on everybody. When we're in it every day, we see, "Hey, this is going to lead to more efficiency." Efficiency means many things to many people. I think if I'm the owner of a transportation company, it means, "Hey, I'm making more money per mile." If I'm a farmer, that means I can get my trucks loaded faster and get my cash faster. But if I'm thinking about the planet, it's also about burning fossil fuels, just being more sustainable in our operations.

Kearney Klein: It really is. And it's a perfect problem for technology, because the things you and I are talking about involve billions of combinations, literally. If you think about all the different data points in our ecosystems, you have these markets. Many of them are, we would consider, micro markets that can be optimized within, but then cross-country movements that occur with top or bottom assets or cross state, more likely, between the outputs of the grains that are in this ecosystem. So it's not only good business, it is good for the environment. And it's a perfect solution, from my experience, for technology to solve, because the complexity of it is beyond really human comprehension. It's not something that you and I could do from our own experiences on the back sheet of paper. It is fairly complicated. But it's solvable, and it's a great opportunity that we're extremely excited about.

Rodney Connor: Yeah. It's also quite literally not something you and I can do, Kearney. I've met your peers that are working on that.

Kearney Klein: Yeah. They are amazing folks, they are. It's a talented team. We have quite a team dedicated to this. One of the folks who is the main designer behind the trip builder element comes from one of the large online retailers. And we're very excited about the groundbreaking work that's been done in that area.

Rodney Connor: Yeah. Yeah. Great to see. Thank you for tuning into GrainWaves. We look forward to talking to you next week.

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