Q&A: Jett McCandless, CEO and Co-Founder of project44

Prior to the recent Council of Supply Chain Management Professionals Annual Conference last week, Logistics Management Group News Editor Jeff Berman caught up with Jett McCandless, CEO and Co-Founder of project44, a Chicago-based technology services provider offering standardized, secure Web service API (application programming interfaces) integrations enabling 3PLs and shippers to connect with carriers in real time. A transcript of the conversation is below.   

Logistics Management (LM): How do you view the current state of the freight economy?

Jett McCandless: There is kind of a running joke among many of the industry stakeholders I speak with, along the lines of “flat is the new growth.” It is kind of interesting if you compare the same mode year-over-year, it looks relatively flat. But if you are looking at top-line revenues, a company may be, for example, up 8 percent over last year, but as you dig into the numbers what you may see is that the company placed a bet 3 or 4 years ago on a modal or service offering, and it is now gaining traction and propping up total revenue numbers.

LM: How about growth in certain modes?

McCandless: Shipment count for LTL is slightly up year-over-year for most carriers in the single digits, but fuel is still having a big impact on revenue. Truckload has not been quite as fortunate except for the last couple of weeks in which things have been less worse or less negative, but it is not anything to get too excited about. We expect that to continue for the rest of the year, but, there is the situation with Hanjin still being sorted out, so we will see how that impacts things through the rest of the year. And it represents a big percentage of the freight from China coming into North America.    

LM: The Hanjin situation has caused some short-term pain for various facets of the supply chain. What are some of the biggest pain points stemming from this?

McCandless: In a big crisis like this, you always have your winners and your losers, and some of the drayage and retail folks will lose out, with the winners in all of this will be the forwarders, like airfreight companies and those who have capacity on other steamship lines for whom this crisis will work well for them.

LM: Shifting back to truckload, there is a huge brokerage presence to say the least. Does it still carry the same weight as recently as even a year ago, when we were seeing some huge deals like UPS-Coyote and XPO-Con-way, or is the market doing what it is doing with things very hectic as shippers are fighting for freight?

McCandless: The brokers are working harder now for less gross margin than they have going back to around 2009-2010, depending on mode. But either way they are working harder now for less right now generally speaking. In regards to brokerage-related acquisition velocity, there are a few things going on right now. In 2011 and 2015, what we saw was that if you were a brokerage and you had some basic vital signs, KPIs and X amount of revenue growth and gross profits and your multiple was somewhere between 6-9X EBIT, that was an attractive acquisition target. What we are seeing now is that buyers have become more sophisticated and understand how to truly value brokerage now so a division of multiples is what is going to happen.

LM: In what ways?

McCandless: We see some companies that have growth and a decent little business but without proprietary technology, amazing culture or a niche in the industry, we are going to see the multiples drop between 4-6X EBIT. And then we are going to see companies out there like with proprietary technology, a great culture, and sales force sell at multiples of 12-14X EBIT. That is going to be interesting to watch. A great broker is worth between 9-12 EBIT so what happens going forward will be an interesting trend to watch.