“We are a straight paid-by-performance company,” said David Burdick, vice president of Priority Logistics Inc. “In other words, we don’t get paid unless our customer saves money.”
Co-founders Burdick and Tim Nolan started Priority Logistics in 1999 after working more than a decade in the transportation logistics industry. Burdick said he and Nolan thought that the industry was highly fragmented and flawed and that it rewarded salespeople and carriers for charging customers as much as possible to ship their goods.
“You had carriers saying one thing, customers interpreting it another way, and every different carrier you talk to, you’ve got a different rate, a different transit time, a different service and a different price,” Burdick said. “It was probably one of the best, incredibly masqueraded shell games. How can you make an intelligent decision when everyone gives you a different price?”
Consequently, Burdick and Nolan created the paid-by-performance model for Priority Logistics.
Chris Gutierrez, president of Kansas City SmartPort Inc., said that although it is not unique for other industries to make their money from a “share the savings” model, he thinks that Priority Logistics was the first freight brokerage company to use it.
Even though profit margins in shipping freight aren’t as fat as they once were, Burdick said that Priority Logistics still can reduce the cost of moving freight. He said that shipping freight is not typically a core competency for manufacturing companies.
“They may look at 10 choices and pick one of the 10, even if they don’t love it,” he said. “But our core competency is shipping. We could have told them that the 11th or 12th choice would have been the better one.”
Priority Logistics offers free audits to analyze how much potential clients might save.
New and current customers measure their savings against what they used to pay to move freight, and they can choose whether to pay Priority Logistics a flat fee or a percentage of the money they save. Burdick also said the company gets carriers to contractually agree that they will not raise rates for a year or more. That assurance protects customers from unexpected price increases.
Burdick said that although double-digit growth has been common for Priority Logistics, 2008 revenue quadrupled from the previous year. That leap was primarily because the company landed a “very large customer” that moves a huge amount of freight. Although he declined to release figures, Burdick said that 2008 revenue “brought millions of extra earnings and buying power to the company.”
The shipping industry is very complex, and users typically don’t understand it, said David Potter, vice president and general manager of KCK-based Plastic Packaging Technologies LLC, which has been a client of Priority Logistics for seven or eight years.
“It’s like a foreign language,” Potter said. “Dave and his team are essentially translators who help us establish the tools we need to get lower rates and save money.”
Potter said one of those tools is a software application that enables Priority Logistics’ customers to input ZIP codes, specify transit times, enter the gross weight of a shipment and the freight’s class, and then — within a few seconds — see their shipping options for carriers and prices. Clients also can track their shipments online and print weekly reports showing how much they’ve spent — and saved — on shipping costs.
Although Potter declined to state exactly how much Priority Logistics had saved the company, he said that in each of the past two years Plastic Packaging had reaped “significant savings” on freight costs.
“Most logistics companies show you new ways to move (goods) that might save 5 or 10 percent,” Burdick said. “But in most cases, we can reduce a company’s overall shipping costs from 30 to 50 percent.”