"Doing it One More Ttime", Payload, August 2006

Doing it one more time

Some of the former top executives from AEI are now investing in a new freight forwarder. Peter Conway finds out what motivates them to start again at the bottom.

For anyone with more than a decade of experience in the air freight industry, names like Hendrik Hartong, Giorgio Laccona, John Gallahan and Sjoerd van Loon have a certain resonance.

Hartong, as senior managing partner of private equity firm Brynwood Partners was the investor who got forwarder AEI off the ground in 1985: he went on to serve as its chairman until the company was acquired by Deutsche Post in February 2000.

Hendrik Hartong

The other three all held senior positions in AEI - Laccona as senior vice president for the Americas for AEI, Gallahan as vice president sales for North America, and van Loon as vice president Europe.

Now they have all come together in a new venture, IJS Global, which is hard not to see as a kind of AEI mark two. The company is headquartered in Stamford, Connecticut just a few miles away from the old AEI headquarters in Darien; it is being backed by another Brynwood investment fund; and it has as its aim to offer the kind of personal service to shippers that “all these mega-logistics companies”, as Hartong puts it, are too big to provide.

But why having created and sold one successful forwarder would Hartong want to try again with another? One answer is that he likes the logistics business; another is that he regards it as a good investment.

Giorgio Laccona

The Brynwood funds are backed by financial institutions such as pension funds and private equity, and they invest in a range of sectors, including food, consumer goods and industrials. “But logistics is also a good sector to be in”, Hartong says. “So for our fifth fund, which was launched in the summer of 2004, I felt we should allocate some part to freight forwarding.”

He then looked for a company to buy, and consulted his old friend Laccona, then president of Italian-based forwarder Savino Del Bene USA Inc, on suitable candidates. “But he said all the target acquisitions I looked at were overpriced, and so eventually I suggested that we found a small company that we could build up,” Hartong says.

The company they fixed on was Inter-Jet Systems, a small JFK-based forwarder with US$8m in annual revenues and three offices.

Gallahan was chosen to be president of IJS, and he immediately set about using Brynwood capital to make investments in Asia.

The company quickly acquired controlling stakes in forwarders in China, Thailand, the Philippines and Hong Kong, and is now in negotiations with forwarders in Taiwan, Singapore and Sri Lanka.

In Europe it has opened a branch and regional office in Amsterdam, and is looking to add the UK, France and Germany to an existing operation in Italy. In the US, IJS also has seven offices, and it recently opened a regional office in Dubai, though the intention in the Middle East – as well as in Eastern Europe – is to work through exclusive and non-exclusive agency agreements for the time being.

Laccona took over as chairman and chief executive for IJS in early July, with Gallahan as CEO Asia-Pacific and Americas, and van Loon as CEO Europe, Middle East and Africa. Hartong also admits that a number of other former AEI executives have also been sending in their resumés. “There are a lot of good managers out there who have been made redundant by these mergers – not just from AEI, but BAX, Exel, Emery and other companies,” he says. “We are very fortunate that we have access to this wealth of talent.”

All of the top players in IJS are motivated by a desire to return to a more personal type of freight forwarding. “Van Loon was EMEA head for Exel, and had responsibility for budgets of hundreds of millions of dollars,” says Hartong. “They were also very keen to keep him. But he says that he was spending all of his time in management meetings, and not meeting customers anymore. In IJS all of us are spending up to 75 percent of our time with customers.”

IJS will also focus purely on air and sea freight forwarding, only doing logistics if it is part of the global transportation chain. “The idea behind all the acquisitions and mega-mergers of the 1990s was that there would be a one-stop shop,” says Laccona. “That may have some benefits, but the problem with that is that the personalised service the customer demands gets lost.”

He cites the example of when, for whatever reason, a shipment gets delayed. “Most shippers like to receive a phone call to explain what has happened. But the larger companies are so big that they can’t follow individual lane segments in this way.”

One thing that IJS will not be copying from AEI is its approach to IT, fine as it was in its day. “AEI was a pioneer, but it had a mainframe solution,” says Hartong. “You can now achieve the same effect much more easily with web-based servers.” IJS is currently putting together a system using off the shelf software that it is customising for its own use. Hartong insists that it will be as ready to comply with Cargo 2000 or the IATA e-freight programme as any mega-forwarder.

But if having a company like IJS is such a good idea, why was AEI ever sold to Deutsche Post in the first place? “It was a public company, and the stockholders got a good offer,” says Hartong, wearing his equity investor hat. But it is clear that non-financial considerations sway him too. “AEI was fun, and we all enjoyed working there,” he says.

Isn’t the danger, however, that in time IJS will grow to become just another big impersonal giant? Laccona says it is already up to about $50m in revenue, and hopes to reach $60-65m by the end of the year. But he reckons there is an optimal size - $300-500m and a staff of maybe 1000-1200 people – that will create a company large enough to have an impact, but small enough to be manageable.

He has an almost school-boyish enthusiasm for the months ahead, talking of “putting the magic back into this business”, an excitement shared by Hartong. “It is very gratifying to be back as an investor in this business, and there is a great spirit within the company right now,” he says.

“Gorgio, Sjoerd and John have all taken a significant pay cut to come into this organisation, so it is not just money that motivates us, but being back in the market in a customer-focused business. That may sound idealistic, but we are all at an age where we want to do it one more time.”