Go with the flow - Skyway Freight Systems

Nation's Business, May, 1989 by Michael Barrier

Go With The Flow

James F. Watson recalls the day, more than 10 years ago, when he was sitting across from a cigar-smoking man whose desk was stacked high with papers.

The man, a purchasing manager for a Los Angeles clothing manufacturer, was trying to track down a shipment of fabric that his company needed desperately. "He's calling the vendor, he's calling the mill, he's calling the carrier," Watson remembers. "He's on the phone for 45 minutes while I'm sitting there, and he cannot find a thing. Everybody's lying to him."

Watson was there drumming up business for Skyway Freight Systems, a then-tiny air-freight company he had started in 1977 with Robert Baker. He started thinking: What if "somehow we could close that loop, so that if he called me, I could tell him everything that's going on?" What if Skyway--in addition to selling transportation--could sell information? What if Skyway could always tell its customers where a shipment was, and what was in it, and when it could be expected at its destination?

Their answers to those questions have put Watson and Baker in the vanguard of change in the transportation industry.

The two men had met when they were hired to help save an air-freight company in Chapter 11 bankruptcy proceedings. Watson, a native of Syracuse, N.Y., and a graduate of the U.S. Naval Academy, had been a salesman for International Business Machines Corp. Baker, a native Oklahoman, had started working for an air-freight company while he attended New York University, and he had worked for several other transportation companies after that.

When the bankrupt company was restored to health, Baker and Watson decided to go into the air-freight business themselves. "At that time," Baker explains, "The airlines were putting a lot of new lift into the marketplace, via the new wide-body aircraft. Air freight had traditionally been an overnight business; that's all they sold. We saw an opportunity to go to the airlines and say, 'You have all this daytime lift, which cannot service an overnight need, but which could service a two-and three-day need. If we can go out and convince the customer that in two days he can get freight from California to New York, and pay half of what he pays for overnight, that should sell.'"

With capital of only $80,000, Baker and Watson set up offices in four cities and braced for a flood of customers.

The expected flood turned out to be a trickle. Too many of their potential customers were addicted to overnight service. "We've done some surveys at receiving docks," Watson says, "and it's astounding how much next-day air freight sits in receiving for four or five days before anybody uses it."

After only a few months in business, Skyway Freight Systems was down to one office--a shed at a Los Angeles junkyard--and two employees, Bob Baker and Jim Watson. Baker staffed the office during the day while Watson went out selling. Both of them worked late into the night handling freight.

So it was that Watson wound up listening to that purchasing manager frantically trying to find some missing fabric, and so it was what he started thinking about what it might mean if Skyway could always know the whereabouts of such shipments.

"Putting 2 and 2 together," Watson says, "I realized that if we had an 800 number, all these mills could call us (when they made a shipment). We'd be the holders of all the information. That would make us valuable."

The mills were instructed to call Skyway's 800 number whenever they loaded a truck with a shipment for a Skyway customer. Truthfulness was no longer an issue, Watson says: "You can't lie to the guy driving the truck. Either it's on the truck or it's not on the truck." The drivers would call Skyway, too, so any discrepancies between what was shipped and what was supposed to be shipped were caught immediately. Soon, Watson says, the mills learned that if they were shipping to a Skyway customer, "you've got to ship what you say you're going to ship."

In those days, Skyway hired other companies to pick up such shipments; now, its own fleet of about 100 trucks makes most of its pickups and deliveries. And a lot more has changed.

Baker, 44, who is Skyway's chief executive officer, and Watson, 41, its president, now supervise 400 employees at more than a dozen locations across the country. The revenues in the privately held company have been rising by about one-third every year. In 1988 they hit $32 million. Early last year, Union Pacific Corp. bought a 30 percent nonvoting interest in Skyway, giving each company access to the technological advances the other is making. Skyway now is based in Watsonville, a few miles from Monterey Bay, in a part of northern California heretofore better known for artichokes and brussels sprouts than for the kind of high-tech operation Skyway has become.

Skyway was low-tech at first; Watson and Baker used clipboards to keep track of shipments until 1979, because they couldn't afford a computer. Now, though, Skyway is heavily computerized; all of its freight terminals and major customers are tied together in a network called Skynet. A Skyway customer no longer has to dial an 800 number to learn where a shipment is; that information now can be called up on a personal computer.