Flexport: Data that Whips the Bullwhip Effect
Data that whips the Bullwhip Effect
Flexport generates predictive data about demand, global trade trends, transit time, availability of containers, costs, inventory management, duties and blockers, environmental impact, and bundling. It starts with companies recording data related to supply and demand, transit time, etc., and Flexport helps companies find patterns and optimize cost and time savings. It does this with its proprietary “Operating Systems for Global Trade” – the system that facilitates the collection, recording and pattern matching of the data
Companies use the Flexport digital platform to drive decision making by streamlining global trade logistics. The premise is a response to the simulation we did in TOM last year that highlighted the excruciating effects of the Bullwhip Effect and the importance of transparency in supply chain logistics. If all parties have visibility on all stages of the chain, there is a lower likelihood of severe Bullwhip Effect.
A company must invest in Flexport’s platform to gain this kind of data which creates value by saving the company time and costs related to inefficiency. As more players in the supply chain make this investment, more value is created in the increased transparency at various steps in the chain.
So how does Flexport make money? Simply put, Flexport charges companies that opt into this value creation proposal a fee – a fee for transporting goods, for connecting companies with the more efficient logistics partners, customs filing, trade financing and other services. The company only became profitable in 2020, four years after its founding.
Specifically here are the revenue streams the company relies on: shipment and storage of goods (sharing revenue with logistics partners), customs brokerage fees, insurance packages, interest from trade financing via trade credit, cash advances, receivables discounting, loans, and asset-back finance, and investments. Aside from this, Flexport is a privately held company so largely operates with raised capital. It is currently valued at $8.1 billion after having raised $935 million in Series E funding in February 2022.
Despite the high prospect for success, there are still challenges with Flexport’s business. The biggest challenges Flexport faces in creating and capturing value in its clients’ data are related to disclosure and privacy. Given the clear value the data has to offer, companies seem to be more and more comfortable with sharing data, but as companies like Facebook and others demonstrate what it looks like for there to be bad stewards of data, the company seems to be leaning more into narratrice around protecting privacy. Due to the fact that supply chain management is currently under a microscope, the value created with the data currently seems to be more sought after than the safeguards of data privacy so for now, these challenges aren’t blockers to the company’s success. This could change.
Natasha – I love this concept and that you found a company that is actually working on addressing the bullwhip effect. I was wondering what the geographic scope is for their work and how they hold companies accountable for providing accurate data in the system? Especially after the shocks to the supply chain that we saw during the depths of COVID, I can really see how this company’s work can do so much good to stabilize global production!
Thank you for sharing this – I had never heard of Flexport before, but it is clear how their model is potentially disruptive to global logistics and export/import companies. I found your point about privacy especially apt, and it makes me wonder about how Flexport’s potential network effects could be hindered by resistance in the industry of benchmarking company a’s performance against others in an open platform. However, this seems to also be the key value driver of Flexport, offering companies’ a list of transit options and their efficiencies. I’m also curios as to how this data can be used for “inventory management” aboard cargo ships and planes, ie there is extra space on ship B departing on a set date, and I wonder if they could monetize this “unused” space by earning a commission by selling this otherwise unused capacity.
Similar to Kate, I think that’s where Flexport has so much potential – as an OS system, leveraging various customers’ data with their permission to try to find efficiencies in supply chain / utilizing capacity is such a huge value add that they can do. It’s also incredibly interesting to think of that problem from a sustainability perspective 🙂