Modernizing an archaic, unsexy industry
Flexport is modernizing the age-old global trade industry
Freight forwarding is a 1.1 trillion-dollar industry, comprising 12% of the global economy.1 The industry is the circulatory system of the globe. Any item that weighs 150 kilograms or more qualifies as freight, and can use special vehicles to be transported on land, or through air and sea.
Freight forwarders are the logistics and organizational backbone of this industry. When a freight is shipped, they co-ordinate for a truck to pick up the item from a local facility, arrange for the item to be transitioned to a plane or ocean carrier for international transportation, manage customs processing once the item arrives at the destination country, and co-ordinate on-ground shipment to the destination warehouse or retailer.
The industry is highly fragmented. The top three players – DHL, Kuehne & Nagel, and DB Schenker Logistics – generated $73.6B in revenues in 2013, a fraction of the total size of the industry. Despite the size and number of players in the industry, freight forwarding remains archaic. The system is highly non-transparent, and as a result, inefficient. Most freight forwarders still rely on paper orders, fax, email, and excel to co-ordinate their shipments.
This is where Flexport comes in.
Flexport
Flexport is a 3-year old startup that is building a software backbone for global trade. Their aim is to bring transparency to the global trade supply chain, improve efficiency and tracking, and lowering prices in the process. They aim to become the Uber of global trade.
Flexport has raised $94M to date, with a recent $65M round in Sept. 2016.3 They are a traditional licensed customs brokerage, but with software technology that allows companies to identify, purchase, organize, and track freight shipments. The process is incredibly simple from the client’s perspective: they type in their item description on Flexport’s platform (i.e. weight, dimensions, material), as well as the pick-up and destination locations. Flexport then uses information it has about transportation costs, customs fees, weather patterns, and global economic data (amongst other things) to produce an instant price quote. If the shipper accepts the price, Flexport’s team and technology takes care of the rest.
Flexport’s technology has a number of advantages over traditional freight forwarders:
- It provides real-time tracking of freight. You can see where exactly in the globe your package is, which reduces anxiety associated with global shipping.
- It mediates rate negotiations with shippers, and enables companies to receive optimal rates.
- It provides SKU-level analytics of packages. Companies can see how much of what SKU they have shipped, when, and the costs associated with these shipments. This allows for long-term shipment planning and analytics.
- Since packages are tracked in real-time, they can be re-routed mid-shipment. This bring great flexibility to suppliers who often face changing demands from retailers.
A unique and powerful asset that Flexport has is its access to data. Flexport’s platform incorporates a range of data, including demographic data, weather data, economic data from the Department of Commerce and Bureau of Economic Analysis, and import/export data from the International Trade Association.4 It incorporates this data into its pricing models and to identify optimal shipping routes. This is an efficiency and pricing advantage that none of Flexport’s competitors have access to.
A bright future
In 2016 alone, Flexport moved packages across 64 countries and for over 700 clients, shipping $1.5B worth of goods. The company is growing at incredible pace, and investors are highly optimistic about its growth path, as evidenced by their most recent round of financing.
Importantly, Flexport is way ahead of its competition. In the past 5 years, DHL has bought three freight forwarding competitors for a combined $15B price tag, and invested nearly $1B in producing a software backbone for these companies. DHL’s software efforts have not led to any meaningful products. Perhaps DHL and other large, old players are simply not agile enough to compete with a young startup.
Down the road, Flexport can use its unique access to data to expand its offering. For instance, the company can use machine learning to predict when a shipping re-order is due, and be a step ahead of a retailer in replenishing their inventory.
And since Flexport owns none of the shipping equipment it uses, it carries minimal inventory or operational risk. Perhaps the biggest risk facing Flexport is the same risk facing the entire freight forwarding industry: changes in global tariffs and trade. Changes to international free-trade agreements, as for example promised by the incoming Trump administration, could significantly increase prices and drop volume / demand for global trade. The industry as a whole may slow down, but Flexport’s opportunity to grab a significant chunk of this market remains steadfast.
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Works cited
- “Freight Forwarder For The Internet Age.” SuperbCrew. January 17, 2016. Accessed November 18, 2016. http://www.superbcrew.com/freight-forwarder-for-the-internet-age-flexport-raises-65-million-series-b-funding-round/.
- “Flexport Wants to Be Uber of the Oceans.” Bloomberg.com. November 05, 2015. Accessed November 18, 2016. https://www.bloomberg.com/news/articles/2015-05-11/flexport-wants-to-be-uber-of-the-oceans.
- “Flexport | Crunchbase.” Crunchbase.com. Accessed November 18, 2016. 1. https://www.crunchbase.com/organization/flexport#/entity.
- Conger, Kate. “Flexport Integrates Government Data to Optimize Imports.” TechCrunch. September 09, 2016. Accessed November 18, 2016. https://techcrunch.com/video/flexport-integrates-government-data-to-optimize-imports/57d215e750954971dcf4e85e/
Interesting post. I agree with you on the potentially increased restrictions that might arise from the Trump administration. If stringent trade regulations were to put into place, I wonder whether Flexport could eventually assume a political role: based on the massive amount of data it gathers, it could provide strong evidence to exclude certain products or industries from those regulations, on the basis that it would be dramatically more expensive and inefficient to enforce them. As food for thought, the components of the cars that are exported from Mexico to the US, on average cross the border 8 times throughout the manufacturing cycle. (1) Imagine how large must the savings involved in the process be to justify such complex movement. How would the Trump administration account for the economic impact of vanishing those savings?
(1) Rocha Humberto, “Quien gane en EU no debe cambiar TLC: Carlos Salinas de Gortari,” El Universalhttp://www.eluniversal.com.mx/articulo/nacion/politica/2016/11/7/quien-gane-en-eu-no-debe-cambiar-tlc-carlos-salinas, accessed November 17, 2016
You are right about political concerns in relation to trade policy — Flexport CEO Ryan Petersen actually spoke out about this very issue. At a tech conference he noted that the company might have had second thoughts about taking money from Founders Fund and Peter Thiel after Thiel came out in support of Trump leading into the election. Petersen explained that a tariff would be “disastrous” for Flexport’s business. https://techcrunch.com/2016/06/28/flexport-peter-thiel/
Great article Homan, and spot on with how logistics is viewed as unsexy to consumers. I would be curious if this platform will open the door to more small-scale logistics and shipping agencies (or single owner operators) in the same way that Uber enabled 1,000’s of individuals to become their own bosses. It would be interesting to see if Freeport allows multiple operators to take part in the various aspects of the shipping process (pick-up, transport, drop-off, etc.) to fully leverage the operators in their respective areas.
Very interesting article! Freight forwarding would have been the last industry I would think about to benefit from digitization!
I am wondering what was the key reason behind the DHL software’s failure or in other words what made Flexport’s software so different and special that it was hard to compete with?
Also, wondering if the software hacking trend should worry Flexport and if they are doing anything to secure the platform?
This is fascinating—I find it pretty amazing that something that feels simple in the context of today’s technology is being systematically neglected by the larger players in the industry. (I take the point that there is supreme fragmentation in the sector.)
I visited a competitor’s website (Crowley, http://www.crowley.com/What-We-Do/Shipping-and-Logistics/Liner-Shipment-Tracking). I see your point—their web infrastructure is shockingly basic. That said, do you feel that there are high barriers to entry in the space? The data are relatively easily accessible, and the technology is (unfortunately) replicable, I would imagine. One would assume that DHL and the other more substantial participants would be able to participate in this market more easily than not.
Lastly, how do you consider the company’s exit/forward strategy? Does it make sense to attempt to claim a large intermediary role in a fractured market? Is it feasible that they will gain a large foothold in the space? If not, are their overheads low enough for them to continue running at a small fraction of the market indefinitely?
Thanks for the article, Homan. One thing I wasn’t clear on, and didn’t get much insight on after digging around the Flexport website – how does Flexport provide an end-to-end digital view into the logistics process when it seems to rely on 3rd party logistics providers for the actual movement of goods? Presumably, if the big 3 logistics players aren’t tech enabled, the 3rd party suppliers Flexport is using aren’t either. In that case, is Flexport actually helping the downstream supply chain “digitize” to fit into their platform? What’s to stop those companies from dis-intermediating Flexport once the right technology is in place? Finally, I wonder what the trade-off is between Flexport’s limited scale but increased transparency vs. the big 3’s relatively large scale but limited transparency. Is Flexport able to overcome its scale disadvantage with a “Li & Fung-like” ability to optimize logistics for a client’s specific need?
This is an awesome company! The founder is truly innovate and has deep industry knowledge to really leverage technology in the right way. It will be interesting to see how the recent election and potentially revised trade policies will affect this company’s performance going forward. With more complex trade policies, Flexport may be more agile in adapting to such changes.