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 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.
- “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/