Flexport

Legacy players in the supply chain and logistics industry traditionally rely on faxes, phone calls, emails, and PDFs, leading to loss-heavy, slow communication and difficulty in sharing data. In some cases, logistics companies use software but don’t want to share data, or lack interoperability with other software. This leads to incomplete data and a lack of visibility, which reduces the accuracy of supply chain teams’ forecasting. Some consider this data inaccessibility to be one of the biggest obstacles in global supply chains.

Effective digitization can boost supply chain productivity. One study found that supply chain digitization boosts companies’ operating earnings by 3.2%, more than any other operational improvement. Over 75% of supply chain executives listed supply chain visibility as a top priority in 2021, while 94% lack visibility into their supply chain.

Flexport is a freight forwarder helping companies digitize their supply chains. Like other freight forwarders, Flexport’s main job is to coordinate with as many as 20 different companies to move freight internationally. But the company’s vision extends beyond that, as it aggregates data from various links in companies’ supply chains. Long-term, it is building towards a universal source-of-truth for global freight with an up-to-date digital counterpart for every physical entity in the supply chain.

In the early 2000s, after graduating from college, Flexport founder Ryan Petersen was importing and reselling scooters and motorcycles from China along with his brother and a friend. Petersen moved to China to source the products, and that’s where he first dealt with the difficulty and disorganization of logistics.

To address this problem, the trio created ImportGenius.com in 2007 at the same time as Petersen was heading off to business school. The company digitized shipping information to help companies understand competitors’ supply chains and search for suppliers. ImportGenius remains a multi-million dollar business today.

Petersen applied his learnings and began working on the idea of a “TurboTax for customers paperwork” in 2010. He was finally approved as a customs broker and pitched Flexport to Y Combinator in the spring of 2013, and the company participated in the 2014 YC batch under Paul Graham’s mentorship.

Petersen led Flexport as its sole CEO until September 2022. At that point , Petersen and Dave Clark, formerly an Amazon executive, started a six month period where they will be co-CEOs, after which Clark will remain as CEO and Petersen will become the executive chairman. At Amazon, Clark was the global consumer chief and helped scale its extensive warehouse and delivery networks. Several other Amazon executives have also joined Flexport.

As a digital freight forwarder, Flexport helps customers move shipments while using software to operate more efficiently and effectively. It stitches together data from all of the parties involved with shipments so they can all manage and track those shipments from Flexport’s cloud-based platform. The company layers supplementary products, including cargo insurance and financing, on top of its core business.

Ryan Petersen provides a simple method of distinguishing between parcels (smaller packages) and freight: “Is the product too heavy for the driver to lift up and put in the truck? The moment it is, now it’s freight.” Moving freight requires larger, more robust physical equipment to store and move. This makes it infeasible for a single company to possess all of the physical infrastructure necessary to handle the full supply chain flow (e.g, workers at every port in the world). Contrast this with parcel shippers like FedEx and UPS, which control their whole delivery network in the US, including a single IT system, trucks, and planes. Their end-to-end ownership enables robust visibility and tracking of shipments along all possible routes.

The fragmentation of the cargo network means that companies often rely on freight forwarders to handle their international supply chain and logistics. Instead of operating their own fleets of physical assets like ships and planes, freight forwarders act as brokers. They coordinate with 5 to 20 other companies to move a single shipment from its origin through customs to its destination. A former Flexport manager described the many involved parties for a hypothetical shipment:

Each step of the shipment can be thought of as a “link” in the supply chain. The dependencies mean that if one link is delayed, all the following links become delayed as well. Data bottlenecks occur as well because each company typically has their own IT system, resulting in poor visibility into shipments’ location and status. The antiquated industry often relies on phone calls, emails, paper documents, and faxes to keep track of shipments. Flexport’s product is digital-first in an attempt to solve these inefficiencies.

Flexport’s software connects data across several different companies involved in each shipment into the Flexport platform, progressing toward a real-time digital clone of the physical supply chain. One survey found that compared to other freight forwarders, Flexport’s digital approach saves customers an average of four hours weekly.

Dashboard and API

End users primarily interact with the Flexport platform through a dashboard. The dashboard comes with pre-configured options geared toward various user personas and can be further customized based on user preferences. It is currently accessible via web browser, but the company is also working on a mobile app. Customers can access data through the Flexport API as well. The API is also used to ingest and integrate data from companies involved in the shipping process.

Source: Flexport

Visibility

Because of this integrated data, customers can dive into the status of any particular shipment, whether it’s on a truck, container ship, plane or train or in a warehouse. With machine learning and satellites, Flexport narrows arrival estimates, in some cases from multiple weeks to a single day. These tighter windows increase greater business efficiency and certainty. Flexport also flags shipments’ changes and potential issues so customers can quickly view and address them if necessary.

Order Management

Flexport can help customers manage their supply chains before a shipment is ever loaded. Order Management allows them to upload their purchase orders via CSV, API, or an integration. Then, customers can collaborate with suppliers to iron out details or changes as well as book shipments that meet their requirements for those POs. From there, the Flexport platform provides visibility into the shipments’ statuses along their journey.

Source: Flexport Order Management and Platform

Customs

Flexport Customs LLC is Flexport’s customs broker. Customs brokers handle necessary customs paperwork on behalf of importers, saving them resources and ensuring compliance to avoid fines. Importers are not legally required to hire a customs broker, but many choose to do so for these benefits. Flexport works with companies even if those companies don’t ship their freight via Flexport. As with the rest of the shipping lifecycle, Flexport’s customs offering emphasizes a single, digital source-of-truth.

Messaging

The Flexport platform features built-in messaging to ease communication between all companies involved in a shipment. Instead of relying on phone, email, and fax, stakeholders can communicate with the relevant context in the same platform as their supply chain data. For example, shippers can inform recipients of delays, and warehouses can provide truckers with delivery instructions. Employees within the purchasing company can also message internally to ensure cross-departmental alignment, which is important, given Flexport reports that its average customer onboards 55 employees to the platform.

Document Digitization

Flexport can ingest and digitize documents to provide searchability and a single source-of-truth for all information relevant to companies’ supply chains.

Metrics

In addition to allowing customers to track each individual shipment, Flexport provides them with a holistic view of their supply chain through key metrics, including “transit times, landed costs, and container utilization.”

Source: Flexport

Climate

Companies can track and offset the carbon emissions of their shipments from the Flexport platform. They can also understand how different supply chain options affect their carbon footprint. In addition, they can donate unused inventory to nonprofit organizations.

Transportation

Importers typically have to work with about 8 to 12 companies for their shipments, though it can go as high as 20. Instead, importers can outsource this coordination to freight forwarders like Flexport. Freight forwarders deal with ocean carriers, trucking companies, airlines, railways, and warehouses to get shipments from point A to point B. Flexport also has a network of regional partners across 89 countries to provide local expertise.

According to Flexport, onboarding requires about 4-6 weeks. Suppliers book transportation via the Flexport platform, but they can submit bookings via email, too, if necessary. When booking, they specify the mode of transportation (e.g., ocean or air), the space required for the shipment, and add-ons such as expedited delivery. Then, the customer and supplier benefit from visibility into the shipment’s status along its journey.

Prior to the supply chain crisis created during the COVID-19 pandemic, shipping containers averaged only 70% fullness. Like other freight forwarders, Flexport offers “less-than-container” shipping. Less-than-container shipping is beneficial for customers whose freight does not occupy an entire container and makes the entire supply chain more efficient. Flexport uses machine learning to optimize its less-than-container offering.

Trade Management

Once Flexport has shipments flowing through its digital rails, it can provide further value complementary products. The Trade Management collection of products addresses secondary aspects of logistics and supply chain.

On the finance end, Flexport Capital provides financing for inventory and logistics to smooth cash flows and help support growth. The company also works with insurance partners to offer cargo insurance to freight customers, other parties, and as a white-labeled product.

On the customs side, Duty Drawback helps customers claw back excess duty payments, which can amount to tens of millions of dollars. With Trade Advisory, Flexport Customs Trade Advisors analyze customers’ supply chains to identify improvement opportunities. Meanwhile, Product Classification helps customers determine optimal classification codes for duties while maintaining compliance.

Finally, Flexport provides Compliance Certification for dangerous goods like lithium batteries.

Flexport.org & Flexport Ventures

Flexport.org is Flexport’s social good wing with a mission to “Make Logistics a Positive Force for Social and Environmental Impact.” To start, nonprofits receive free access to the Flexport platform. They can use the platform along with pro bono advice and discounted shipping rates to manage logistics cost-effectively. With the Flexport.org Fund, Flexport directly pay for transportation costs of nonprofits. Flexport.org also helps provide the Climate product for offsetting carbon emissions and donating unsold goods.

Flexport Ventures is the company’s investment wing. It has made 34 investments as of April 2022. Most of these investments are in starts at the Series B stage or earlier, and in or adjacent to the supply chain and logistics industry.

Customer

Flexport serves customers with international supply chains of varying sizes ranging from small businesses (independent Shopify stores) to modern companies (Sonos, Peloton, Warby Parker) to established brands (Bridgestone, Georgia-Pacific, and Gerber). Its less-than-container offering is especially important for SMBs. Dave Clark, Flexport’s co-CEO, explained Flexport’s value proposition for companies other than the very largest:

About 75% of Flexport’s revenue comes from mid-market or larger companies as of March 2020. But Flexport is unlikely to ever be used by giants like Apple, Nike, and P&G. At a certain scale, it can make sense for large enterprises, such as Apple and Nike, to ship directly with carriers rather than rely on freight forwarders.

Market Size

Global trade was projected to reach $32 trillion in 2022. Logistics powers this trade and represents an estimated $9.6 trillion market, worth ~12% of global GDP. Yet, only 0.18% of logistics spending goes toward logistics technology.

Zeroing in on freight forwarding reveals a $182 billion market with a ~5% CAGR. Other components of Flexport’s market include cargo insurance at $53 billion growing at a 3% CAGR, trade financing at $44 billion, growing at a 7.4% CAGR, and customs brokering $4 billion, growing at a 3.5% CAGR. Flexport’s ambitions extend beyond those products, though, to digitally representing the world’s whole supply chain in real time.

Incumbents

The freight forwarding market is highly fragmented. The two largest players, DHL and Kuehne + Nagel, account for only 6% market share combined, and the top 20 account for only about a third of the market. With higher volumes, larger freight forwarders can negotiate lower prices from carriers, resulting in better margins. Smaller forwarders account for the remaining two-thirds, and one reason they may remain in business despite lower margins is their local expertise.

Freight forwarders typically have net promoter scores in the teens versus in the 60s for Flexport. But there is disagreement as to whether incumbents are just unwilling or unable to use modern technology, or whether they simply do not brand themselves as “digital.” Not only can freight forwarders build tech in-house, but they can also buy off-the-shelf software from companies like WiseTech, as DHL does.

Startups

Source: McKinsey

VCs have been investing heavily in the logistics space, deploying a record $24.6 billion in 2021. Startup competitors include Forto (Germany), ZenCargo (UK), and Nowports (LatAm). Like Flexport, these companies offer global, multi-modal (i.e., sea, land, and air) freight forwarding supplemented by software. On the other hand, Project44 (US) and Beacon (UK) both act as software layers for logistics visibility that integrate information from shippers, carriers, and freight forwarders but don’t act as freight forwarders themselves.

Freight Forwarding

Flexport is paid by customers to move freight. Pricing is lower for higher shipping volumes. As of March 2020, customers spent between $200K and $33 million annually on Flexport. Flexport grew to $200 million in annual revenue, despite the lack of any sales or marketing efforts. That changed by March 2020, by which time about 90% of revenue was attained through cold outreach.

Flexport has attempted to modernize freight forwarding with software and automation, but like other freight forwarders, Flexport have an operations-heavy business. Less than 20% of their ~3,000 employees are engineers. Each customer is paired 1:1 with a “squad” that includes an operational account manager, operations associates, a customs broker, and an engineer. The squad model is intended to ensure a top-notch customer service experience. Flexport’s customers spend millions on the product annually, and as Ben Braverman, Flexport’s CRO, puts it, “if they don’t get what they’re expecting, they fire us immediately.”

This dynamic creates a race-to-the-bottom for pricing among forwarders, resulting in low margins. Flexport is no exception: it has about a 1% profit margin. Despite low margins, return on capital can be high given the fact that freight-forwarding is asset-light.

Source: Sacra

Given that freight forwarders receive better wholesale pricing from carriers for higher volumes of shipments, the industry experiences economies of scale. Flexport can benefit from this as it grows. Larger competitors like Kuehne + Nagel and Expeditors see gross margins around 30% compared to 20% currently for Flexport.

Flexport began with a focus on the transpacific trade lane. It grew to become a top-five forwarder on that lane for both air and ocean freight. As that market softens, the company is focusing more on other trade lanes.

Complementary Products

Once the Flexport platform handles their freight, customers can also pay for high-margin, related products like cargo insurance, financing, and customs assistance. Some products, like insurance and customs brokers, are offered as standalone products to non-customers, too.

Software Platform for Smaller Freight Forwarders

Smaller, regional freight forwarders lack the resources to build similar software to Flexport, so they pay to use Flexport’s platform to improve their operational efficiency. These forwarders, referred to by Flexport as Certified Partners, also benefit from greater volumes, which can help them negotiate lower shipping rates with carriers. Flexport benefits not only from earning a ~1% cut of these partner’s revenue, but also from adding to its dataset and being able to offer shipping in more areas without having to build out its own staffing there.

Investments

Flexport believes it can’t single-handedly drive the digitization of logistics, so it has become a prolific investor in early-stage logistics startups. It also partners with On Deck to offer an incubator for logistics startups.

As of May 2022, Flexport has 10K+ customers and suppliers across 112 countries. In 2021, the company moved $19 billion in gross merchandise value, and doubled its revenue to $3.2 billion. Some estimates projected $5 billion in revenue for 2022, and the company accounts for about 0.3% of the overall freight forwarding market.

Source: Sacra

In October 2022, Flexport announced a $200M credit line for Flexport Capital. As of that time, over 500 companies in over 20 countries have cumulatively drawn on over $1 billion in financing from Flexport Capital, with year-on-year growth of almost 150%.

In February 2022, Flexport announced a $935 million Series E at a post-money valuation over $8 billion led by Andreessen Horowitz and MSD partners, with Shopify participating as a strategic investor. As of September 2022, the company had $1.2 billion of liquid assets, including cash. Despite this war chest, Flexport announced in January 2023 that it was laying off 20% of its employees, although the company still planned to double its engineering org.

Flexport is richly valued as shown in the chart below, but growing faster than competitors. Despite posting a $37 million profit in 2021, the company expects to return to unprofitability as it invests in its platform and tech.

Source: The Generalist; Revenue Multiples of Flexport and Competitors

Petersen sees the potential distribution of Flexport’s outcomes as very skewed, stating:

Global Trade and GDP Growth

From 1970 to 2021, global GDP grew from $3 trillion to almost $100 trillion. Over the same time frame, trade accounted for an increasing proportion of global GDP, rising from 25% in 1970 to 57% in 2021.

Source: World Bank; Global GDP and Trade as % of Global GDP

If global trade and GDP rise, that would provide a significant macro tailwind for Flexport, as it could facilitate the movement of those goods. However, some experts anticipate that the world economy will become increasingly de-globalized, resulting in less trade. Just as more global trade could propel Flexport, there is also ample opportunity for Flexport to boost international trade. Paul Graham mentioned the synergy between Flexport and global trade this way:

According to Ryan Petersen, 97% of companies worldwide do not yet transact internationally. Flexport’s software and less-than-container offering make international shipping more accessible to SMBs, and Petersen has a vision of enabling merchants to easily expand to new geographic markets:

Universal Global Trade Platform

By aggregating and digitizing data from across the industry, Flexport could become the universal source of truth for international supply chains. Then, the company could monetize shipments even when it’s not involved in actually moving them. This would improve its own products’ quality. Petersen expressed how under this vision, “the physical world, like software, becomes searchable, programmable, accessible.” Flexport is already working toward this vision through partnerships with smaller, regional freight forwarders.

Flexport’s supply chain data also lead to better products. The company already uses the data to more densely pack containers as well as provide real-time visibility and improve delivery window estimates. In the future, Flexport may be able to provide strong guarantees on delivery deadlines to customers as it collects more data and improves its models. The data is also used for intelligently underwriting trade financing and cargo insurance, which are higher-margin products. The more data Flexport collects, the more these benefits will compound.

Commoditized Industry

Freight forwarding lacks differentiation and stickiness. That may be why the industry remains highly fragmented. One may be tempted to point to Flexport’s software as a differentiator, but other freight forwarders are now investing in software, too. The commoditization of freight forwarding is being compounded by online freight marketplaces like Freightos. With Freightos, companies can compare prices from different freight forwarders before booking, fostering price competition among forwarders and putting additional pressure on margins.

Government Initiatives

Given the importance of supply chains to economic health, governments are taking action to encourage digitization. In March 2022, the US government announced the Freight Logistics Optimization Works (FLOW) pilot program to improve data flow and supply chain visibility. As of August 2022, the program has 36 participants including Maersk (world’s second-largest shipping line), P&G, Target, the Port of Long Beach, and Flexport. Participants receive access to FLOW’s data by sharing their own data. Government initiatives such as FLOW could undercut any private company’s attempts to become a universal global trade platform, including Flexport’s.

Flexport’s primary business is freight forwarding, and it’s using technology to try to become the best option for freight forwarding. Forwarding, however, is just a stepping stone for the company’s grander vision. To start, the supply chain data digitized and stitched together for forwarding provides real-time visibility and the ability to underwrite higher-margin financial products. In the long-term, if Flexport aggregates enough data, it could become the go-to source of truth for international supply chains. However, the company must overcome a lack of differentiation from competitors and potential government intervention to achieve this vision.