Last month, Silicon Valley powerhouse investor SoftBank announced a $1 billion investment into industry-disrupting freight forwarder Flexport. Softbank’s investment is an affirmation that successful PE firms investing in the freight industry are looking beyond the short-term capacity issues in the market, and instead looking at companies that are shaping the future of the industry. Flexport has been making waves in the international freight forwarding space by modernizing and simplifying a historically enigmatic industry through technology. Flexport’s strategic direction is representative of how the freight industry is evolving from a competitive culture to a collaborative one, and both investors and supply chain participants should take note of this shift in strategy.
Shedding Light on the “Black Blox” of International Freight
For every piece of international cargo, freight can be moved multiple times from manufacturer to distribution centers, ports, customs, drayage, railyards, and warehouses before making it to its final destination. Each of these movements requires information or data inputs from multiple stakeholders. Traditionally, freight forwarders were the only supply chain operator that would track and manage the entire end-to-end process, creating a “black box” with respect to data – and more importantly, pricing. Flexport integrates with major service providers and helps operational users track the end-to-end status of shipments. One of the most daunting aspects of global trade are the complex customs requirements and tariffs that can drastically impact the cost of goods sold on any given item shipped. Flexport is so responsive that many of its customers are first notified of changing tariffs and international requirements through the platform.
By demystifying global trade, all supply chain constituents benefit:
- Customs has accurate information up front.
- Shippers know exactly where their shipments are at any given moment.
- Logistics service providers (LSPs) can drive more business through more visibility to shippers.
Helping Small and Medium Businesses Compete and Thrive in an “Amazon World”
Amazon’s world-class distribution network is founded on leveraging a traditional asset-heavy model (warehouses, tractors, trailers) and deep bench of third party logistics partners to raise the global expectation for customer service while controlling overall logistics cost. According to Flexport CEO Ryan Petersen, “I see a big part of Flexport’s role is enabling and empowering all the other brands in the world, all the other great makers and creators to make products and have the infrastructure to compete and thrive in an Amazon world.” In one case study, Flexport was able to help SF-based startup Qardio reduce air freight (consistently viewed by international shippers as the most expensive mode of transportation) by nearly 58%. Through Flexport’s platform, small and medium-sized shippers are able to create a global supply chain at an affordable cost without having to replicate Amazon’s distribution footprint. Even though this can be viewed as an altruistic effort, making global trade more manageable for small and medium-sized businesses is making Flexport more competitive; easier tools for international shipping means higher volume traffic through the Flexport platform.
Phasing Out Traditional Freight Brokerages
When the concept of freight brokerages was first introduced, the market was ripe with the spirit of competition: a broker’s value was based on attractive pricing, the size of their carrier network, or their knowledge of the industry. Companies like Flexport are subverting the traditional mindset of freight forwarders by giving up control of the process to the end users and providing a self-service environment for global trade. As the Flexport platform grows, traditional freight forwarders will begin to be displaced or will be forced to innovate value-added services for shippers. If anything, Flexport is proof that the market rewards companies that encourage broader transformative supply chain collaboration and significant transparency over current state competitive logistics process improvement.