International Freight Forwarding Software from Flexport
90% of everything we buy arrives via ship and right now there are over 20 million containers of cargo en-route to somewhere. That’s according to an article by The Atlantic which also states that the cost of shipping things is so cheap now that “it’s actually less expensive to ship Scottish cod 10,000 miles away to China to be filleted and then sent back to Scotland than it is to pay Scottish filleters to do the job“. While international container shipping may be cheap, it’s far from efficient. The entire process of moving freight around the world is known as “freight forwarding” and it is an incredibly convoluted space. Let’s start with a simple use case that both our English and American readers can relate to.
Let’s say that you decide to go to London, England to see the lads and while you’re over there drinking warm beer in the pub, you try a cheddar sandwich with chunky Branston pickle and realize that this is one of the most amazing things that’s ever happened to you:
You then decide to bring a whole bunch of Branston back to the U.S. for your exciting British food truck concept called “Bobbies” which sells warm beer and Branston pickle sandwiches to L.A. hipsters. Frequent travelers will have had this sort of thought at least once a trip. They’ll come across some really interesting product and think “I think I could bring this back to my home country and make a fortune selling it“. Then when they actually sit down and try to think through the details, things start to become a bit more complicated. Let’s start with some basic economics.
In today’s day and age, you can order just about anything online from Amazon including Branston. Right now you can order a 520-gram jar of delicious Branston pickle from Amazon for just $6.30:
Of course you will pay a lot more for an importer to sell you Branston than you would by just buying it in England yourself from the supermarket. Just how much more? That same jar is on sale at Sainsbury’s right now for just $1.98.
Let’s say that we reach out to Branston and they agree to sell us these jars for $1.50 provided that we purchase a minimum of 10 pallets worth. Now we are in a position to start thinking about what it takes to ship these across the pond to the land of the free and the home of the brave.
Cargo shipping is actually a pretty simple exercise. There are standardized 20-foot and 40-foot shipping containers that everyone uses to make loading onto boats and off boats a simple process at any port. When you decide to ship something, you will find that
shipping freight forwarding companies will deal in size measurements called pallets. 40-foot containers hold 20 pallets and it logically follows that 20-foot containers hold 10 pallets. In our Branston example, we have 10 pallets of jars so that means we need to ship one 20-foot container. It would seem like a simple task, but that couldn’t be further from the truth. There is a massive convoluted network of companies in every port around the world that dabble in all aspects of freight forwarding and the lack of transparency and secrecy in the industry is somewhat legendary. That’s where our next company comes in.
Founded in 2013, San Francisco startup Flexport has taken in $94 million in funding so far from a diverse group of over 40 investors with Peter Thiel’s Founders Fund leading the charge and other names like Google and Bloomberg, making an appearance alongside Ashton Kutcher.
Update 2/24/2019: Flexport has reached a reported $3.2 billion valuation following a $1 billion funding round led by SoftBank’s Vision Fund which also included participation from previous investors including Founders Fund and DST Global.
It doesn’t take a genius to see that there is an incredible amount of big data in the shipping industry that’s not being collected and Flexport sees that as their fundamental strength. In addition to operating their own freight forwarding service, they’re collecting as many shipping manifests they can get their hands on and turning them into delicious big data that can be used to further improve their platform. Tech Crunch put out an excellent article in June of last year talking about “The unsexiest trillion-dollar startup” and included this amazing data visualization from Flexport:
3 months later and Tech Crunch published another article about the Flexport story with the following quip about how well things were going:
The volume of goods shipped by Flexport is up 16X year over year, and the company just crossed $1 billion in merchandise moved this year. Those goods would be worth $2.5 billion at retail, while all of Amazon saw $107 billion in revenue in 2015. Petersen beams, saying “We’re 2% of their size just a few years into our business”.
The article goes on to talk about how Flexport can actually reroute individual pallets during a shipment so that businesses can start using container ships as “moving warehouses”. How amazing is that? It’s only a matter of time before the entire platform is connected to point-of-sale systems and transparency is then available across the entire supply chain leading to massive cost savings with artificial intelligence algorithms constantly optimizing everything while taking into account other data sets like “weather data” for example. Dashboards like this one will provide instant insights into the costs of shipping each order:
MBAs from all over the planet will become aware of the massive opportunity here for the “digitization of freight forwarding” and people will start talking about the “Internet-of-Shipping”. Some startups will inevitably start calling themselves the “Uber of Shipping Containers“. Flexport will eventually end up acquiring any startup that succeeds, and burying those that don’t at sea. Then we’ll enter the era of drone cargo ships and things will get even more efficient.
Flexport isn’t just about software. They’ve already began building physical warehouses. According to the company blog, Flexport ships more freight between Hong Kong and Los Angeles than any other city pair so that node makes a good starting point for a future “network of physical logistics centers” which promise to “keep rates low as we consolidate multiple clients’ cargo into fewer shipments” and remove the inefficiencies they often experience by involving third parties.
Going back to our Branston example, we weren’t able to get a quote from Freeport without sending them a “request for a demo”. This means that they’re catering towards the 20% of the market that does 80% of the shipping. This of course leaves some space for a startup that caters to one-off shipments like ours by allowing you to compare prices across freight forwarding companies. We found a startup called iContainer which claims to be the “Expedia of container shipping”. Within 30 seconds we were able to get a quote to ship our entire 10-pallet order of delicious Branston pickle on the 21st of September for $2,046:
Spanish startup iContainers has taken in just over $8 million in funding so far, and they certainly aren’t the only player. There are dozens of “freight forwarding software companies” that all want to get a piece of this lucrative market given their nearest competitor in most cases is an Excel spreadsheet or even pen and paper. The best way to see clearly in such fragmented markets is to look where all the money goes. The caliber of investors who have climbed on-board Flexport and the rapid growth they’ve realized would point to this company being responsible for software that will eat freight forwarding as quickly as we eat Branston and cheddar sandwiches.
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