Where Does Flexport Go From Here?
Welcome to the 89th edition of The LogTech Letter. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I made the case that inventory management was an individual challenge for shippers, while access to capacity is a collective one. This week, guest contributor Robert Petti, CEO of forwarding technology provider Prompt, weighs in on the news last week that former Amazon logistics guru Dave Clark is joining Flexport as CEO in September.
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@spglobal.com or on Twitter at @LogTechEric.
Prologue: In the very first edition of this newsletter (in July ‘20), I addressed the challenge of covering Flexport. Here’s a passage that I think still applies:
Flexport needs to be covered differently because it has formed in a unique way, and that, in and of itself, makes it newsworthy. The problem lies in managing that uniqueness in a way that doesn’t penalize Flexport, nor its competitors. In other words, am I covering some aspect of Flexport that I wouldn’t cover about another global forwarder? I look at that from a positive and negative perspective. Am I writing about their technology in a way I never would about similarly sized forwarders? Possibly yes, because they were able to secure $1.3 billion to build technology that was different from other forwarders, so it’s important to scrutinize what they have, and haven’t built.
That issue of Flexport being a company that still, to this day, defines itself differently to different audiences persists. Covering them continues to be a challenge, but in a good way. To wit, there was this exchange on Twitter following my piece about Dave Clark’s pending arrival as CEO:
It’s 2022 and the tech community still largely doesn’t get why logistics veterans don’t fully appreciate the Flexport model, and the logistics veterans don’t get why the tech community continues to fawn over Flexport. As I wrote in one of the responses to Zach, I’m utterly dispassionate about Flexport. They are an interesting company to cover but I have zero stake in either their success or failure, just as with all the thousands of other companies I cover.
What Clark’s arrival undoubtedly does is make things yet more interesting. His involvement ups the ante, for everyone: for founder Ryan Petersen and his inner circle of execs; for Flexport’s investors; and for the industry as a whole. Which is a perfect lead-in to this week’s newsletter, which has been penned by Robert Petti, a veteran of Toll Global Forwarding who has founded two technology providers selling to forwarders. The latest one, Prompt, emerged from stealth earlier this year. With no further ado…
On June 8, Flexport announced that former Amazon executive Dave Clark, the architect of Amazon’s transport and logistics operations, would become Flexport’s CEO after a transition period. The goal of this move, as Clark stated in his interview and as captured by current CEO Ryan Petersen in his Twitter feed, is that "in 5 years, Flexport will be known, hands down, as the best supply chain company in the world."
One should not expect a lesser goal from two men who have already moved the supply chain needle so much. In roughly 20 years, Clark took shipping from an expense and afterthought to a competitive advantage for Amazon. And Petersen, in half that time, has made B2B shipping feel like B2C.
Where Flexport goes from here is dependent on two factors – time and assets.
Let’s start with time. Amazon famously plays the long game with everything it does, trading short-term profits for long-term market share. This was possible for a number of reasons - the core business, especially AWS, generates a large enough profit to fund its investments and the company had easy access to capital as a public company to raise additional capital when necessary. Sure, Flexport has fantastic access to money but, even though they are profitable, venture capital, and not the core business, is still subsidizing Flexport’s growth and investments.
Flexport needs to deliver on that five-year time horizon as the timeframe nicely coincides with when the latest round of investors will need to look at Flexport as either a winner or a write-off. The groups who previously invested in Flexport in 2015, 2016, 2017, 2018, and 2019 are already wondering the same thing.
It behooves Flexport to go faster, and prove the naysayers wrong, which leads us to assets.
From its inception, Flexport has operated as a technology company, which means its focus has been on building an asset-light business and investing heavily in R&D. That path is very much still available, but this is also a part of the negative reputation that Flexport has in the market.
Critics say Flexport doesn’t have boots on the ground in the right locations, has minimal warehouse space, and its offices are in cities not where freight lives. Anyone who has traveled for work in the logistics industry knows you don’t see canals from an office window in Amsterdam, you see the warehouses around Schiphol.
Clark orchestrated the opening and growth of a massive asset-heavy logistics network, ranging from planes to chassis to warehouses, with a near-unlimited budget. It’s not impossible for Flexport to recreate some or all of that internally, with the assistance of its significant cash on hand from previous funding rounds. Flexport could build an Amazon-like fulfillment operations network and offer it as a backbone to retailers (like American Eagle is doing with Quiet Logistics) or to retail platforms (like the Shopify Fulfillment Network).
Alternatively, the company could follow the strategic acquisition path of companies like XPO Logistics. Uber Freight’s acquisition of Transplace immediately comes to mind as a recent successful combination of an asset-heavy company with a tech pioneer. Flexport could acquire a top-25 forwarder with a strong China-US trade presence and immediately increase the value of the forwarder through its superior tech. Apex Logistics would have been a perfect rollup with its internally built system and focus on China, but alas, Kuehne + Nagel scooped them up first. A more interesting combination could be Matson, which, after two wildly profitable years, has a market cap about a third of Flexport. The combination of land and sea assets, as well as a strong forwarding business, could turn Flexport into a future Maersk rival.
Regardless of approach, Flexport’s current business model requires change and that change requires assets. Major forwarders in 2013 were barely beyond green screen mainframes and smaller forwarders were using a combination of MS Office tools and paper. That massive technology gap no longer exists. The funding and profile of Flexport sparked the entire logistics technology industry, which has closed the gap between Flexport and forwarders of all sizes. The reality is that five years from now, today’s small set of VC-backed “digital” forwarders will have the same technological capabilities (and valuation multiples) as just about every “traditional” forwarder.
An acquisition appears the necessary next step in Flexport’s evolution. And the clock is already ticking.
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
Light week as I was on vacation the first part of the week. But I did do a recap of the layoffs and other warning signals popping up in the logistics technology world the past few weeks.
Chain.io, of course, is the latest company to cut against that doom and gloom grain, announcing its latest round of funding this week.
And if you haven’t gotten enough Flexport fodder yet, make sure you check out my colleague Peter Tirschwell’s commentary on the Dave Clark hire.
And here are some recent discussions, reports, and analysis I found interesting:
With so much going on right now, a periodic reminder that there’s no better place to turn on Mondays to take stock of it all than my colleague Cathy Morrow Roberson’s weekly Freight Forward newsletter. This just keeps getting better and better.
Always worthwhile to listen to Lars Jensen, especially when it comes to something as impactful as new shipping reform, which President Biden signed into law Thursday.
A very worthwhile white paper from Emerge on the differences between intermodal and multimodal shipments. And while we’re on the topic, Larry Gross’ commentary on container line culpability for inland congestion is very much worth a read.
Good recap of use cases and a selection of providers targeting automation in logistics from Logisyn Advisors.
A great conversation between Eytan Buchman of Freightos and Philip Blumenthal of ECU Worldwide on logistics digitalization.
Fun read from Jack Cox, a vet of Target, Wayfair and Amazon, on how he sees Dave Clark’s involvement at Flexport playing out.
And finally, one more Flexport-related piece. Cy Sack, commercial product lead for visibility at Flexport, wrote this interesting blog about defining visibility, which somehow has references to Insane Clown Posse and Moana (I’m jealous of the pop culture references).
I’m committing to not having anything in next week’s newsletter about Flexport.
Some upcoming events I’ll be involved in:
Joing me at 10 am ET today for LogTech Live, where I’ll be talking to Priya Rajagopalan, chief product officer at FourKites, about where the visibility market goes from here. Subscribe here to get show updates or go to my Twitter feed for a livestream of the show.
The agenda for our Inland Distribution Conference in Chicago Sept. 26-28 is taking shape. I’ll be doing a one-on-one with Emerge CEO Andrew Leto and then leading four tech-oriented discussions on LTL, freight procurement, small carrier tech, and venture’s future role in trucking. Don’t miss this - it’s the most substantive surface transportation conference in the market.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or S&P Global, and any opinions are mine only.
Let me guess Eric, the struggle you have with Flexport as a 'technology' company is that it is not. While it may automate and digitize the freight forwarding and now a global logistics provider processes, it will at best still end up being a digital freight forwarder and a digital logistics company, albeit a global one, with increasingly number of competitors.
IMHO what Petersen failed to do is to apply technology in the way the VCs monies expect (judging from the valuations). Dave Clark hire may only muddy the issue than help it.
Dave Clark rode his success in Amazon as a platform. But his capability is likely to be limited by Flexport's stovepipe business model unless he is able to turn it to a platform one.