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Flexport: How to Move the World

The $8 billion freight forwarder has succeeded by bringing tech to an archaic industry. It has designs on a bigger prize: owning the data layer for global trade.

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ACTIONABLE INSIGHTS

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Flexport.

  • The freight forwarding market is fragmented. Pegged at $182 billion, it is a large market without an obvious dominant force. DHL boasts the biggest share with 6%. Sixty percent is controlled by players outside the top twenty. 
  • Flexport has brought technology to the party. Many incumbents have been slow to adopt technology, preferring phone calls and fax to contemporary tools. Flexport upended the space by building a large engineering team and creating a modern platform that offers visibility and control over the freight forwarding process. 
  • The company has bigger ambitions. Flexport doesn’t just want to be the most cutting-edge freight forwarder. It wants to build a global trade platform that offers accurate, real-time data for the entire industry. It is a goal no less audacious than constructing a digital twin for the world’s supply chain. 
  • There’s tension between Flexport’s two models. Supporters argue that Flexport has a leg up when it comes to building its global trade platform. Who better than a company with technical expertise and operational experience? The tricky part is that the freight forwarding division has different incentives than the platform team. Flexport will need to work hard to keep them siloed. 
  • Flexport is valued like an outlier. The company’s Series E valued the business at $8 billion. That represents a premium on Flexport’s $3.2 billion revenue compared to incumbents. Investors seem to be betting on CEO Ryan Petersen’s ability to create a revolutionary global trade platform.

At its best, logistics is a form of magic. An object begins on one side of the world, and by deft maneuver – over, under, across, though – it appears on the other. It is not unlike a sleight of hand trick with ships and cargo planes bending the planet like a card sharp teases an ace of spade into a shirt cuff. Food, clothes, office chairs, pocket umbrellas, scented candles, and fishing gear can manifest in days if not hours, appearing in front of our doorsteps as if we’d conjured them from thin air.

Though logistics seems like a modern miracle at its best, the last two years have exposed the current system’s many flaws. Pestilence and war, two horsemen of the apocalypse, have choked and snarled hangers and ports, warehouses and factory floors. Shanghai, home to the world’s largest port, remains in a lockdown that has forced manufacturers to close their doors, impacting the entire supply chain.

Flexport is a logistics business in pursuit of magic. Started in 2013, the hybrid freight forwarder and software provider is a rare company that seems to have elevated its ambitions over time rather than lowering them. Though CEO Ryan Petersen's founding journey began with importing motorcycles to the United States from China, he is set on it culminating in creating the definitive global trade platform. Hear him speak about it, and you’ll realize that the end state is a supply chain in sync, one that sings in near-perfect harmony, where goods arrive quickly and reliably – where the world moves with a kind of magic. 

As a narrative, it has proven a compelling one. In February of this year, Flexport announced a near-$1 billion Series E at a valuation of $8 billion. While the financing represents a decisive vote of confidence from top-tier firms and strategic partners like Andreessen Horowitz and Shopify, respectively, it has also raised eyebrows. Industry experts suggest that Flexport’s metrics do not merit its current valuation and that its business model may sometimes work against it. 

Today’s piece will examine the differing opinions surrounding the business and discuss the audacious mission at its heart. In the process, we’ll alight upon: 

  • The brothers Petersen. Flexport arose from Ryan and David Petersen’s obsession with logistics. Importing scooters from China soon turned to streamlining the customs process and, eventually, to a unicorn. 
  • Fractured freight. The market Petersen entered is highly fragmented. It is also antiquated. Most incumbents have been lethargic adopters of technology, providing Flexport a vector for attack.  
  • An elegant product. “Visibility” and “control” are Flexport’s two most significant product sells, according to Petersen. His company has constructed a full-featured and intuitive suite that has forced competitors to step up their game. 
  • Dueling models. Flexport is a freight forwarder that wants to be much more. Though building a global trade platform is a laudable ambition, it may conflict with the goals of the core business. 
  • Becoming the face. Flexport is a master of soft power. Though he does not run the largest freight forwarder (by some distance), Ryan Petersen has become the face of the industry for many. He and Flexport appear to wield outsized influence.
  • Understanding valuation. It’s hard to make a case for Flexport’s valuation based on the numbers alone. Recent investors are likely banking on Petersen’s genius and the potential to create an N-of-1 company.

It’s time to set sail. 

Origins: Shipping speed

To paraphrase Isaiah Berlin, each person is either a hedgehog or a fox. While the fox knows many things, the hedgehog is said to know one big thing. Berlin counts polysophists like Shakespeare and Joyce among his foxes, while monomaniacs like Plato and Karl Marx make up his prickle. 

Ryan Petersen is the consummate hedgehog. Viewed through a particular lens, his entire life seems to be a series of entrepreneurial experiments in ferrying items from Point A to Point B. 

The son of entrepreneurs, Petersen earned pocket money delivering sodas to his mother’s food safety business. After graduating from college in 2002, he worked alongside his older brother, David, re-selling Chinese scooters and motorcycle parts in the United States. As that business gathered steam, the younger Petersen moved to China in 2005 to monitor local operations. The disorganization the duo encountered inspired their next company.

In 2007, Ryan Petersen headed to Columbia for business school. The same year, he, David, and Michael Kanko – one of David’s former roommates – started a new endeavor: ImportGenius. The business collects data associated with global trade, organizing import and export records. This information is extremely useful for those searching for suppliers within a specific industry or looking for better visibility into a competitor’s supply chain. Over the following six years, the Brothers Petersen and Kanko developed ImportGenius into a profitable business, albeit one with a capped upside. Today, it is under Kanko’s stewardship and reportedly does millions in revenue. 

Recognizing ImportGenius’s limitations and feeling ready for a new challenge, David Petersen applied to Y Combinator in 2013 with BuildZoom, a platform to initiate and manage the home remodeling process. Ryan reportedly “grabbed an air mattress and tagged along.”

Rather than becoming part of David’s startup, Ryan spent his stint in California developing an idea of his own. While he initially conceived of it being an extension of ImportGenius, he soon realized it was a much larger idea than simply searching trade documentation – trade itself was broken. After making his pitch for a “TurboTax for customs paperwork” in the spring of 2013, he was accepted into the following year’s Y Combinator batch. His acceptance afforded him the chance to work under the mentorship of the accelerator’s founder, Paul Graham. 

When I asked Petersen what it had been like working with arguably one of the most influential thinkers of the last two decades, he noted that Graham remained an active counselor before highlighting his particular genius. “Paul is probably the best in the world at asking what’s possible rather than what’s likely.” 

In Petersen, Graham saw someone willing to dream audaciously and endure discomfort to bring those dreams to reality. “Ryan is an armor-piercing shell,” Graham previously commented, “a founder who keeps going through obstacles that would make other people give up.” 

With Graham’s support and Y Combinator’s signaling power, Petersen ended his time at the accelerator by closing a $4 million seed round with backing from Initialized Capital and Rugged Ventures.

In the years that followed, Petersen succeeded in expanding Flexport’s scope and growing revenue. What began as an ambition to improve global trade through a smoother customs process transformed into a fully-fledged freight forwarder with software at its heart. 

It came with bumps in the road. Perhaps the largest arrived after raising $1 billion from Softbank in 2019. As well profiled by Forbes, Petersen revved up the company’s hiring – and burn rate – as if Masayoshi Son’s pockets would remain ever-full. After WeWork’s disastrous collapse, Softbank changed its approach, slowing investments and forcing Flexport to adjust. The company cut 3% of its team (fifty employees) and shifted from hypergrowth to chasing profitability. 

It wouldn’t take long. The pandemic set shipping prices skyrocketing, pushing Flexport to a profit of $37 million. The company achieved new relevance during this period, with Petersen becoming an influential voice on various logistical crises. Though Flexport briefly looked to be on rocky footing a couple of years earlier, it entered 2022 with earned self-assurance and $3.2 billion in annual revenue. 

To better understand the significance of what Petersen has built, we must explore its market. 

Market: Splitting the sea

The name “freight forwarder” is strange. It’s the kind of term whose meaning seems literally evident but is blurred by a sort of tedium-cloud. It is the cousin of descriptors like “insurance agent” and “data analyst.” 

A freight forwarder is a tour guide for objects. Or, at least, that is how I have come to think of it after having it explained to me (and re-explaining it to myself after I have forgotten) by a series of patient people over the years. For, say, a shipment of pillows to make its way from Taiwan to France, it must move between ships, planes, trains, and trucks. As many as twenty different companies may be involved in a single shipment, each handling one stint of the multi-modal journey. Critically, each party is incentivized to care narrowly about their leg rather than the entire trip.

The freight forwarder sees this salmagundi of boats and warehouses and flight maps and says, Don’t worry, I’ll take care of it. With the savvy of a good tour guide, it helps the customer navigate the mess, keeping the itinerary, forewarning chancy routes, bum ports (the “bad neighborhood” of logistics), and charting an optimal path. They are the concierge of conveyance, consiglieri of transit. 

As it turns out, this is a big business. The global freight forwarding market is pegged at around $182 billion with projections to reach $221 billion by 2025. That amounts to a modest compound annual growth rate (CAGR) of a tick below 5%. 

This is also an extremely fragmented space. As of 2020, DHL Global Express led the market with 6% of annual revenue. Kuehne+Nagel and DSV+GIL followed with 4% each, succeeded by DB Schlenker and Nippon Express at 3%. Fully 60% of the market is composed of “others” – smaller providers that hold less than 2%, and perhaps not more than a few deciles. 

DSV

The industry establishment tends toward the ancient. Kuehne+Nagel (KN) was founded in 1890 to help manage cotton shipments. Nippon Express started life as a semi-governmental service in 1937, privatizing decades later. These companies have not been early adopters of technology, seeming to believe that slight improvement can be made on the miracle of the telephone. Orders are written on pen and paper, sent by fax, and chased by landline. Email and Excel have made inroads but may not always be a given.

Though institutions like DHL and KN boast market caps of $56 billion and $35 billion, respectively, they unsurprisingly post profit margins in the low single digits, in large part due to this slowness in adopting technology. To compensate, leading firms manage massive employee bases. KN reports 78,000 employees, while DHL counts 380,000

What does this market complexion mean in the context of Flexport? The freight forwarding industry appears perfectly designed to accommodate an insurgent. A large market with no established winner, a legion of smaller players, longstanding stubbornness toward technological adoption, and unwieldy employee bases – all look like ready vulnerabilities to a venture-backed entrepreneur. Though still early in its life compared to the big fish with which it swims, Flexport has already made a dent. While a chart of market share for 2021 still would not feature Petersen’s business, it is undoubtedly getting closer to the top table. The company’s product has played a vital role in the firm’s ascent. 

Product: Visibility and control

As the age of Flexport’s competitors implies, freight forwarding is a longstanding business. It begs the question: how can it be improved upon?

Often, the most basic upgrades can profoundly impact lagging industries. In the case of freight forwarding, simply bringing information and communication online into an intuitive interface represents a stark improvement. 

Petersen’s response to a question on the topic exemplifies this point. When I asked the CEO what sets Flexport’s product apart, he responded, “Visibility and control. Those are the key elements.”

In the context of Flexport’s product, “visibility” means what you would expect: see where your shipment is in its journey, leg by leg, SKU by SKU. Such insight might sound common but is often unavailable from traditional freight forwarders. 

Flexport

“Control,” in Petersen’s words, is the ability to see “when something’s not right – and make a change.” Via Flexport’s platform, customers can assess different operators, place orders, and re-route shipments. Thanks to the visibility provided by the product, customers can move from passive actors into active participants, adjusting to disruptions in the supply chain.

While these two characteristics represent the heart of Flexport’s offering, its complete product suite is somewhat more sprawling. 

Flexport

Flexport offers transportation via ship, plane, and truck. The core logistics management product assists with customs clearance and sustainability management – customers can offset emissions with just a few clicks. Additional business lines include cargo insurance and trade financing. Observed together, Petersen seems to have constructed what he set out to: a freight forwarder built around modern technology. Along with Flexport’s revenue, customers like Sonos, Georgia Pacific, Rothy’s, and Gerber illustrate the attractiveness of the offering. 

This is Flexport’s product today. Look deeper, though, and you’ll see signs of where it's heading. A developer portal offers APIs for order booking, invoicing, document generation, and product categorization. Another page, titled “Global Network,” explicitly makes the case. Flexport does not just want to be the best freight forwarding company in the world. It wants to be the definitive global trade platform.

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Vision: Global trade platform

Flight Control was one of the early hit games of the iPhone. Released in 2009, the app asks you to take on the role of an air traffic controller. As planes approach an airport map, your job is to direct them to the appropriate runway. The difficulty increases as more planes enter the picture, making timing and coordination more challenging.

In simple terms, Flexport wants to create Flight Control for the whole world – every ship, truck, plane, and train carrying freight depicted in near real-time with visibility down to the package level. 

The less you know about logistics, the more realistic this sounds. You might think it already exists. The reality is rather different. Documentation exists in dozens of formats and languages, often stubbornly offline. Stakeholders may not communicate with each other or do so in tricky-to-track formats like phone calls or fax. Ports and warehouses have different owners, hours of operations, and designs. 

Cy Sack, Product Lead of Supply Chain Visibility, described the complexity as a swarm of “objects” forming and breaking relationships with different “nodes.” For example, the Maersk Mc-Kinney Møller carries nearly 20,000 containers – each one a sort of object. As a container moves through its journey, it forms a “relationship” with the port it is dropped off at, breaking it when it moves to a new mode of transport. A true global trade platform would track these steps – “facts,” as Sack calls them – with the relevant context. Flexport’s goal is to “collect as many facts as we can get,” Sack explained.

How does the company do this? Flexport’s plan involves a mix of technology and using its scale advantages. 

CTO James Chen shepherds the company’s technical initiatives. Before joining in 2019, Chen spent three and a half years managing the tech side of Amazon’s logistics business. Chen was tasked with deploying the billions of dollars Bezos had allocated to bring supply chain capabilities in-house. That afforded the engineer the chance to develop granular expertise. As Chen said in our conversation, “Because I was person number one [at Amazon logistics], I had to go super deep and learn the details of everything from scratch.”

Though Flexport boasted stronger technical capabilities than incumbent businesses, Petersen admitted that the firm had significant “data debt and technical debt.” As he explained, “I underrated the extent to which logistics is a distinct domain from a data perspective.” It was not enough to have a team of great technologists; Flexport needed great technologists with an understanding of the industry. 

In Chen, Petersen found a ready solution. “He really upped our game in terms of data modeling and architecture,” the CEO said, adding, “Frankly, we were a little naive before that point.” From Chen’s perspective, the opportunity to work at a company he considered truly disruptive proved a draw, as did meeting Petersen. 

Chen’s primary mission is to guide Flexport into a phase of automation that lays the groundwork for its global trade platform ambitions. When I asked Chen which initiatives best showcased the company’s burgeoning abilities on this front, he shared two examples. 

First, Flexport is devoting serious resources to digitizing global trade documents. Ingesting data from different languages and formats is the first step in building a library of “facts” around a shipment. Instead of “optical character recognition,” or OCR, Flexport relies on machine learning models developed with Scale AI. Whereas Flexport used to transform accurate data from documentation in two days or less, the recent partnership has helped the company do it in minutes while maintaining 95% accuracy. Chen noted that the reason accuracy sat short of 100% was not a technical issue but a result of human error at the outset. 

Second, Flexport is developing models to predict when a shipment will arrive to be unloaded at a given port. Getting seemingly simple things right can have meaningful downstream effects. Knowing when a ship is ready to be unloaded influences when a truck should arrive, for example. This, in turn, impacts how a warehouse might organize its space. Just as snafus in one part of the supply chain can lead to misery elsewhere, improvements can create secondary and tertiary efficiencies. According to Chen, Flexport is well-positioned to produce reliable models to this end thanks to its existing freight forwarding business, saying, “We believe we probably have the highest accuracy.” 

Automation is a significant part of Flexport’s plan to build a global trade platform, but it is not the company’s only weapon. Petersen can also use the firm’s core business to jockey stakeholders to join the quest to create a data standard for the industry. As Cy Sack noted, “Flexport is a multi-billion dollar freight forwarder. Others are bigger, but we’re starting to get leverage.”

How does Flexport tangibly exert its influence? For starters, it’s created a network of regional partners that run off of its software stack. For example, Sack noted that the company ships meaningful volume from Thailand via a partner. By engaging in these alliances, Flexport spreads the use of its tools and brings clean data into the system. The suite of APIs has a similar end. 

Moreover, Flexport prioritizes working with partners that contribute to its effort and embrace technology. Sack explained how the Port of Rotterdam had created an API Portal that Flexport was testing integrating with. It features APIs that deliver port information, ETA predictions, and ship arrival and departures. 

The Port of Rotterdam

Though the terminal operator no doubt has other reasons for embracing technology, it has the added effect of increasing Flexport’s business. “More business will come to the port of Rotterdam because we know Rotterdam and trust Rotterdam,” Sack said. We should expect Flexport to use its size to convince other players to divulge relevant information.

Given the amount of work building a global trade platform appears to entail, you might wonder why the company would bother with it. After all, it seems to have devised an excellent freight forwarding business that could have decades of prosperity ahead. 

Excluding the positive psychosis that afflicts every great founder – you cannot make a dent in the universe without a little hubris –  the answer is that Flexport’s goal is mesmerizingly audacious. Petersen is aiming to create a digital twin of the world in motion. Should he prove successful, its impact would be monumental. We are not just talking about receiving one’s shower gel on time but efficiently routing goods to the places that need them. We are talking about a protocol, a standard for the transit of objects. 

Petersen sees its advent as a gamechanger for business. When I asked him what a true global trade platform would enable, he suggested it would allow companies to “go global” much earlier in their lives. As soon as a startup has product-market fit, Flexport’s system could enable it to go live on platforms like Mercado Libre, Rakuten, and Souq, with Flexport providing the rails. The CEO also explained that utilization could improve. With better visibility, stakeholders could optimize the usage of assets, more frequently filling ships and warehouses. 

Ultimately, Flexport is chasing a wild ambition. James Chen remarked, “The holy grail for this industry is normalized, standardized data, in real-time.” That is what his company hopes to build. 

Model: Constructive and destructive interference

As we have just explored, Flexport is really two businesses. Or, at least, it is trying to be. It is an established freight forwarder seeking to become the default data layer for global trade. It’s worth wondering: how do these business models work together? 

When two sets of waves collide, the result is either “constructive interference” or “destructive interference.” Constructive interference occurs when the waves sync up, forming peaks and troughs of greater amplitude. The sets unite to become larger than either was alone. Destructive interference has the opposite effect. Meeting each other out of phase, the waves diminish each other, creating a set of reduced amplitude. 

Wikipedia

Observe Flexport’s two business lines, and it's hard to tell what the impact is of one on the other. Is this a cause of constructive or destructive interference? 

It seems to be both. On the one hand, Flexport’s existing freight forwarding business does provide leverage in the ways mentioned above. By throwing its weight around and prioritizing tech-forward vendors, the company may be able to push better data onto its platform. Furthermore, the simple fact that Flexport is engaged in freight forwarding gives it a kind of learning advantage. Sack described a virtuous loop between the two businesses: the freight forwarding business describes its needs and recommends improvements that the tech team then makes. “Our freight forwarding business is howling for technology and automation,” Sack said. Having such insight from operators should help Flexport build its ultimate vision. 

However, it's hard not to feel that Flexport’s two business units sometimes sit at cross purposes. After all, will other freight forwarders want to contribute to a platform owned by a competitor? Will stakeholders want to give complete visibility to an entity with its own profit motivations? One logistics expert, who wished to remain anonymous, summarized the conundrum: 

As a broker, [Flexport is] incentivized to push for the most expensive transaction within the boundaries of maintaining the customer relationship. It is difficult to move to an aligned incentive product (SaaS platform) with misaligned incentives elsewhere in the customer relationship.

Sack acknowledged as much, describing it as a “chasm we’re going to have to cross.” Though Flexport believes it can act without bias by constructing firewalls between departments, it will need to convince customers. Doing so may be complicated by the fact that other companies harbor Petersen’s ambition. Project44 and FourKites offer supply chain visibility platforms without the baggage of running a freight forwarder. Ultimately, Petersen’s business seems to want it both ways, a delicate proposition. As Sack explained, “We’re walking a knife's edge but the rewards could be enormous because of it.”

Soft power: Information leaders 

Can you name another freight forwarding CEO? Unless you’re in the industry, there’s a good chance no one comes to mind. Meanwhile, Petersen is everywhere, tweeting memes, posting up on CNBC’s Mad Money, gracing the cover of Forbes. When I asked a logistics expert for their take on Flexport’s success, they responded, “Ryan is amazing at building Flexport's brand.” 

In truth, Petersen’s communications leadership may go beyond straightforward brand-building and into the world of soft power. No other executive in the space has so effectively translated the importance of logistics, establishing their company as a solution, and engendering broad goodwill. 

Part of Petersen’s mastery is indeed through media, but he has also taken other approaches. 

First, Flexport is a relatively prolific strategic investor. The company has made thirty-four investments, backing companies like CloudTrucks, Nuvocargo, Anvyl, and FreightPay. It has also partnered with On Deck to create “ODX Flexport,” a fund that invests $125,000 for 7% of early-stage businesses in the logistics space. Along with the capital, funded startups receive support from a “Flexport Partner.” It is a savvy way for Flexport to insinuate itself into the next generation of logistics insurgents.

Second, in 2017, Flexport established a philanthropic arm. Flexport.org provides logistics support to non-profit organizations at discounted prices or pro-bono. It also offers simple carbon offsetting. The organization is currently delivering critical supplies to refugees displaced by the war in Ukraine. 

It is equally possible to be too cynical about for-profit companies' philanthropic efforts as it is too naive. We should aspire to be neither: Flexport.org represents a genuinely good-spirited endeavor with meaningful impact. Petersen and his team should be applauded for its creation. It is also a savvy political maneuver, allowing Flexport to position itself as a leader during a crisis and engendering support. Petersen and his business are brilliant exponents of soft power. 

Valuation: An outlier

Flexport’s last financing valued it at $8 billion. In 2021, it moved just shy of $19 billion in merchandise and roughly doubled revenue to reach $3.2 billion. 

How does this compare to others in the space? 

Company data, Freightwaves, Bloomberg, Forbes, Wallmine

Flexport appears to be valued at a premium. Its latest round suggests a 2.5x revenue multiple compared to between 0.63x and 1.45x among competitors. In part, this might be due to Flexport’s excellent growth. No competitor is expanding at quite the same pace, though all are growing. Expeditors (72%), KN (61%), and DSV (59%) all had bumper 2021s.

From a profitability perspective, Flexport likely lags the field. The firm posted profits of $37 million last year, a rarity among venture-backed businesses but modest compared to established players. For reference, KN logged $10.3 billion. As Flexport invests heavily in technology, Petersen expects to run at a loss.

This may present Flexport’s most significant risk in the coming years. Though its newest raise provides additional runway, it will not last forever. Given the company has already raised $2.2 billion and that Petersen’s stake is mooted at just 9%, another private financing appears unlikely. And yet the public markets may not view the company kindly. The same logistics expert said:

At its core, it is a good business that could be worth much less. If it gets revalued in the public markets and stock compensation plummets, that could lead to a talent exodus.

Looking at Flexport’s figures, the logical conclusion is that it is priced less on numbers than narrative. The firm’s recent investors presumably believe there is a good chance that Petersen will succeed in building the definitive platform for global trade – and that if he does so, comparisons to fusty freight forwarders cease to hold. 

In a conversation with Garry Tan, Petersen discussed Flexport’s valuation: 

I think the $8 billion valuation is not really real. Within that, there’s some probability that we’re worth $80 billion and another probability we’re worth $800 [billion], and another probability that we’re worth zero. 

Every valuation is, to some extent, probabilistic. But more than many other companies, Flexport’s current benchmark feels like the result of the expected value game Petersen described. An $8 billion mark wouldn’t hold in the public markets, but if you believe there’s a 5% chance it becomes the default infrastructural layer for tracking the world’s freight, it may look like a steal. The company is an outlier and is valued as such. 

Between 1770 and 1775, it took the Dutch East India company roughly 253 days to travel from Rotterdam to Indonesia. Today, a parcel could make the same journey in perhaps three days, representing a 98.8% reduction in transit time. From the perspective of our ancestors, we have achieved slow teleportation.

Flexport’s mission is to make this magic reliable by providing visibility into global trade. It is an ambitious goal, albeit one that does not always seem to fit the company’s current business model. And yet, few would bet against Petersen, the “armor-piercing shell,” the hedgehog returning again and again to the same problem: how to make the world and its contents move. 

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