The neglected good and big business is like an undervalued stock.
Author | Wanchen
Editor | Jingyu
In March 2021, a strong wind brought considerable shocks to one of the busiest shipping lines in the world, Suez Canal . A 400-meter-long cargo ship, " Ever Given", was blown by strong winds, crossing the river more than 200 meters and stranded on the spot. The "throat" of Eurasia and Africa's shipping has ushered in a century of 6 days, and hundreds of ships are in a dilemma.
"Ever Given" stranded causes congestion in the waterway | Image source: REUTERS
It is estimated that the direct loss of goods cannot be delivered normally due to the retention of goods reached US$400 million per hour. The supply chain, commodity prices, and financial markets have also been affected to varying degrees. Oil prices rose directly by 5%. The cost of
is staggering. Such things have been seen since the outbreak of the epidemic.
The epidemic has broken the balance of global shipping capacity, with container shortages and freight costs soaring several times, which has forced people to cherish extremely limited and expensive transportation capacity.
In this case, Flexport has come into people's sight.
As a logistics SaaS company, there are no ships, aircraft and trains, but it saves customers an average of 208 hours and up to 70% of logistics costs. even reduces operating costs, increases revenue for customers, and improves shipment speed. The secret of
Flexport is a software system. This system makes the entire shipping process transparent and efficient. Customers can know when the goods are delivered, whether they are blocked, and the costs of different shipping routes. At the same time, customers can connect with all parties in the supply chain, manage "flowing inventory" in a timely manner, and optimize the supply chain.
is such a digital freight forwarding company . Its revenue more than doubled last year, achieving its first profit since its startup in 2013. The growing performance has also made Flexport popular again.
Recently, Flexport received a US$935 million Series E financing led by A16z and MSD Partners, and Shopify provides strategic investment. Post-investment valuation is $8 billion. Previously, Flexport received support from famous investors such as Paypal founder Peter Thiel and SoftBank Masayoshi Son , and has also received investments from SF Express twice.
So, how did this company stand out during the epidemic and "save" global shipping?
01 The rise of "Second Trafficking"
is different from the talented founder of "the debut is the peak", and the founder of Flexport's founder Ryan Petersen's entrepreneurial experience is a story about "pragmatism". Ryan Petersen, founder of
Flexport | Image source: Flexport Official website
He said: "Many people underestimate the importance of experience. There are some great companies such as Microsoft and Facebook . Their founders are young people who dropped out of Harvard to start their own businesses. This may make people feel that startups should be created by people in their twenties and will be very successful. But in fact, it is difficult to find real problems at this age. You need to have work experience before you find problems. Only by fully experiencing annoying things can you get into real problems, not ego-driven problems."
Ryan Petersen Undergraduate degree from the University of California, Berkeley. After graduation, he and his brother David imported motorcycles and accessories from China and put them on eBay to resell arbitrage. To this end, in 2005, Ryan lived in China for two years, responsible for supply chain businesses such as procurement. During this experience, he personally felt the pain of "freight forwarding".
The traditional freight forwarding industry has serious information asymmetry. Cross-border trade is like a black box, and the freight forwarder knows how to operate, and he as a customer does not know. The shipping date and price are completely opaque, so I can only listen to the freight forwarding company's , which becomes the space for freight forwarding to "treat" him.
When he sold imported goods on eBay and Amazon, he discovered this "ugly" business, but he didn't know how big the market was at that time.
One of his passions is to create web pages to test ideas and gain insights. For example, create a login page to see if someone will visit, register or purchase, and then discover whether there is a demand.
One of the attempts to land occurred after completing the Columbia Business School MBA program, Ryan created ImportGenius.com with his brother David and another business partner Micheal Kanko.
This is a global shipping list search engine that can search for 8 million companies' global import and export records from bill of lading of US Customs. This service is of great value for companies that want to manufacture or understand their competitors.
Most people think this information is private, but it is actually a public record, so they digitize these freight lists and summarize them into a database. Compared with the previous import and export business, the software business that started this business has a huge profit margin.
With this experience, Ryan began to realize: software sounds complicated, but it is actually very simple. He began to think about new business opportunities and use software to change industries. Which track should I choose? If you choose an industry that has been changed by software technology, the market competition will definitely be more intense; while the freight forwarding industry is different. It is a big track that has almost not been changed by technology, and it has pain points. The mission of
Flexport is nurtured here - uses software to track the freight status from the factory to the customer, so that customers can avoid endless cumbersome processes such as phone calls and emails, and can confirm the cargo transportation status. on a data operation page, automation can replace many boring and repetitive tasks.
After seeing this opportunity, in 2010, Ryan "throwed" a simple login page to test his ideas. He wanted to know, if this service exists, would people buy it?
It was not until he saw Foxconn , Saudi Arabia National Oil Company registered this "fake website" that Ryan Petersen saw how much potential the market had. Obviously, everyone needs this solution.
However, cross-border freight forwarding is an industry that is strictly regulated and requires the approval of Ministry of Homeland Security and other relevant departments. It wasn't until 2013 that Ryan finally obtained permission and Flexport was officially released.
In the same year, my brother David's startup company was admitted to Y Combinator, a famous American startup incubator. Through his brother, Ryan was discovered by Paul Graham, co-founder of Y Combinator. In 2014, Flexport received an angel round investment and ushered in a spiral upward path.
Ryan Petersen said, "Entrepreneur is not a huge adventurer, instead he wants to find something that is really attractive." So he won't start his business journey until he is sure that "what is what people really want." Ryan's business practice coincides with the lean entrepreneurial rules that are popular with Silicon Valley : small steps, quick trial and error, and quick iteration.
02 "Achievement" of the epidemic Flexport
As a technology-based freight forwarding company, Flexport's development has not been smooth sailing. The ups and downs of the shipping industry are the background color of Flexport's fate, nurturing despair and vitality.
In 2015, the American International Dockworkers Union held a strike and the West Coast port was closed for 3 months. Billions of dollars of goods are trapped at sea and cannot reach their destination. Flexport can do very little in the face of the overall situation.
In 2016, the shipping industry experienced a cyclical global crisis. Shipping is oversupply and prices plummeted. At that time, Hanjin Shipping, the world's seventh largest shipping company, went bankrupt, and its ships at Chinese ports were also seized due to price plummeting.
Korean shipping ships dock at the dock | Picture source: AFP
Although Flexport is in a favorable position, it can inform customers of which goods are at risk and make plans as soon as possible based on this. But this industry shock is a difficult time for everyone in it.
In the next few years, the global shipping industry was extremely turbulent. The then-US President Donald Trumpp announced that it would impose regular tariffs on Chinese imported goods. Compared with local goods that do not require tariffs, tariffs have reduced competitiveness of U.S. importers and slowed down freight demand.
The most direct feeling is, but it is still one step away from the darkest moment.
At the beginning of 2020, the new crown epidemic swept the world, and many factories were forced to close, with shortage of goods and blocked freight demand. Faced with the nightmare of tightening supply chain capacity, Ryan panicked. He fired 50 employees, accounting for about 3% of the total Flexport staff.
Fortunately, there is opportunity in danger. As China takes the lead in resuming production, the opportunity for Flexport has come.
020 Main trade relations | Image source: reddit.com
On the one hand, many orders that were suspended due to the epidemic have been transferred to China, and China's exports have increased.
On the other hand, import demand in the United States surged. Prices in the United States have soared since July 2020, further exacerbating people’s stockpiling. Stimulated by the US anti-epidemic plan, money was directly handed to people, and the US demand for China's goods rose sharply, which also brought new problems.
Originally, 50% of air cargo was delivered by the cargo hold on the belly of the passenger plane. The passenger plane almost fuses during the epidemic, and the air transport capacity dropped sharply. At the same time, after going from China to the United States with cargo, fewer containers can be filled and returned, resulting in a shortage of containers. Since the epidemic, the number of containers entering the United States has reached 20% more than those leaving U.S. ports.
Under multiple pressures, shipping capacity is severely short of and transportation costs soar. The shipping cost of containers that were less than US$2,000 had increased to more than ten times, and it may not be possible to get it. Even if the cabinet is arranged, there may be a liquidation and a voyage to be sent to the next voyage. At the same time, the waiting time for delivery is longer, and the risk of not being able to perform the contract as scheduled is greater.
Faced with the surging freight demand, shipping costs that raise prices every minute, and experience worrying logistics services, the opportunity for Flexport is here. "We are saving lives now. We can transport anything anywhere, and sometimes it feels like we have superpowers." Under the traditional freight model of
, freight includes two processes: "global freight forwarding" and "global freight mail forwarding". But Flexport uses a set of SaaS software to combine the two processes of "transfer of goods" and "transfer of goods transportation list". Wherever the goods arrive, where the list goes, track the status of goods transportation in real time in a visual way.
Flexport software usage interface｜Image source: flexport official website
Specifically, customers can view different routes and their costs through the Flexport software system, and book cargo ships, trucks, and aircraft.
At the same time, this software can seamlessly connect all parties in the logistics transfer and realize the automation and visualization of data tracking. All parties in the supply chain: customers, land, sea, air and freight, warehouses, customs declaration, insurance, etc. are connected through web pages, apps, and API interfaces, transportation status, location and other information can be transmitted in real time and automatically imported on the Flexport platform. Transparent and efficient data enables customers to avoid the risk of being ripped off due to information asymmetry, so that each role participating in cross-border trade can be clearly defined and efficiently collaborated.
In addition, Flexport can automatically generate freight analysis reports, which facilitates customers to optimize the supply chain and adapt to production capacity.
freight costs surge, Flexport can realize the visual and controllable logistics information, allowing customers to adjust their plans in a timely manner. For example, informing customers of the status of goods in advance can allow customers to sell inventory in transportation as soon as possible, thereby freeing up funds. In other words, real-time tracking of freight status allows customers to make adjustments at any node in the middle, change routes in a timely manner, increase the speed of booking , and adjust inventory to make up for the losses caused by the extension.
Moreover, the data are gathered together to carry out refined operations to achieve cost reduction and efficiency improvement.For example: by sorting out customer data, Flexport can fill containers that can only be filled with 7-inches by experience; it can also design personalized optimal freight routes based on massive customer data.
Ryan Petersen said: "The COVID-19 pandemic has put pressure on the global supply chain. The transportation and circulation of goods that were taken for granted in the past have now become a daily pain point."
Faced with the logistics pain points, Flexport has provided a visual solution, and relies on SaaS software to track freight status in real time. In addition, relying on accumulated data to carry out refined operations, providing customers with consulting, supply chain finance, carbon trading and other services, further increasing the scale of Flexport's platform.
In 2021, Flexport's revenue doubled to US$3.2 billion, and achieved unexpected profits. Flexport has a place in the 8.6 trillion USD market market .
03 The digitalization of cross-border freight
In life and work, we are already accustomed to the convenience and efficiency brought by the digitalization of various industries, but why is the freight industry waiting for its digitalization now? You know, this is a trillion-dollar market.
Ryan Petersen gave his own answer through practice:
The path trapped in "good days of old days" depends on
Shipping, as one of the oldest trades in the world, has existed for thousands of years.
In the 1960s, the invention of containers ushered in a highlight moment for shipping. Ryan Petersen even feels that "no technology can get rid of poverty better than containers. Because of this invention, it reduces transportation costs by 95% or even 99%, making it cheaper for people to buy things and makes it easier for companies to find global customers."
But since then, the industry has not made much progress. "The shipping industry has always been considered a family business, or a company that does not have much innovation, and is not the most tech-savvy group."
It was not until the epidemic and the demand for shipping surged that people began to realize how fragile the shipping system that was taken for granted in the past was. The infrastructure of the supply chain is obviously not ready, and freight is never faced as the source of GDP and the infrastructure of GDP.
Ryan said in an interview with CNN, "At present, more than 77% of the world's ports have serious delays, with congested ports and cargo ships waiting to be unloaded. Billions of dollars of cargo are trapped in containers of port cargo ships, and people can't find what they want in stores." This was rare before the epidemic. In the past, cargo ships were unloaded immediately, with almost no reason to wait.
In October 2021, Ryan clearly saw the congestion in containers in Long Beach Port, California from the Flexport software. Dozens of freighters were waiting to unload, and the number of freighters waiting to rise day by day. So he rented a boat to visit the site and inquire about the reasons.
He saw that the port was not operating at full capacity. There are only 7 cranes working in the entire port and moving slowly, and the entire process relies heavily on labor. The unloading work of these blue-collar workers is both hard and dangerous. On the other hand, the port trucks are "can't let go or go". When empty containers are transported, but there is no place to unload them, so there is no way to pull the full container away. The container cannot be transferred, resulting in the freighter being unable to unload the goods, and the port throughput system is hysteresis and blocked and overwhelmed.
Longtan Port containers are piled up | Picture source: Visual China
In the next two days, Ryan posted 30 tweets on Twitter, describing what he saw and some solutions to supply chain bottlenecks, including stacking containers higher and building new railway platforms.
What's amazing is that his tweets sparked virality. Ryan also unexpectedly became the spokesperson for supply chain issues.
The next day, Long Beach Mayor Robert Garcia responded to some major issues, such as: an emergency order to change the partitioning method and relax the container stacking height.At the same time, policy makers such as California Governor Gavin Newsom, White House Economic Advisory Committee also called Ryan to solicit suggestions and discuss solutions.
Ryan Retweeted Long Beach Mayor Robert Garcia's tweet on the easing of high restrictions on stacking | Image source: Twitter
Ryan expressed pride in this: "I was told that this is the fastest response from the government to citizen actions in history, not only in the history of the United States, but in the entire history of human civilization."
This experience allowed Ryan to see that there are still many opportunities for change in the supply chain infrastructure. He said, "I like to see real innovation here. For example, machine learning can be introduced into it so that machines can find the right container at the right time and give it to the truck driver. In this way, drivers don't have to wait for a few hours at the port gate."
However, Ryan also regrets because targeted measures are mainly implemented in Long Beach City and have not caused changes nationwide.
But anyway, more people are beginning to notice: the incompleteness of supply chain infrastructure. He said: "We just realized the pain of not investing in infrastructure for 20 years, and we felt all the pain in a year."
In fact, before the epidemic, the supply chain put forward new requirements for infrastructure, but the epidemic has amplified these two new trends: the rise of e-commerce and the diversification of global supply and demand. The Internet makes consumers dominate, "they can get whatever they want, and they need it now, if you can't give it to them right away, your competitors will."
Accordingly, this requires more flexible and automated logistics and supply chain infrastructure. Obviously, the infrastructure has become a bottleneck for supply chain cost reduction and efficiency improvement. It will take many years instead of months to resolve this supply chain crisis .
After all, "90% of the things we buy are achieved through shipping. Globalized supply chains and shipping containers have reduced cargo transportation and manufacturing costs by nearly 90% in the past 50 years. If this is lost, this huge source of economic prosperity will disappear, which is not good for the US economy, brands or consumers."
Finally, the arrival of the epidemic, the black swan of , has made this ancient and even backward industry realize that the "good times of the past" have passed, the opportunity for digitalization has arrived, and the investment in supply chain infrastructure has become an urgent issue.
Schlep Blindness
However, why did no one think of using digitalization to revolutionize the freight forwarding industry before Flexport? You know, this is a trillion-dollar market.
For this, Paul Graham, the first investor of Flexport, gave the answer: "Schlep Blindness", which is translated as Chinese as aversion blind spot.
In a 2012 article, he wrote: Many good entrepreneurial ideas under his nose have not been developed because of the blind spots of disgust. "Schlep" means a dull, unpleasant chore. The danger of it is that it exists unconsciously and your subconscious mind won't even let you see those chores.
Why do we ignore annoying chores? "When a problem seems so huge and difficult to overcome, the conscious mind will turn off. It's like I can't solve this problem at all, so I haven't even thought about it."
As Adam Banks, former chief technology and information officer of Maersk (Maersk ), the world's second largest shipping company, said when questioning Flexport: "Visualization is a solution to a problem that shouldn't exist." However, no one has ever seen the problem of cross-border logistics, which is a disgusting blind spot. Flexport saw this chore, so now, Flexport has enjoyed the "market dividend".
Flexport's success proves: in a slow industry that is not sexy, you can also do beautifully.Inventing products is innovation, and delivering goods can also be innovation. It is just that people are used to ignoring boring chores, but this may not be big or good business.
Ryan In the years of experience in selling goods, seeing that it is too difficult to transport goods, we have the idea of "wanting cross-border logistics to be simple", and we have today's Flexport.
is annoyed by a problem, so try to solve it. Don't turn a blind eye when the challenge looks too big, this is a huge opportunity for Flexport. Because the business in the aversion blind spot is like undervalued stocks. There is very little competition here, and many people will be scared away by the chores in it.
"If you can help the supply chain in a small way, trillions of dollars of innovation are waiting for you to get it." Cross-border logistics that carries international trade will be an amazing good business.
*Head image source: Twitter: @PythonMaps
