Flexport as a catalyst for change
Flexport has completed another funding round, this time for an injection of a full Billion USD on a valuation of 3.2 Billion.
This kind of money raises the “usual” questions which has surrounded Flexport in recent years from industry incumbents – the core of which is whether they are simply growing by burning money and acquiring customers. But the injection of a Billion USD shows potential to put a new type of – positive - pressure on the incumbents.
At the heart of the matter, Flexport has the clear potential now to become the de-facto catalyst to speed up a change we already see happening in the industry.
The ill-defined term “Freight Tech” has now been hyped in the industry for the past 5 years, and we are clearly seeing tech adoption increase across a number of carriers, forwarders and logistics providers, as well as newcomers who are born not out of the shipping industry but out of the tech industry. Mind you, the incumbents are not at a standstill, as developments from for example the largest carrier Maersk and the largest logistics provider Kuehne and Nagel is testament of.
But the adoption appears to take hold at a somewhat sedate pace. One of the reasons (but not the only one) for this is the chicken-and-egg effect between the cargo owners and the shipping providers. The shipping providers are hesitant to throw large sums of money at tech development without reasonable assurance that the cargo owners will actually pay for it in the end. “Pay” in the sense that value is created leading to either higher rates or margins, better customer retention, more upsell or lower costs. The cargo owners are equally hesitant as clearly they cannot provide a firm commitment to a product they have not seen.
This is where Flexport’s large investment comes into play. This will serve to expose a large range of cargo owners to the potentials of technology in shipping. In essence an “awareness campaign” that will benefit all shipping companies with technology aspirations and not only Flexport.
The way I see it, the industry has for too long focused on the need for the carriers and logistics providers to “get with the program”, and have neglected the simple fact that it is the hundreds of thousands of cargo owners who actually choose which products get adopted in the market. And the best way to convince a large number of customers to change their preference is to deliver a product to them. Show it, don’t tell it.
Whether Flexport will be commercially successful or not is besides the point of this small blurb of mine. From an industry perspective, I can only see this as a development which will ramp-up the number of cargo owners being exposed to technology-driven freight solutions - and this is positive for all the carriers, logistics providers and freight tech companies who want to see a faster pace of technology adoption.
But of course it is also a major sign to incumbents without a tech strategy that it is time to get one. Not because they should be afraid of Flexport. But because they should be afraid of the catalytic effect this might have in boosting the customers' appetite for tech-driven solutions.