Investor expectations are huge, and the ambitions are likewise big at US-based Flexport, which is looking to become one of the world's ten biggest freight forwarders on par with players such as DSV, DB Schenker and Kuehne + Nagel.
The company, established by Ryan Petersen in 2013, is one of the most talked-about startups in the shipping sector at a time where digitalization and new solutions aimed to move cargo are seting the agenda in many places.
In the end, our investors did not invest in a company that is going to become a niche freight forwarder. The aim is to grow to become a top 10 player
Flexport is in a hurry to meet expectations, which have resulted in a remarkably hight valuation of a company that despite its ambitions remains far off from the world's major freight forwarders.
As such, the plan is to grow the business quickly, explains Jan van Casteren, VP Europe, in an interview with ShippingWatch.
"At the moment it is all about growing the top line as fast as we can without breaking our customer service. At the same time, we make sure that if we sell something we make a margin of that," says van Casteren, who joined Flexport in the summer 2015 to establish the company's presence in Europe.
Major growth ambitions
In the fourth quarter last year, Flexport handled 18,100 teu as well as 8,250 tons air freight volumes, says van Casteren.
He notes that this corresponds to increases of 246 percent and 183 percent, respectively, compared to the same period 2016, and the company is looking to maintain these growth rates this year.
In comparison, DSV handled 167,735 tons in its air freight division and 343,150 teu in its seaborne business in the same period, informed DSV in its annual report.
But it will not take long for Flexport's volumes to grow significantly, says van Casteren. He explains that the company's ambition is to maintain growth rates of between two and three times year-on-year. And to open new offices.
"The focus of this company is to keep growing. In the end, our investors did not invest in a company that is going to become a niche freight forwarder. The aim is to grow to become a top 10 player," says van Casteren.
Flexport is backed by investors including Wells Fargo, Founders Fund, Google Ventures, Y Combination and Bloomberg Beta.
The investors have great expectations for the company, which is reflected in Flexport's current valuation, a factor that has been noticed by many observers in the shipping sector.
These include Lars Jensen of SeaIntelligence Consulting. Citing Flexport, among others, he speculated back in January whether there could be a tech bubble underway in shipping.
The analyst bases his analysis on a calculation that concluded that Flexport's value, in teu, was 19 times higher than freight forwarder Apex Maritime, where Kerry Logistics bought 51 pct. of the company in 2015.
"I have no doubt that shipping will undergo significant digitization in the coming years. But that does not conversely mean that all tech solutions out there will necessarily thrive – and it may well be that some of the valuations we are beginning to see in shipping are rather optimistic," wrote Jensen in a comment on LinkedIn in January.
In the interview with ShippingWatch, van Casteren lists a series of factors that investors see in Flexport, which they do not see in other freight forwarders.
For instance that the company builds its own software from scratch and does not have to "deal with any legacy" or dated systems. According to van Casteren, this creates a setup that can provide more automation going forward,
"We no longer need to employ 1000's of people to actually move the freight and taxation papers around. The software will then take care of most of these tasks. That is quite a promise for the future because it will allow you to bring additional tonnage on board without bringing more people because you have the software to handle it," says van Casteren.
Though Flexport has its roots in Silicon Valley, the company views the world's top freight forwarders, such as Kuehne + Nagel and DSV, as its competitors, explains van Casteren.
These players are currently bigger than the US-based company, and they are similarly looking toward new solutions through digitalization these years.
"The network and scale is definitely something they bring to the table. But what we bring is that we can start from scratch and were able to start with a highly skilled engineering company in Silicon Valley," says van Casteren:
"It is good to know that this freight forwarding market isn't going to be a winner takes it all market. We won't see one single forwarder emerge and there will still be a space for high quality high digitized players. I could see some of the existing players be able to get there as well."
Looking to expand activities
Flexport is currently a privately owned company and declines to reveal its financial figures to ShippingWatch. In an interview with Forbes last year, CEO Ryan Petersen projected that Flexport's revenue would reach USD 500 million in 2017.
The company has yet to deliver a profit. But the bottom line is not the focus point right now, says van Casteren.
If we would decide today to stop the development of our software and to stop hiring new sales people we would become a profitable company. But that is not our goal
"If we would decide today to stop the development of our software and to stop hiring new sales people we would become a profitable company. But that is not our goal. Our goal is to build for the future," he says.
Around half the company's revenue today comes from the seaborne division, while the other half comes from airfreight. Going forward, Flexport will also be looking at other venues beyond transporting cargo.
"Now we move cargo, but we are already doing insurance, where I think we can expand our part. We are now getting into trade financing, and it is also areas where we can expand our reach because there is quite a bit of demand for it," he explains.
Flexport currently has ten offices around the world, and the company recently opened an office in Hamburg.
English Edit: Daniel Logan Berg-Munch