Consultant’s Insight: Flexport’s return to profitability faces hurdles

Rising interest rates and a harsh freight market are taking a toll on carriers and supply chain providers. Digital freight broker Convoy closed its doors this week, causing some to question other digital providers’ viability. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] Easy access to funding ended when the Federal Reserve began raising interest rates to mitigate inflation in 2022, and, as a result, profitability, or at least a roadmap toward profitability, has become the focus for many startups and other providers building out capabilities. This focus on profitability comes as the freight market is depressed after two years of high demand and high rates driven by the pandemic. But, as the freight market normalizes to pre-pandemic levels, shippers and consumers have become more cautious because of economic and geopolitical uncertainties. Speculations are swirling around which supply chain business will fall next. Flexport on the chopping block Unsurprisingly, digital freight forwarder Flexport pops up in many conversations. It made waves when it began 10 years ago by announcing it was modernizing the supply chain by bringing it to the internet. While many of the existing supply chain businesses were already investing in technology and moving to the internet, Flexport caught the eye of the investment community and has raised more than $2 billion, according to a recent Wall Street Journal story. Many in the supply chain market became fascinated by Flexport. Whether due to its great marketing tactics or charismatic founder Ryan Petersen , Flexport set itself apart from other providers with what it called a special focus on customers. In reality, Flexport is described in a LinkedIn post by supply chain consultant Brittain Ladd as a “mirage company” with “not a lot there.” “Yet Petersen would have us believe Flexport is just like Amazon , only better,” Ladd wrote. Having sat through a few demos of Flexport’s system over the years, I have found nothing that truly differentiates it from other forwarders. Freight forwarding is a relationship business. Yes, you can automate the process, but at the end of the day, you still need people to handle exceptions, maintain partnerships with carriers and communicate with customers. I think Flexport eventually realized this only after other forwarders built their digital solutions on the internet. “Petersen always sounds like a guy trying to convince everyone that only he knows the secret sauce of success,” Ladd wrote in the LinkedIn post. Petersen may be the captain of a sinking ship. While the market caused significant declines in revenue and layoffs at Flexport, Petersen has also made costly mistakes, most recently the hiring and then firing of Dave Clark as chief executive and the acquisition of Shopify L ogistics and e-commerce fulfilment company Deliverr , leading many people in the supply chain community to question Flexport’s strategy. Additionally, Flexport laid off 20% of its workforce last week, after having laid off 20% back in January. Poorly planned contract Flexport’s extension of an existing contract with Atlas Air at the height of the pandemic also proved costly to the company. A knee-jerk reaction to quickly transport goods while ports were clogged has now resulted in near-empty Flexport airplanes. “The only way for those planes to return back to profitability is to build up our export business” out of the U.S., Petersen said in an Oct. 17 WSJ article. “We’re starting to win some major accounts on the backhaul, we call it, on the return to Asia. And so, I expect the planes to be profitable within the next quarter.” Good luck with that. Backhaul on the trans-Pacific lane has always been difficult, and the expectation of achieving profitability “within the next quarter” is highly delusional. According to the same WSJ story, Petersen’s focus is improving customer relations and enhancing service quality, such as on-time delivery and pricing accuracy. This focus is the same for almost every freight forwarder, carrier and supply chain provider. Petersen also expects Flexport to achieve profitability by the end of next year or early 2025. It’s possible that Flexport can hold out in such a down market, but it faces steep competition, little if any differentiation today and an investment community that may not be as willing as in the past to invest further in the company.

Consultant’s Insight: Flexport’s return to profitability faces hurdles

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