Growth Rate (y/y)
Flexport is a digital-first freight forwarder and customs broker, backed by Founders’ Fund and Softbank, with about 0.3% market share in the global market for freight forwarders. Flexport moved $19B in gross merchandise value in 2021 for clients across 112 countries.
Gross revenue hit $3.3B in 2021, up from $1.3B in 2020 and $670M in 2019. The company projects it will hit about $5B in gross revenue by the end of 2022. For freight forwarders, gross revenue consists of the total amount that they’re paid by customers to move that volume over the course of the year.
Gross margin represents what’s left for freight forwarders after paying the carriers across ocean, air, and rail that actually transport the goods—Maersk, Mediterranean Shipping Company, and so on. Flexport had 20% gross margin in 2021 and brought in total gross profit of about $660M.
For freight forwarders, gross margin is largely a reflection of volume, which is why the gross margins of the biggest freight forwarders like DSV (21.5% in 2021), Expeditors (27.8%) and Kuehne + Nagel (31.4%) have historically been higher than Flexport's—as Flexport continues to increase its volume, its gross margins should grow as well.
Net income margin represents what’s left after factoring out not just what’s paid out to carriers, but the overall cost of goods sold, any operating expenses, interest, and taxes. Typically, net margins in freight forwarding are thin—around 3% to 8%—owing partly to additional surcharges like customs duties and taxes.
In 2021, Flexport reported net income margin of around 1.1% when it made its first profit of $37M on its $3.3B in revenue. The company expects not to continue to make a profit in the years to come as it continues to invest in growth.
Even though forwarding is a thin margin business, the return on capital can be high because it’s asset-light. Forwarders do not own most of the underlying transport assets: the primary asset on the balance sheet is working capital.
Flexport took what was historically a services-heavy business and broke it out into both software and services.
In 2013, when Flexport was founded, the cloud-based software platform that they offered to retailers offered a greater degree of analytics and visibility over shipments than other freight forwarding companies—even those with some capacity to do things like track shipments.
Behind the scenes, Flexport looked much like a traditional freight forwarder, with lots of humans working the phones to make sure their customers’ shipments got where they were going. The company now has more than 2,800 employees spread out across 89 countries, many of those in operational roles responsible for things like facilitating cargo, filing customs documentation, and manually matching shipments to carriers.
In the years since, other freight forwarders have caught up to a lot of the digital advances Flexport introduced to the market, which have now become table stakes.
For Flexport today, the focus of the business is on automating away the time-consuming, expensive, services-heavy tasks that go into the work of a freight forwarder, with the goal being to restructure their costs and dramatically grow volume by undercutting other forwarders, Amazon-style.
A brand can use their Flexport dashboard to see when their goods are ready at their warehouse in China, when they get placed on a boat or plane—as well as exactly which boat or plane—and the port where it’s going to land in the United States.
They can see what trucking service is going to bring it from the port to their warehouse, and they can see the estimated day that the delivery will be made.
At the same time, like a traditional freight forwarder, Flexport also acts as a kind of “travel agent” for importing and exporting cargo. Flexport works with customs in the originating country to clear the shipment.
They arrange for the cargo to be picked up and for it to be loaded onto a ship or plane, negotiate a rate for the freight, and prepare all the necessary documentation.
The forwarding market generates $140B in sales a year. The market is highly fragmented and competitive: the 6 largest forwarders comprise a third of the total revenue, the top 20 accounts for 70% of the market and the remaining of the market is served by 10,000s of small forwarders. This indicates low barriers to entry and importance to achieve scale.
The largest players in the space today include DHL, Kuehne + Nagel, Nippon Express, DSV, and DB Schenker Logistics. For one of these companies, Flexport could prove to be an attractive acquisition, particularly after Kuehne + Nagel acquired freight forwarder Apex to grow into Asia and the transpacific route—an area where Flexport has had particular focus.
These kinds of big forwarders are competitive with their global reach, breadth of services, scale advantage, and negotiation power on freight rate, while smaller local players may have more specialized market knowledge or an emphasis on their digital capacities. Here, Flexport competes with other digitally-centric forwarders like Forto, Zencargo, and Beacon.
We’re also seeing the container logistics and cargo supplier companies that freight forwarders rely on to move goods around the world starting to compete with them on their core business model. Maersk launched their own freight forwarding business as part of their ambition to build a vertically-integrated, one-stop shop for global logistics—in doing so, they would work directly with shippers, cutting out freight forwarders like DHL and Kuehne + Nagel.
The goal for these bigger suppliers would be to expand from freight operations, which is a commodity line of business subject to significant price volatility, to the higher-margin world of end-to-end shipping services.
Point solution ecosystem
At the same time that digitally-forward forwarders like Flexport are betting that retailers want better technology in their supply chain management stack, an ecosystem of SaaS point solutions is emerging to help the 100,000+ freight forwarders around the world compete technologically.
- freight operating systems like Cargowise and Magaya
- visibility platforms like Project44 and FourKites
- rate benchmarking tools like Xeneta
- invoice processing toos like Expedock and Shipamax
- data providers like Optimal Dynamics and Clearmetal
- integrations tools like Chain.io and Youredi
- TMSes like Haven
Flexport has looked to build some of these functionalities, like invoice processing and visibility, into its own SaaS platform, while it uses others—like Xeneta—on the back-end.
Companies like Cargobase and Freightos bring a marketplace approach to the freight forwarding business.
Instead of directly brokering the freight, these freight marketplaces give e-commerce brands the ability to compare rates across multiple different freight forwarders. For freight forwarders, they offer a source of new demand. They also plug into visibility platforms like Project44 and FourKites and other tools to provide more functionality for customers.
The largest dedicated freight forwarder in the world today, Kuehne + Nagel, is worth about $27B. Flexport’s $8B valuation means that investors believe there is non-zero chance that the company will one day be worth $80B or even $800B—many times the market cap of any freight forwarder out there.
That’s because Flexport’s vision is to surpass the “1 of n” freight forwarding business model and build an Amazon-like utility for every participant in the global trade ecosystem.
Amazon got started connecting suppliers (of books, CDs, etc.) with customers via the internet. Amazon gave those suppliers access to an internet-scale customer base, and in return, they were able to drive lower costs and grow demand.
The growth of their retail business then allowed them to build out their own logistics network, which led to the launch of Fulfillment by Amazon, which allowed other merchants to use Amazon’s infrastructure as a utility to sell their products.
Like Amazon, Flexport’s goal is to not just to build another store but to build a utility that can be used by all players in the logistics ecosystem——carriers like Maersk, airlines, trucking, last-mile delivery, and warehouses—to transact more cheaply and easily.
To get there, Flexport is building technology to help their partners get higher utilization, get higher yields, and make more money: a multi-billion dollar need that has become increasingly acute over the last decade.
A brand might once have had one factory in Shenzhen and one warehouse in New York, along with established relationships with their airline and customs broker. Today, due to protectionist headwinds—trade conflicts as well as tariffs—the rise of new manufacturing hubs like India, and changing expectations from consumers on delivery speed (to compete with Amazon), that same company might have 40 fulfillment centers and 10 different points of origin. $140B is spent yearly on freight forwarding to manage this complexity.
Flexport’s opportunity is to replace the heavily-human freight forwarding function with an API layer that allows the different players in the logistics industry to coordinate with one another. Flexport’s next CEO, Dave Clark, spent 23 years at Amazon working on a similar kind of evolution, and the end goal here would be similar as well: a world where merchants big or small can go to market faster, sell cheaper products, and provide more selection with shipping that can compete with Amazon’s.
Trade headwinds: The growth of Flexport and freight forwarding more generally is a function both of GDP and global trade, which is expected to grow at ~5% and face some protectionist headwinds. Any disruptions to trade with China or other countries could be a drag on Flexport’s core business: when COVID-19 shutdowns hit China and started to disrupt the supply chain, Flexport cut 5% of its team.
Crossing the chasm: Flexport was a key driver and leader in the digital transformation of global shipping and freight forwarding. But making the leap from digital freight forwarder to an end-to-end data platform will mean rebuilding the company's business model, from freight forwarding to SaaS. To win, Flexport will need to make it to this next phase despite competition from a now-thick ecosystem of logistics SaaS tools and increasingly digitally-aware carriers like Maersk.
This report is for information purposes only and is not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal trade recommendation to you.
Information and opinions presented in the sections of the report were obtained or derived from sources Sacra believes are reliable, but Sacra makes no representation as to their accuracy or completeness. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a determination at its original date of publication by Sacra and are subject to change without notice.
Sacra accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to Sacra. Sacra may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect different assumptions, views and analytical methods of the analysts who prepared them and Sacra is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report.
All rights reserved. All material presented in this report, unless specifically indicated otherwise is under copyright to Sacra. Sacra reserves any and all intellectual property rights in the report. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of Sacra. Any modification, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from, or selling any report is strictly prohibited. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Sacra. Any unauthorized duplication, redistribution or disclosure of this report will result in prosecution.