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  • DATVF.LAXDAL
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Air CargoBusinessEconomicsMarket InsightNews

Flexport: Rapid growth flies into international trade turbulence

It has been six years since Flexport charged onto the international freight forwarding scene with a vision of using technology as a clear differentiator against thousands of logistics competitors globally. It started its first shipments in 2014. In that time, it has crafted an image as a market disruptor, winning $1 billion in venture capital funding earlier this year led by SoftBank’s Vision Fund, and in so doing, upping its market valuation to $3.2 billion. 

It’s all heady stuff. But trade disputes, tariff wars and slowing international volumes this year are challenging both new and longtime transportation services providers. FreightWaves sat down recently for a wide-ranging talk about the air cargo side of the business with Neel Jones Shah, Flexport’s executive vice president and global head of air freight. 

According to Flexport, its 2018 revenue hit $441 million, doubling its 2017 revenues. It currently has 11 offices and more than 1,500 employees globally. How big was air cargo in all of this? According to Shah, air cargo currently represents 35% of the company’s revenue, but was a higher percentage in 2018 within a stronger air cargo marketplace. The ocean side of the business has grown faster this year with Flexport’s success on several ocean bids. 

Air Volumes and Managing the Changing Marketplace

Shah told FreightWaves that Flexport is moving 6 million kilograms monthly in nonpeak season and expects to do 11 million to 12 million kilograms monthly in peak. Flexport has invested most heavily in the Asia-to-U.S. trade lane, with 70% of the business in the trans-Pacific eastbound lanes, 20% in trans-Pacific westbound lanes and the remaining 10% distributed elsewhere in the world. Shah sees Flexport within the top 10 forwarders involved in the Asia-to-U.S. air trade. For Flexport, Asia has really meant a focus on China, Vietnam, Southeast Asia and some on Taiwan, with less focus on Japan or Korea. 

Flexport’s Neel Jones Shah, executive vice president and global head of air freight. Image: Flexport

Shah describes the current market for air cargo as one filled with “volatility and unpredictability.” He said, “Driven by the U.S.-China trade war, there’s more impact on the trans-Pacific market than everywhere else, but everywhere it is down.” With respect to the prospect of new 10% China tariffs for Sept. 1 and later, Shah saw the potential for some short-term air cargo peaks or bumps later this year, but overall expects the balance of 2019 to be soft. 

With Flexport’s heavy investment in the China-U.S. market, its customers are clearly under pressure from the tariff threats. We asked Shah to summarize what steps Flexport is seeing customers taking there. Shah has seen customers doing different things, but cited the complexity of moving supply chains as dependent on the product. For apparel companies, for instance, it’s a relatively easy move to Southeast Asia, South America or Central America. But he sees consumer electronics firms as “between a rock and a hard place” with billions of dollars of investment in some cases that isn’t easily replicated elsewhere. Other customers were taking a “wait-and-see” approach. 

The lesson it seems all are taking is understanding the need to diversify their investments around the world. The challenge Shah sees is China’s manufacturing infrastructure being way ahead. Vietnam’s infrastructure is choked, which Shah believes will take a lot of time to remedy. 

Go-forward Strategies to Maintain Growth

How does a new company like Flexport counter weaker market trends and keep up its own growth pace? Shah cited several strategies. Be very communicative with customers, advise them the best you can, hold webinars and provide options. Flexport growth priorities include continuing investing in China, diversifying elsewhere in South East Asia; opening up more European offices; and paying attention to Latin America as traffic flows with Asia increase. 

A key strategy is to keep building what Shah sees as the differentiators for the Flexport brand — major technology investments to create transparency and remove opaqueness for the customer. 

Interestingly, Shah said that “moving an air cargo shipment is like an unaccompanied minor (passenger) traveling,” essentially needing “hand-holding” every step along the way. Ten, 15 and even 20 different documents can be involved for an individual shipment along the way, and “every document at Flexport is structured for SKU level visibility.” 

The vision for Flexport is to maintain its competitive advantage centered around building reliable customer partnerships and end-to-end solutions through technology. It is building up its gateway presence in Hong Kong, Shanghai, Ho Chi Minh City, Amsterdam, Chicago, New York Kennedy, Los Angeles and two or three more stations. 

Shah emphasized that Flexport did not want to be asset owners and could in fact operate within another firm’s infrastructure. It values its high NPS scores which it says are consistently in the 60s, alongside such top companies as Apple. Shah said he doesn’t see any of the legacy competition having reached Flexport’s level of technology development. 

Changes in the Flight Plan

Recently Flexport made news for its decision to terminate its contract with Western Global Airlines for Boeing 747 freighter flights from Hong Kong to Los Angeles and Chicago to support Flexport’s Private Air Service offering. Private Air Service is a premium Flexport offering guaranteeing capacity access and rate stability across the year. Due to pending litigation, Shah would not comment further on the case, other than to state that Flexport exercised its contract termination rights due to nonperformance. 

Flexport currently is working with Plus Logistics, operated by Atlas Air, to provide aircraft for this service. Plus/Atlas flies three round-trip Hong Kong-U.S. Boeing 747-400 freighter flights each week, with two flights from Hong Kong to Los Angeles (Mondays and Thursdays) and one from Hong Kong to Chicago (Saturdays). The Los Angeles flights return on Wednesdays and Fridays to Hong Kong by way of Honolulu (offering local LAX-HNL service in that large local market), and the Chicago flight routes back over Anchorage. Roughly 2.0 million kilograms a month flies on this service offering from Hong Kong. At this point, Shah does not plan any additional Private Air routes this year. 

From a broader Flexport perspective, Shah reiterated the company’s focus on managing volatility and positioning itself as a voice of reason, helping its customer base of 10,000 customers and suppliers navigate through a tough environment. In concluding, he stated that Flexport continues to have ambitious goals for 2020 and plans to “keep investing like crazy in technology.”

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Jesse Cohen, Air Cargo Market Expert

Jesse has over 30 years of broad global experience on both the airline and forwarding sides of the air cargo business. He started his career in Houston in Business Development for 2 different freight forwarders, gaining exposure to both air and ocean freight for large project and general cargo. He then relocated to Chicago to join United Cargo, starting out as a Cargo Capacity Analyst and moving on to more senior commercial, pricing, regional sales and product management roles. He was promoted to a key leadership role as Managing Director-Cargo Pricing and Revenue Management, where he oversaw a 25-person team responsible for coordinating with sales and operations to optimize the revenue from this $1B business at United. His specific responsibility areas included pricing, revenue planning, capacity management, RM systems and business analysis. After leaving United, Jesse gained valuable field commercial management experience with two non-US flag airlines, Etihad Cargo and SilkWay West Airlines. He led the Americas regional commercial teams for both carriers and got significant exposure to freighter aircraft. Jesse’s overall air cargo experience covers North America, Pacific, European, Latin American, Middle East, and Central/South Asia markets. Jesse Cohen, Air Cargo Market Expert Jesse has a Master’s in International Economics from the Johns Hopkins School of Advanced International Studies in Washington, DC.

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