‘We are entering a new normal in freight markets’: Flexport

Ben Ng April 22, 2020 10:45

As the coronavirus pandemic has virtually halted global travel, online forwarder Flexport said the firm experienced directly the sharp decline in shipping volume.

"We are entering a new normal - the unpredictable volatility in the freight markets is expected to continue throughout 2020," Henry Ko, managing director of Flexport Asia, told EJ Insight, as the weakening freight demand is likely to continue throughout the year.

Freight forwarding services serve as an organizational logistics layer. They have direct relationships with carriers like truck owners and container ships.

Unlike its traditional, paper-heavy competitors, Flexport helps move shipping containers between manufacturers and retailers using digital tools, which indexes all the available carriers into a searchable database in its free software for organizing and tracking shipments.

Running an all-in-one digital platform for companies to move and finance freight, Flexport, founded in 2013 by Ryan Petersen, connects almost 10,000 clients and suppliers across 200 countries, according to the firm.

The fast-growing freight forwarding startup, which saw its shipment volumes double last year, has raised a massive US$1.3 billion since its founding, according to Crunchbase. It had completed a US$1 billion Series D funding round led by the world's largest technology investor, SoftBank's Vision Fund, at a US$3.2 billion valuation a year ago.

Its investors also include China's delivery giant SF Express, Y Combinator, DST Global GV (Google Ventures), Bloomberg Beta, among others.

"We experienced directly the sharp decline in shipping volume, when the COVID-19 situation hit China seriously earlier this year, and most companies and factories were kept shut down without any production activity" said Ko, "There was a year-on-year decrease of around 65 percent, from China in February compared with typical years."

In late February, Chinese President Xi Jinping said at a Communist Party Politburo meeting that key enterprises in manufacturing supply chains should get help to resume output, as concern grows that the economy could be dragged into a deep slowdown.

As the production gradually resumes in China since March, "we have experienced steady growth in shipments, both in booking and departed units," said Ko.

However, now as the outbreak hit hard in North America, Europe and the rest of the world, Flexport's Greater China shippers and suppliers are facing a "demand shock", according to the firm.

"A survey to 397 of our shippers shows that there will potentially be about 25-30 percent of purchase order (PO) cancellations from their customers in the second quarter, which will have an impact on the shipping volumes in that quarter."

Meanwhile, as multiple countries went into coronavirus lockdown, Ko said Flexport's account servicing teams in Hong Kong, Shenzhen, Shanghai and Singapore, have been working from home to stay connected with shippers, partners, and customers, while ensuring operations and communications uninterrupted.

With the impact of the coronavirus increasing worldwide, Ko told EJ Insight that reduced movement of people across borders, increased flight cancellations, weakening demand, and growing uncertainty in the global economy are likely to continue.

For air freight, total capacity in China has decreased by 4,600 tonnes year-on-year, which equates to roughly 50 Boeing 747 passenger planes worth of capacity lost per day, according to Ko.

On the ocean freight, blank sailing programs have been announced by all three alliances that removed over 30 percent of capacity on the Far East Westbound (FEWB) and over 15 percent on the Transatlantic Westbound (TAWB) through the end of April and into May.

"Warehouses and distribution centers across the US and Europe are almost at full capacity, forcing consignees to identify ways to slow their inbound shipments or look for container storage at origin or destination," Ko said, as they have seen a spike in client interest in more flexible ocean services.

Ko told EJ Insight that the firm has been helping consignees who are facing working capital issues under the current situation, mainly with its freight financing solution Flexport Capital, which provides clients with the trade finance credit facility.

Beyond the business side, since late January, Flexport has been facilitating deliveries via their supply chain management platform and services amid the pandemic.

In February alone, it helped non-profit organizations ship 357,750 masks, coveralls, gloves, and other personal protective equipment to China, among other parts of the world, and moving cargo to Africa to prepare governments for the response.

Its social impact group, Flexport.org, has turned its focus to the virus outbreak, as it launched a GoFundMe campaign, of which donations will go towards moving shipments that address shortages of equipment and other critical supplies to protect medical professionals in hospitals across the world.

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Ben Ng

EJ Insight writer