Flexport’s opportunity
The world’s most valuable companies tend to share two properties:
- Huge market — they offer something that addresses a universal human need, or are just one step removed from such a need
- Ability to scale — they have a standardized interface to their customers, with low marginal cost to acquire/serve a new customer
For example…
Oil companies were for many decades the largest companies in the world. Everyone needs oil-powered transportation and items that have been transported. And oil companies’ customers just want a standard chemical structure in barrels that’s relatively straightforward to produce at scale. The result is a concentrated and valuable oil industry. Similar with railroads and banking.
Not all huge markets can be served via a standard interface. Housing, for example, is a huge but idiosyncratic market. Lots of atoms need to be moved in very precise ways according to different regulations, and people have widely varying preferences about their housing (unlike their car fuel). Though Exxon Mobile can serve customers in every country using roughly the same playbook, it’s hard to imagine a housing construction conglomerate doing the same. The result is a fragmented housing industry.
The role of technology
With technology, companies can create standardized interfaces to markets that previously didn’t support them. Uber created a standard interface to the on-demand transportation market. What was once a highly fragmented industry with non-standard interfaces now has (roughly) a single dominant player with one interface. Airbnb used the same approach for home stays.
Not only did these standardized interfaces make it possible for one company to serve huge portions of the market — they also expanded the market. Because of the convenience and cost, people take Ubers where they previously wouldn’t have taken taxis. Similar for homestays.
What other huge markets are ripe to have their interfaces standardized with technology?
Logistics
The global freight industry is massive (estimated to be 10% of global GDP) and also highly fragmented (largest freight forwarder has less than 10% market share). This fragmentation stems from the human scale and age of these organizations: tens of thousands of knowledge workers each with specialized roles, and no shared technology backbone to coordinate them. The interface to customers is expensive and non-standard: phone calls, faxes, bespoke spreadsheets. DHL spent almost $1bn trying to create a shared IT backbone for its freight forwarding divisions but had to write it off. It’s hard to scale organizations with these characteristics 10x.
So…
Flexport’s opportunity is to do what Uber and Airbnb did in the freight industry.
- Step one is to create the best standardized interface for moving freight. The terrible UX (phone- and fax-based system, opaque price discrimination, etc) of incumbent freight forwarders makes this a low bar to cross.
- Step two is to streamline and automate so that the standardized interface can serve 10x the customers at 2x the cost. With aggregated demand from step 1, Flexport can drive technology and efficiency on the supply side of the market.
It’s a clear application of Ben Thompson’s Aggregation Theory. With tech baked in from day one, Flexport is better positioned than any other forwarder to make it happen, pushing past the market share threshold its competitors have hit.
Further, there’s a gap in the market between parcel service (UPS/FedEx) and bulk freight (containers, air freights). Small Amazon shippers trying to scale their businesses are often caught in the middle. By making this kind of service cheaper and more convenient, we can grow the logistics market overall.
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