Manufacturing companies are facing higher expectations from customers: faster time- to-market, customized products and free shipping. Like individuals, they now expect to get faster shipments flexibility, and transparency at a lower price. Startups are disrupting the logistics industry by tackling several pain points.

1. BARBARA FONTELA, Digital Business Strategy, Master in Management 06/2018
INDUSTRY INCUMBENT NEW PLAYER
LOGISTICS INDUSTRY
Founded in 1973, based in
Memphis, US.4
It offers air and ocean cargo,
parcel delivery and truck
transportation services.
It’s the largest global freight
carrier according to the The Top
50 Global Freight Carriers list.5
400k employees worldwide.6
Over 160,000 vehicles and 600
aircrafts.7
2017 revenue was $60 Billion
out of which freight revenue was
93,3% of the total.8
Founded in 2013, based in San
Francisco, US.9
It’s a full-service freight forwarder
(air, ocean, rail and truck). Its
mission is to fix the user
experience in global trade and
bring the world free trade through
technology.
600 employees in 3 continents.10
It is a private company, but its
2017 revenues are estimated at
$500 million.11
Raised $304 million in 5 rounds.12
Main investors are S.F. Express
(China), DST Global (Hong Kong),
Founder Fund (US), Y Incubator
(US).13
It is the enabler for international
trade, which in most countries
represents a significant share of
GDP.
Subindustries include logistics
services, air cargo, rail, maritime
and trucking.
There are several business
models in the industry, and
companies can operate under
more than one: logistics service
providers (LSP), carriers, and
courier / express / parcel (CEP).1
Industry’s revenues are
estimated at $4.6 Trillion.2
EBIT margins range from -1% to
8%. CEP can reach double digit.3
1,2,3 https://www.pwc.com/sg/en/publications/assets/future-of-the-logistics-industry.pdf , 5,7 http://www.ttnews.com/sites/default/files/pdfs/gfc_2017_online.pdf ,
4,6,8 https://about.van.fedex.com/our-story/company-structure/corporate-fact-sheet/ , 9,10 https://www.flexport.com/about ,
11 https://shippingwatch.com/Services/article10521011.ece , 12,13 https://www.crunchbase.com/organization/flexport

2. BARBARA FONTELA, Digital Business Strategy, Master in Management 06/2018
CHALLENGER1
INCUMBENT2
CUSTOMER3
VALUE PROPOSITION4,5 VALUE NETWORK (CHANGE)6,7,8,9,10
VALUE DIFFERENCIAL11 LIMITS TO IMITATION
Flexport is a customs
brokerage and full-service
freight forwarder (air, ocean,
rail and truck). It offers one
platform that concentrates
transparent rates, real-time
tracking, structured data, and a
dedicated team of experts.
FedEx is the world largest
carrier. It offers customs
brokerage, air, ocean and
truck cargo; parcel delivery,
and business services (e-
commerce, supply chain,
office supplies).
Manufacturing companies are
facing higher expectations
from customers: faster time-
to-market, customized
products and free shipping.
Like individuals, they now
expect to get faster shipments
flexibility, and transparency at
a lower price. To optimize the
process, they also need to
closely involve a number of
partners in their supply chain,
mainly suppliers and retailers.
Other new players (Haven, Shipstr, TruckerPath) are focusing
on offering marketplaces for carriers and customs brokers,
rather than executing freight forwarding themselves. The
market is heavily regulated and licensed.
Flexport commented that it took them over a year to get the
licenses in order. By being a licensed customs brokerage
and freight forwarder, they can offer one platform to manage
everything, an end-to-end service, and collect huge amounts of
data for automation.
Flexport was built from the ground on the latest technology and the
team is constantly working on improving and adding new features.
The strategy is the opposite of traditional freight forwarders’ strategies:
they are open to new technologies and to disruption.
To imitate, the incumbent can’t only install new technologies. It needs
to redesign a giant organization of +400k members: transforming IT
capabilities, changing team capabilities and methodologies, and
adapting the value proposition (transforming its core business into a
digital business and growing new digital businesses).
Flexport tackles several pain points in the industry:
Transparency and agility in pricing: incumbent’s customers
have limited insight into rates, hidden fees, and have to deal
with account executives or customer service to get final
quotes. Flexport offers a web-based platform that allows
quick-pricing and displays line-by-line transparent detailed and
all-inclusive rates.
Transparency and access to data of operations: Incumbent
still holds manual and paper based processes. Flexport allows
real time tracking of inventory and full access to data
analytics. Customers can evaluate their data to optimize their
processes and make informed decisions.
Customer interfaces and technology: The technological gap
between the incumbent and their customers is large and
growing: they hold outdated interfaces and legacy technology.
Flexport is one platform to manage everything (booking
shipments, having suppliers booking, messaging suppliers,
reconciling invoices, analyzing reports): less time wasted.
Internally, engineering and logistics experts are the core of
Flexport’s value network and work hand by hand. There is no room
for IT silos. Technology augments human capabilities through data
and automation, while humans handle complex coordination: a
customs inspection or ensuring that you get space on a freighter in
Hong Kong during peak season.
Externally, Flexport coordinates with companies that own trucks,
ships, etc. They are ‘asset-light’, while the incumbent is ‘asset heavy’
and owns over 160,000 vehicles and 600 aircrafts.
They also work with major technology partners, as NCC Group
(cyber security firm). They’ve never been breached. FedEx has
already suffered from ransomware and a customer data breach.
Moreover, Flexport is looking for new digital businesses with partners
outside logistics: they plan to offer trade financing funded by Wells
Fargo. Businesses have to pay to produce their goods up front, but it
can take months to ship and sell the inventory. A traditional bank
might take months to approve a loan, while Flexport would use all its
shipping data to calculate and minimize the risk.
1,5 https://www.flexport.com/about , 2 https://about.van.fedex.com/our-story/company-structure/, 3 https://www.pwc.com/sg/en/publications/assets/future-of-the-logistics-
industry.pdf, 4 https://www.bcg.com/en-es/publications/2018/why-road-freight-needs-go-digital-fast.aspx, 6 https://www.flexport.com/blog/flexport-freight-forwarder-for-
the-internet-age/, 7 https://www.flexport.com/blog/impact-petya-cybersecurity-attack-businesses-shipping-maersk/, 8 https://mashable.com/2018/02/15/fedex-unsecured-
server-data-exposed/?europe=true#9aFYY1MDZOqj, 9 https://www.zdnet.com/article/notpetya-cyber-attack-on-tnt-express-cost-fedex-300m/,
10 https://techcrunch.com/2017/10/06/a-social-network-for-trade/, 11 https://techcrunch.com/2016/06/07/flexport/