On a giant video screen in Flexport’s San Francisco headquarters, a globe speckled with dots spins slowly and hypnotically, turning from night to day to night. Each dot represents cargo being tracked by Flexport’s software, whether it’s in container ships plying the oceans, in trucks motoring to and from warehouses, or on planes crossing the sky. Flexport CEO and founder Ryan Petersen ’08 believes worldwide commerce can and should be as simple as this: customs cleared seamlessly, inventory arriving as scheduled and budgeted, and the freight-forwarding process—the expediting, tracking, and moving of cargo between countries—visible in real time. Petersen’s mission is, he says, “to make global trade easier for everyone.” To do that, the five-year-old startup is automating and revolutionizing the $400 billion freight-forwarding industry. The company’s logistics software streamlines the often complex task of moving everything from refrigerators to raspberries through two countries’ customs, across various modes of transit, neatly and cost-efficiently.
“We want to make Flexport into a reliable utility, where you put goods in on one side and they come out on the other side very predictably,” Petersen says. “You know where and when they’re going to come out.”
To that end, Flexport has replaced the Excel spreadsheets, printed bills of lading, and invoices that the industry has typically used for each client, with real-time freight-tracking information and clean online dashboards that provide a comprehensive view of customers’ data. Flexport can view all the cargo it’s tracking, so it can optimize efficiency by consolidating loads, resulting in faster travel and better transparency.
It’s no surprise, then, that the company is growing at breakneck speed, onboarding 20 new hires every two weeks and deploying them to nine offices around the globe. More than 300 of its 600- plus employees work at the 50,000-square-foot San Francisco office, the company’s third home in the past four years.
Hoodies and Hot Lunches
As at many Silicon Valley startups, well-behaved dogs loll under Flexport’s rows of adjustable desks, and hoodie-wearing employees (average age: 27) dig into daily catered hot lunches. Freight forwarding, however, lacks the hipness factor that social networking, wearable technology, or driverless cars enjoy; TechCrunch last year dubbed Flexport “the unsexiest trilliondollar startup.”
Yet the components used in that wearable tech or those self-driving cars were likely exported from one country and imported to another, handed off along their journey to a freight forwarder, their journey expedited by a customs broker. “The average American has no idea what freight forwarding is, but a large percentage of the things you interact with on a daily basis have been moved by this group of trade gurus,” explains Julie Harris ’16, Flexport’s director of enterprise sales.
Petersen describes global trade as the world’s biggest social network, but one that enables people to exchange goods rather than photos of their children and vacations. A company that can simplify it is onto something huge. Investors think that company just might be Flexport. The business raised a $110 million Series C round last year on top of a $65 million Series B round in 2016, giving it a $910 million post-money valuation. Investors include DST Global, First Round Capital, Bloomberg Beta, and actor Ashton Kutcher. Forbes estimated Flexport’s 2017 revenue at $500 million and put Flexport on its 2017 list of the next billion-dollar startups.
Not too shabby for a company that Petersen launched before he even had a product. “I made a fake website offering the [freight- forwarding] service to the world, and we did not have the license or capabilities to offer the service,” he recalls. “It looked like a real company, but it was fake.” When 300 companies signed up, Petersen knew he’d found “unbelievable demand for this thing.”
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To China and Back
Innovating comes naturally to Petersen, 36. His father, Stephen, is a computer programmer who ran and sold a business, and his mother, Barbara, is a biochemist and food-safety expert who launched and sold two companies. As a nine-year-old in Bethesda, Maryland, Petersen earned his allowance by selling sodas at his mom’s office and, with his dad’s help, writing software to generate invoices.
His plan to work in microfinance after graduating from the University of California, Berkeley, didn’t pan out, so he joined his brother, David, in selling Chinese scooters online. Petersen quickly mastered marketing, building websites, driving demand, and handling customer service. He spent two years in Shanghai managing the supply chain, negotiating deals, directing shipping logistics, and making little headway in his efforts to master Chinese.
Columbia Business School’s accelerated 18-month program appealed to him as an efficient way to earn an MBA. Petersen feared his attention would wander in class if he didn’t remain focused, so his strategy was to be hyperengaged. “I was the annoying person asking all the questions and participating the most,” he says.
The average American has no idea what freight forwarding is, but a large percentage of the things you interact with on a daily basis have been moved by this group of trade gurus. —Julie Harris ’16
Meanwhile, Petersen was testing various ventures. “The first was doing trade. The second [Import Genius, another Petersen brothers venture, which is still operating] was selling data about trade. The third one, Flexport, is selling services required for others to do trade.”
By 2014, Petersen was enrolled in Silicon Valley incubator Y Combinator. Seeking help refining his business model, he reached out to former classmate and friend Sanne Manders ’08, who was working for Boston Consulting Group in Amsterdam. Flexport had revenues of about $6,000 and a few employees. “It was basically Ryan and a great vision in a five-page PowerPoint,” Manders recalls.
Manders flew to the US and lived with Petersen as they hammered out a business strategy. Manders had been on the partner track at BCG, but the two realized Petersen’s entrepreneurial skills complemented Manders’s strengths as a strategist. Manders left his job and became Flexport’s chief operating officer.
A Hub for Columbia Business School Alumni
Manders and Harris are two of six School alumni besides Petersen who work at the company. Flexport’s director of sea freight is James Ford-Hutchinson ’10; Anders Schulze ’17 is vice president and general manager of the San Francisco office; Neel Jones Shah ’98, Delta’s former chief cargo officer, is Flexport’s senior vice president and global head of airfreight; and Jindra Zitek ’08 is the company’s senior vice president of customer success and operations.
Collectively, explains Manders, their goal is to “replace the human-to-human relay race in global logistics by one that’s machine to machine,” in which options are seamlessly calculated for customers by software that optimizes for factors most important to customers, be it cost or delivery date.
“That [software] is what creates the cost efficiency and enables scale that would not be feasible without it,” says Awi Federgruen, the Charles E. Exley Professor of Management in the Department of Decision, Risk, and Operations.
He likens Flexport’s approach to that of ride-sharing services, which replace human strategists and coordinators—commonly known as taxi dispatchers—with software and applications that optimize efficiency for both the service provider and the user. “One can imagine similar things happening in the freight industry,” Federgruen says.
Most people talk about risk as what can go wrong. This is about what can go right. —Ryan Petersen ’08
Flexport faces some formidable challenges. There are thousands of freight forwarders in the US—Petersen jokes that a freight forwarder can be “a guy with a phone and a Cadillac”—and plenty of more-established competition with extensive networks, including FedEx, Kuehne + Nagel Group, and Expeditors.
The Wall Street Journal reports that each month Flexport moves about 7,000 twenty-foot-equivalent units (which is how container cargo is measured) on ships, a number dwarfed by industry leaders that move millions of containers. But Flexport is gaining traction. Manders says the company is among the top 20 freight forwarders on the transpacific trade lane—the trade corridor between Asia and the US West Coast. Among its 3,000 customers, Flexport counts JLab Audio, Klean Kanteen, and Warby Parker.
It was Flexport’s focus on customer service that lured Schulze from Maersk Line, the world’s largest container-shipping company, where he’d spent more than a decade. “A lot of companies talk about being customer-centric, but Flexport’s customer score really speaks for itself,” he says, explaining that freight forwarders rarely receive high customer-satisfaction ratings. “You feel like you add value to clients by providing good service so they can do a better business, and that’s very rewarding.”
Out of Control by Design
Despite its application of tech to trade, Flexport’s most significant innovation, Petersen insists, is its structure. He’s organized the business into 80 cross-functional groups called squads, each with the authority to set its own goals and execute them. “It’s a new kind of organizational structure,” Petersen explains. “It’s much less dependent on me and the executive team. My goal from the start is to make myself obsolete.”
Squads devise their own names—Manhattan employees chose “Flex in the City” and the C-suite team is “Sea Level”—and create their own logos and swag. The “Freightful Dead” squad wears embellished acid-washed denim jackets.
Flexport’s engineering squads include employees in product design and data science. Employees in customer service, account management, and data quality make up the customer-facing squad. Customers speak directly to the employees who handle their accounts. An admirer of Amazon and Apple, Petersen says he modeled his company’s responsive customer-service approach on theirs.
“Putting these people next to each other [means] the salesperson now cannot sell something that the service team can’t do, because they can’t run away,” Petersen says. “The service person can hold them accountable and say, ‘All right, you’re going to help me untangle this thing that you sold.’”
He remembers insisting to his skeptical professors that a viable management structure was “out of control by design,” and that became his template for Flexport’s arrangement. “It’s fun to see how prescient that was,” he says.
Looking to the Future
Flexport began as a licensed customs brokerage, streamlining the movement of goods between countries, and lately has been handling shipments, opening cargo-consolidation centers in Los Angeles and Hong Kong for more control and potential cost savings. The company recently chartered a cargo plane to fly twice a week between Hong Kong and Los Angeles so that it can ensure air-cargo capacity in a tight market. By year’s end, Flexport plans to fly 20 loads of cargo across the Pacific each month.
In 2017, the company opened a 12,000-square-foot warehouse in Hong Kong and a 100,000-square-foot warehouse in Los Angeles. They recently opened one in Yantian, China. At these warehouses, also known as cross docks, the company can consolidate cargo from various customers for shipping and delivery. It expects to add another two dozen cross docks around the world.
“We think that sometime in the next 18 months we’ll be able to move full container loads from any port in the world to any address in the United States without any human labor” to handle logistics, Petersen says. “When we do that, we’ll have reduced the price of ocean freight by 15 percent for the entire United States. It’s a big deal.” That “big deal” could lead to a 1 percent price drop in the cost of consumer goods, exemplifying Petersen’s belief that global trade and the internet will benefit everyone.
Petersen says the key challenges as he grows his company are fostering an innovative workplace culture, ensuring compliance in a regulated industry, and building out the software to automate worldwide commerce.
“Can you build a platform for all the parties involved in global trade to come together and perform their roles seamlessly without all the added overhead and burden in communication costs that a traditional freight company has to bear? If you solve that problem, you’re not building a $10 billion business. You’re building the platform for global trade,” he says. “Most people talk about risk as what can go wrong. This is about what can go right.”