Moving cargo in an ‘age of disruption’

The advent of technology has revolutionized the global freight-forwarding industry. Startup founder Henry Ko tells Lin Wenjie he aims to take it further, making the process as simple as ordering a pizza.

Henry Ko Hok-hang, managing director of freight-forwarding startup Flexport Asia Ltd, is exploring disruptions to modernize the traditional freight-forwarding process, aiming to make international shipping “as easy as ordering a pizza”.

A freight forwarder usually serves as an intermediary between a shipper and carriers in ocean shipping, trucking, air transportation or railway transportation. It handles the complex task of organizing shipments for individuals or corporations to get goods from the manufacturer to a market destination, and negotiating with transportation services to get the best possible deal in moving a shipper’s goods along the most economical route.

A normal international shipment process involves a mountain of documents and staff’s repetitive work in inputting delivery numbers, routes and details of goods, which can be a time-consuming and laborious task. Freight-forwarding companies have to hire many people to tackle all these, thus, labor is always a problem for traditional freight forwarders.

“The top 25 world freightforwarding companies were all founded before 1994. Their operational procedure is still heavily dependent on staff doing the paper work and answering phone calls or checking prices. The pain point in the industry is the high labor cost involved,” Ko tells China Daily.

“If we could use technology to replace parts of that huge human labor, we can save costs and raise our profit margins.”

Flexport created an internet-based system to put all the shipping documents and container data online, making all the prices and transportation modes available to shippers, and giving them full visibility of the shipments in real time.

Normally, a freight-forwarding company charges a premium for its coordinating services — some 20 percent of total freight charges. But, within that 20 percent, half of it could be the direct labor cost, and the other half could be equally divided into administrative fees and net profit. That’s to say, the net profit only accounts for 5 percent of the total freight charge.

“We use one single system to combine all the procedures from purchase order management to freight booking, from end-to-end tracking to quotation, data analysis, and payment. Customers can log onto the website to check where the shipment is, just like you do online shopping. With the internet-based system, I can cut much of the cost because I don’t have to get people to answer customers’ queries,” explains Ko.

Besides automation of shipment tracking, its transparent pricing and billing defy the status quo in an industry of hidden fees and obscure invoices. The system also collects various data, such as on container utilization, to help customers make better decisions.

Rerouting goods

“If the shipper had checked the data and found the container is 65-percent full, we can help him fill the other 35 percent to save some costs. And, if there’s a sudden market demand for a customer’s products in Europe, he can immediately respond by rerouting the goods midway to Europe through the system,or place new orders with manufacturers and order them to ship a certain amount of the products to their warehouse in Europe,” says Ko.

Since its establishment in San Francisco in 2013, Flexport has helped more than 2,500 companies gain access to real-time tracking, powerful analytics, and a searchable source of truth. It has seven offices globally, mostly in the United States and China, with a total of 500 employees. It raised $110 million in a Series C funding in October last year at an $800-million pre-money valuation. The $910-million post-money valuation round was led by DST Global, whose partner Rahul Mehta will become a board observer, and was joined by Founders Fund and Susa Ventures, plus other existing investors.

Flexport also owns two warehouses, one in Los Angeles and another in Hong Kong, as a value-added business to its core logistics operation. Typically, when containers come off those giant ships, they are placed in a third-party warehouse at the port. If Flexport owns those warehouses, it can scan everything for dimensions and weights, and build a model of the cargo, so the next time someone ships the same thing, they’ll know everything about it.

The company’s Hong Kong office opened in March 2016. It has 75 employees at present and plans to recruit 25 more in the first half this year. With 25-percent monthly growth, Ko believes the company’s progress is due to its services.

Dedicated team

“Customers are looking at the value that we can create. Every client is served by a dedicated logistics team, including an account executive, an operations manager,

CAPITAL IDEAS: PETER LIANG

a customs broker, and one or more operations personnel. The team coordinates all of the client’s shipment end to end, and, of course, the software is free of charge, we only charge the freight,” says Ko.

It’s no doubt that Flexport has also benefited from Hong Kong’s excellent freight infrastructure. Hong Kong International Airport ranks first globally in terms of international air cargo throughput, while Hong Kong port is the world’s fifth-busiest in handling containerized cargo.

Looking into the next year, Ko says he’s trying to bring more Chinese manufacturers to the US. As China’s “go out” policy and the Belt and Road Initiative are promoting trade between China and other countries, many manufacturers in Guangdong province desire to go out. Flexport could help them go direct to the US.

Hong Kong’s total freight volume handled in 2016, comprising air, seaborne, river and road cargo, fell by 0.2 percent from 2015 to 283 million tons — largely as a result of the unconstructive external environment, according to the Hong Kong Trade Development Council (HKTDC). But as the world economy recovery continued to gain momentum in 2017, Hong Kong’s export performance is expected to perform well from a low base, HKTDC says.

Statistics show that more than 70 percent of the SAR’s merchandise exports are destined for Asian markets, with Western Europe and North America each accounting for about 10 percent.