Flexport: how helping to grow the GDP of international trade can help the company hit $1 T valluation

Photo by Scott Graham on Unsplash

The next big thing in the supply chain tech

Flexport. An Operating System for Global Trade. The company comes under the spotlight yet again with the latest funding round valuing the company at $8 billion.

@garrytan’s interview with @typesfast, deep dives into Flexport’s leadership principles and expanding vision that can take the company towards an $800 billion valuation. Trade finance comes up as one of the big opportunities pieces to getting there. https://www.youtube.com/watch?v=lm3lfZza1ro

Flexport Capital is a fine case study of a software moat disrupting the industry status quo. That alone could take Flexport to a $1 trillion valuation.

Primer on Trade Finance

The opportunity is immense. Export of goods reached $28 trillion for 2021. This is an increase of 23% on 2020 and 11% increase compared with pre-COVID-19 levels. Approximately $10 trillion of goods are shipped using trade credit.

The existing process is cumbersome:

  • multiple stakeholders transferring tons of data;
  • paperwork: between importer/exporter, issuing and beneficiary banks;
  • information asymmetries that lead to issues of trust cross-jurisdiction

are all attributes of a trade finance deal.

Consider this non-exclusive list of all the potential documents that can be involved in a shipment of goods for example.

Check out https://www.youtube.com/watch?v=DsSzQfejwMk for a more in-depth review how Trade Finance in supply chain context works

The admin burden of managing the documentation alone makes trade finance an inaccessible option to some SMEs. Even worse if they lack credit history.

Becoming a lender

Flexport is in a unique position to build a competitive lending business leveraging its software moats and an existing ecosystem of products.

1) Customer Acquisition: using existing customer base to offer trade financing as a start. The cost is low if not zero since most of them are already using Flexport for other parts of the supply chain value flow

2) Underwriting: probably the hardest for other less digitized and data-driven companies to replicate. Having visibility on customer volumes, suppliers, transit times, payment schedules, OTIF performance allows Fexlport to offer more competitive market rates.

This also opens up trade financing opportunities for some of the SMEs who previously might not have been able to secure a deal from other providers.

3) Collections: when things go wrong. Flexport as a freight forwarder, thanks to an ancient maritime law, has a first lien on the cargo for unpaid bills. This means that even if the creditor defaults on the payment, they can seise the goods, sell them at the retail price, and still turn a profit (cf the difference between the wholesale price paid to the exporter at the origin).

Impact on the customer

For Flexport’s existing customers, access to trade finance allows them to re-allocate capital to drive exponential growth. SMEs can negotiate larger orders at lower prices, fund expansion to manufacturing facilities, invest in other business functions, etc.

Think of a smaller up-and-coming D2C brand struggling to align the production cycles against seasonal sales spikes. They now have the flexibility to stock up more inventory ahead of the spikes and optimize the production lines during the slower months.

As for the new customer segments, i.e. SMEs with no prior credit history, I bet the team has already built custom models to identify default risk based on certain business health indicators.

All, in turn, Flexport Capital helps to grow the GDP of global trade further. Making the pie bigger which in turn opens up opportunities to capture a larger share of the global export deal flow.

What’s next?

The closest analogy that comes to mind is Stripe’s vision of increasing the GDP of the internet. Whereas the product vision is defined by the pain points SMEs encounter when setting up, invoicing, billing, transacting online, etc.

The next bigger question in light of this is, what other parts of the supply chain workflow can Flexport target next?

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Oleg Kurochka

Oleg Kurochka

Currently, splitting my time between understanding supply chains, product management Twitter and web3 communities.