How to Change the Freight Industry
Today I’m proud to announce that Freightos is releasing a private beta version of an online freight marketplace — an Expedia for freight shipping — and that we have closed a Series B round of $14 million dollars to power global growth.
Freightos is almost 4 years old. As we announce our B financing today and approach a team size of 100, it feels like we’re transitioning from start-up to growth stage — a good time to reflect briefly.
A long time ago in a global economy far away…
International freight started with the Silk Road. But even then, it was not a particularly efficient industry. Silk prices increased some 10,000% as the material travelled the precarious route from China to Rome, so that only aristocrats could afford the imported product.
Goods still flow from China to Rome (and everywhere else). Western consumers can enjoy a staggering 200 million or so different imported products. And the cost of international transportation (without local trucking) averages as little as 3% of the imported product’s price. Check the label in your pants or the back of your computer. It’s a good bet they were shipped across borders (unless you live in China, of course).
Although 3% doesn’t sound like much, it’s 3% of everything, creating one of the world’s largest industries — international transportation is worth the best part of a trillion dollars per year ….but it’s surprisingly inefficient. Which is why almost four years ago it attracted a team of outsiders, keen to bring the power of automation and the internet, to the world of freight. That’s us.
In logistics, most people you meet are industry lifers. Our team is different. When we reach 100 employees in the not-so-distant future, the vast majority will have come from outside the industry, bringing original, creative thinking.”
That doesn’t mean we don’t know the industry — we’ve been swimming in freight round the clock and round the planet for over 3 years. Some of us had relevant experience before. For a year I managed an electronics company, seeing freight from a customer’s perspective. Some of our team were working on software for B2B as early as 1999. One team member had extensive development experience at Amazon.com. So we’ve accumulated quite some knowledge. But we’re new enough to bring a fresh perspective.
Think outside (the parcel) box.
When most people hear “freight”, they think express services. They imagine a few big players (FedEx, UPS, DHL) and a handful of smaller players. Simple online pricing. Excellent service, and detailed track-and-trace. On a daily basis I have to explain that shipping a FedEx box is very different to shipping a 40’ container.
The industry is surprisingly fragmented. The top three freight forwarders do $20–30 billion of business per year. #20 on the list still does the best part of $2 billion per year. And there are important players outside the top 20: FedEx Trade Networks doesn’t make the top 20. And then there are the small players. A hundred thousand of them. Yes, 100,000! That leaves a lot of space for change from startups like Freightos.
There is limited differentiation between these players. To be sure, many are great companies and offer value added services such as warehousing and contract logistics. But they all offer the basic service — moving goods from A to B in the same forty foot containers, on the same ships.
Competitors + Limited Differentiation = Efficiency? Not really.
You would expect the prolific number of competitors, and limited product differentiation, to drive a relentless drive for efficiency. But we’ve discovered again and again that that is not the case. Regardless, the industry will have to consolidate. So now seems like a great time to start working on those efficiencies. Clearly the companies who have more automation and more online services will be the ones that survive and grow.
But for now, just getting a price quote for a shipment from a big freight forwarder is a manual and error-prone process that takes an average of over 3 days! Virtually none offer automatic, online quotes. It’s amazing that America’s half a million import/export companies accept this.
Ship is changing.
Why wasn’t international freight pricing automated long ago? In the industry they like to say that it’s very complex. A door-to-door international shipment might involve 20 fees such as bridge tolls, fuel surcharges, piracy risk surcharges, Panama Canal fees etc, with thousands of alternative routes to consider.
So yes, it’s complex.
Even so there are probably 20 ingredients in a pizza, and hundreds in an iPhone, and they manage to net it down to one total price. Freight is harder…but doable.
As a software team, it took us time to understand that solving technological challenges isn’t enough. The bigger barriers are cultural. Forwarder pricing teams don’t want to share rates with colleagues overseas, even within one company. Sales teams relish the personal contact with the customer, even while the customer would much rather get a price online. Overcoming these deep-rooted cultural issues is an interesting challenge for our sales team.
But it’s happening. Three years ago only a small number of players understood our value proposition. Now the situation is different. Most CEOs of freight forwarders are acutely aware that their industry is not immune to online disruption, and several are actively thinking how to put their companies ahead of the curve.
Forwarders who partner with Freightos to automate quoting in-house, or go further and provide self-service quotes on the web, are gaining clear competitive advantage. It’s fun to be at the center of such a significant change in such a big and old industry.
For the forward-thinking forwarders, massive rewards await. It’s not just getting ahead of the (many) competitors. Online quoting unlocks new opportunities, like international e-commerce. When you sell online, instant shipping prices in the shopping cart are an absolute must. There will be trillions of dollars of cross-border e-commerce transactions, including large items or B2B quantities, and forwarders can fulfill these.
So far, the Freightos team has had fun showing that cross-border freight pricing can be automated, and that this indeed creates competitive advantage with the large community of import/export companies. Now we need to show that all this can be scaled to cover even broader parts of a massive industry, working with partners and clients to unlock new opportunities for the industry with online freight pricing, routing and booking.