Logistics startup Flexport has announced plans to lay off around 20% of its workforce, the latest freight tech company to make cuts amid an ongoing slump in shipping volumes.
Flexport Struggles Amid Falling Freight Volumes
Once hailed as a rising star in logistics tech, Flexport has seen its fortunes fade over the past year as macroeconomic headwinds buffet the shipping industry. Global freight volumes have declined sharply from pandemic highs, squeezing margins for logistics companies.
Flexport moved high-value goods for sellers on e-commerce platforms like Shopify during the online shopping boom of 2020 and 2021. But as consumers have pulled back spending, those tailwinds have vanished.
|$2.6 billion (projected)
|2021 Operating Loss
The pain has started to show in Flexport’s financials. After topping $3 billion in revenue last year, the company is projected to post around $2.6 billion for 2022 – a steep decline as its operating losses mount.
Flexport raised $935 million in 2021 from investors like Softbank and Shopify at a $8 billion valuation. But private valuations across logistics tech have since collapsed as markets soured on money-losing upstarts.
20% Staff Cuts Amount to Over 150 Layoffs
Flexport CEO Ryan Petersen announced the layoffs to employees in a companywide meeting on January 26th. The cuts will impact around 20% of Flexport’s staff, which amounted to over 700 employees at the start of 2023.
That suggests the current round of payroll cuts will amount to over 150 people – though exact figures were not provided. Employees laid off will receive 16 weeks of severance pay.
This comes after Flexport cut around 8% of staff last summer during an earlier cost-cutting drive. The startup has now trimmed almost 30% of its workforce in less than a year as volumes sank.
Freight Techs Face Uncertain Future
Flexport is far from the only logistics startup feeling the pain. Fellow “freight techs” like CloudTrucks, Uber Freight, and FourKites have made significant cuts this year totaling hundreds of lost jobs.
Venture capital has also rapidly cooled on the sector. Logistics tech funding cratered in 2022, dropping by almost 50% to $6.1 billion from over $12 billion the prior year according to CB Insights.
As easy money dries up and operating conditions get leaner, most freight startups are now focused on cutting costs and prioritizing profitability over growth. But it remains to be seen whether the current crop of logistics disruptors have sound enough business models to survive an extended downturn.
Bleak Freight Market Outlook for 2023
What comes next for Flexport – and freight tech generally – will depend on how long global shipping volumes stay depressed. Many economists forecast a worldwide recession in 2023, which threatens to further dampen trade activity.
The Cass Freight Index shows US shipping volumes decreased 11.5% in December 2022 compared to the prior year – a worrying signal that more pain lies ahead.
“We are cautious about 2023 and expect the operating environment to remain challenging until macrouncertainty subsides,” said Flexport CEO Ryan Petersen.
To endure the slump, logistics startups will need to cut to the bone and pray volumes recover before their venture capital reserves dry up. Those that maintain sufficient cash runway can hope to emerge stronger once markets eventually rebound.
Flexport Refocuses on Profitability
With growth no longer priority number one, Flexport aims to adjust its business model “to get profitable soon,” according to Petersen.
“We’ve made Flexport more efficient through this reorganization so we can continue delivering the high-quality services our clients expect from us,” said Petersen.
The question is where Flexport can extract more profits without sacrificing services. The company still faces fierce competition from entrenched incumbents like Kuehne + Nagel and DHL who leverage decades of infrastructure.
One area Flexport may target is its fledgling freight forwarding arm. The asset-light, high-margin forwarding business holds better profit potential than its asset-heavy ocean and air shipping segments.
In some ways, conditions today echo the aftermath of the Dot Com bubble in early 2000s. Loss-making logistics disruptors with dubious economics are losing access to capital and realizing profits matter after all.
Flexport now faces the ultimate test in its bid to transform the freight industry. With its back against the wall, we will find out if Flexport’s lean digital platform can sustain better margins than legacy competitors – or whether the startup relied too heavily on temporary tailwinds.
One thing does seem certain: we have entered a period of reckoning for logistics tech. Those still standing after the next few years will have proven their mettle as viable long-term players.
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