September 12, 2023

Flexport founder says ousted CEO lost customer focus, spending discipline


Last week’s dismissal of Dave Clark as Flexport’s chief executive officer was prompted by his neglect of customers and freight growth to focus on expensive technology development for Amazon-like last-mile delivery, reinstalled CEO Ryan Petersen told FreightWaves. 

The Flexport founder stressed the leadership change doesn’t mean the company is returning to being a nuts-and-bolts freight forwarder and will continue its transformation into an end-to-end logistics provider, aided by the June acquisition of Shopify’s e-commerce fulfillment unit

The reboot, he explained, has more to do with focusing on customer service and a mindset of hustling for business rather than simply being a monolithic, tech-enabled delivery company processing orders without a human interface. 

“A big reason this change needed to happen is the CEO needs to be out there meeting customers, constantly traveling and seeing them in person wherever, whenever, multiple days a week,” Petersen said in an interview on Sunday. “The culture of Flexport is [based on] seeing the world through our customers’ eyes and solving their problems. As the board started to see that waning … we took immediate action.” 

Petersen stressed that “freight forwarding is a service business, it’s not consumer logistics where you just deliver the package and that’s it. In freight forwarding, it’s really about understanding your customer, understanding their network design, understanding their problems. And if you’re not listening to them as the CEO, there’s no possible way you can make good decisions.”

Clark, the architect of Amazon’s sprawling transport and logistics business, was brought in a year ago as a more seasoned executive to help Flexport transition from a startup and sustainably scale the 10-year-old business. He was forced out last Wednesday over differences about the company’s direction and growing red ink.

“The board realized: ‘Hey, this is … a role for the founder of the company. You’re gonna have to drive growth again.’ That’s what I have done really, really well. Dave built a great technology organization here and really advanced us to build world-class operations, so we now are sort of like a tiger ready to pounce,” Petersen said.

Flexport also dismissed several of Clark’s top lieutenants from Amazon late last week, a spokesperson confirmed. Gone are Teresa Carlson, the chief commercial officer; Darcie Henry, the human resources chief; Tim Collins, the operations vice president; and product executive Adrienne Wilhoit. Bill Dreigert, a former Amazon executive and co-founder of Uber Freight who joined in May to lead Flexport’s new domestic truck brokerage business, is still with the company. 

Petersen, who shared the CEO title with Clark for several months before taking the role of executive chairman in March, downplayed the need for damage control, saying many customers have sent positive messages about him retaking the helm.

The turmoil preceded Tuesday’s rollout of a self-service technology portal designed to make it easier for independent sellers across major e-commerce marketplaces and wholesale channels to access international freight, domestic fulfillment, financing, warehousing and inventory replenishment. 

Flexport promotes itself as a leading adopter of cloud-based digital tools that simplify for customers the complex world of cross-border trade characterized by arcane regulatory rules, intimidating geographical distances and siloed networks of providers. It spent heavily to automate supply chain processes and enhance the shipper experience through shipment transparency, fast response times, data analysis and flexible services. 

Flexport grew at an incredible rate and posted its first profit during the pandemic, fueled by demand from shippers that needed a helping hand to navigate massive supply chain disruptions and name recognition generated by the outspoken Petersen. Flexport generated $5 billion in gross revenue in 2022, according to public accounts, but laid off 20% of its workforce, about 650 employees, early this year because of the global freight recession.

Critics argue Flexport doesn’t have any special sauce that makes it stand out from other major freight forwarders. A former account manager at Flexport, who spoke on condition of anonymity earlier this year so as not to jeopardize her job search, said a big problem with the platform is that many suppliers, particularly in places such as China and Vietnam, don’t upload information or communicate through the platform, forcing Flexport staff to follow up manually to process shipments.

“It’s like half of the shipments still exist outside the platform,” she said. “And the platform is outdated. It’s a bootleg Facebook, from the inside out. It was actually modeled off of Facebook. It didn’t quite live up to the hype.”

Another employee who left as part of a downsizing move, told FreightWaves the Flexport technology was mostly for ocean shipments and didn’t connect other modes like air and trucking. 

Small businesses liked the platform because Flexport didn’t charge for the tools and eliminated hassle by moving their goods, but the technology wasn’t cutting edge, the person said. “It’s very clunky.”

Heartburn over spending 

Petersen last week suggested in a memo posted on X, formerly known as Twitter, that Flexport needs to rein in spending amid the downturn in freight volumes and return to profitability.

In the interview with FreightWaves, Petersen expressed confidence Flexport would become profitable if it can bring fixed costs under control because freight forwarding is a high-margin business. And it will still invest in customer-facing personnel, tools and products.

Realigning the company could result in some layoffs, he acknowledged.

“This is not a company in distress. We have a billion dollars of net cash. Some changes are needed. We’re going to be working hard on our fixed costs. We’re not doing any cost cutting as it relates to the people and teams and services that we provide to our customer,” he said in the phone interview. “In fact, we’re gonna invest more, but on the fixed cost basis, we’re going to cut costs so we can be even better for our customers.”

Petersen posted Friday on X that Flexport is eager to sublease office space in San Francisco, Los Angeles, New York and Dallas. 

The company has twice as many desks as it needs and other waste that can be cut, Petersen told FreightWaves, but “that doesn’t mean you can’t build new tech and execute on this new vision. … We’re going to invest even more in things that create value for customers.”

Flexport also has revoked offers to 75 people, Petersen announced on X.

The logistics provider has enough IT engineers to build software products but “we’re adding more people that do sales, customer experience work, operations and customs compliance. These are things that drive growth,” he said in the interview.

Flexport is also losing money on three dedicated freighters chartered under a long-term contract with Atlas Air. The forwarder signed the transport services deal with Atlas Air in 2020 when passenger belly capacity disappeared with the pandemic and shippers were desperate for transport capacity, but the planes are a liability during the current weak market. Petersen said the solution is to work harder to find more shipments for the aircraft and that the contracts will prove positive over their lifetime. 

Petersen implied that Clark was spending money like he was still at Amazon, where the company had so much goodwill from investors that it could lose billions of dollars for years while building a massive logistics empire. 

“Whatever it was, maybe it’s just being used to a different capital markets environment or more funding in a previous company, but in this industry you got to be super dialed in on your fixed costs so that you can use the cash that you have,” he said.

The spending shoe was on the other foot in January, when Clark started to take over. According to the former account manager, it was Clark who made it clear there was too much waste.

“He doesn’t want to spend. The first time he spoke to us the message was we spend a lot of money. We’ve been wasteful and things are going to be changing,” she said. 

Brittain Ladd, a former Amazon executive and top e-commerce logistics and fulfillment consultant, said he expects Flexport to quickly burn through its cash reserves and have a fire sale to dump Deliverr, acquired via Shopify. 

“Ryan Petersen is about to face a Sisyphean task to keep Flexport operating” if leadership can’t retain talent or raise more capital. “I don’t see how Flexport can survive unless they’re acquired,”  he wrote on LinkedIn.

Petersen said the money won’t go quickly on his watch.

“I’m going to be diving deep into the details, understanding the road map, getting people focused on fewer things that drive more customer value. And you’ll see actually, you can often do more with less. If you have this abundance, where there’s people everywhere, it actually creates confusion. And the teams have to have lots of meetings to talk to each other.

“So we’re going to be focused on fewer initiatives that are more directly tied to customer value creation. I think we’re actually going to grow faster and generate more profit with less people. … And in areas that aren’t creating values for the customer, we’re gonna have to let go of some people. But we’re not doing this to cut costs,” he said.

“The reality of Flexport today is that you can’t cut your way to profitability. You have to cut some costs, but you have to grow like crazy. And we know where growth comes from. We were the fastest growing company in freight forwarding for like the entire time that I was the CEO of the company. And we will be again,” Petersen declared.

It’s noteworthy that the company has only been profitable once — in the unprecedented freight boom of 2021 when the pandemic forced shippers to spend heavily for extraordinary logistics to bypass global bottlenecks. 

Derek Lossing, who spent six years as a senior logistics manager at Amazon and now runs e-commerce and transportation consultancy Cirrus Global Advisors, said on LinkedIn that Amazon alumni like Clark aren’t always a good match for other businesses, no matter their talent.

“An extremely strong leader at Amazon isn’t always a great fit at new companies. I have watched dozens of Amazon senior leaders depart Amazon and only make it a year, or even less, at new companies. While Amazon churns out well-above average people a lot of companies struggle with the product of Amazon’s unique culture and process to get results delivered in a less-than-traditional method. Lack of fit post Amazon is a very common problem,” he said.

Refocus on freight growth

The Flexport founder pushed back on the notion that lower revenue in the past year was a function of the steep downturn in global air and ocean shipping volumes tied to the uncertain economy. Even logistics giant Kuehne+Nagel reported a 43% drop in second-quarter revenue and operating profits 51% below the same period in 2022. Revenue at Expeditors, a large Seattle-based forwarder, was down 51% in the second quarter year over year. 

Flexport CEO Ryan Petersen

“I don’t believe in excuses like that. In 2015, there was a strike in the ports on the West Coast. There were three months when you couldn’t ship anything. We grew. In 2016, the price of ocean freight fell to its lowest in the history of human civilization. We grew. From 2016 through 2019 there were new tariffs every week that were screwing up our customers and we managed to grow.

“And I don’t just mean revenue. Your volumes have got to grow. We’re a growth company, we’re a startup. We have a real competitive advantage on tech and on operational excellence. But we’ve got to make sure we maintain that competitive advantage in the way we serve customers. And it starts at the top with the CEO,” he said.

“A lot of it is symbolic. The team needs to see the leaders in this company are out there working hard selling and then the leaders need to meet in the offices with the teams in the trenches that are solving customer problems and serving them and helping them implement those solutions. 

“Global logistics is inherently cross functional and cross geography. There’s these different teams that need to come together. And so leaders need to understand how can we break down bottlenecks, break down silos, make sure this stuff runs smoother? And that’s the kind of leadership that the company really badly needs and that I’m going to provide,” said Petersen. 

The higher growth rate, however, didn’t translate into profits in those years.

As for Deliverr, Petersen insisted it remains a key part of the strategy.

“That’s an incredibly powerful new technology and logistics platform that I’m very proud we built under Dave’s leadership and we’re going to keep building that investment. So there’s no change at all there,” he said. 

The reinstalled CEO took credit for the $2.1 billion Shopify deal, saying the idea originated with him before ever meeting Clark and noting that Shopify invested $400 million in Flexport last year. Having Clark on board gave him the confidence to move ahead with the acquisition, he said.

Losing, unlike Ladd and many  social media pundits, said the Flexport-Shopify deal was good for both companies. But Flexport’s ability to implement last-mile delivery could be set back if there is a mass exodus of former Amazon executives in the coming months, he noted. 

New freight management for small merchants

The Flexport sellers’ portal builds on the acquisition of Shopify’s logistics arm, particularly the Deliverr fulfillment network. Petersen said Flexport has integrated the Deliverr technology and can now provide a port-to-porch conveyor belt from the overseas point of manufacture to an online shopper’s door. 

The all-inclusive platform is made for smaller companies that don’t have big logistics departments, the scale to negotiate lower carrier rates or the cross-border trade expertise that large enterprises normally enjoy. 

Small and midsize businesses can let Flexport handle the physical and digital connections necessary to make a store or consumer delivery with a few simple clicks selecting their requirements rather than trying to integrate fragmented logistics vendors into a seamless supply chain themselves. 

Flexport claims members get priority shipment that can help entrepreneurs reduce shipping time and total landed cost for imported goods by 15%. Petersen said the seller portal is available in the U.S. but will be expanded globally and include domestic fulfillment capability. 

The fulfillment offering comes in two flavors: Flexport and neutral. Small and midsize businesses can use Flexport’s fulfillment capability, which utilizes 13 last-mile carriers and a network of more than 50 sort centers that move cargo. Flexport has also started handling parcels. 

Flexport also provides entrepreneurs who prefer to use other order fulfillment services the ability to maintain optimal inventory levels. Its technology is integrated with fulfillment services from Amazon, Walmart, Costco, Target, Nordstrom and others and can electronically talk to their systems about each product in stock. The company has 3 million square feet of storage reserved for sellers and uses artificial intelligence to monitor inventory levels and automatically replenish them when stock starts to run low. Instead of having inventory with each different fulfillment provider, a merchant can put all its inventory in a Flexport hub and Flexport will feed it to the other fulfillment service providers. 

“If you start running out of stock at Amazon, you have to time your inbound freight coming from a factory and get it there just in time before you run out and get an appointment, and if you send them too much, they won’t store it for you,” said Petersen. “So with this, we dramatically simplify the world. Just bring it to our reserve storage site, connect your account and put it on auto replenish. And we’ll make sure that that Amazon level stays stocked so you never run out of stock again.”

The seller portal runs parallel to Flexport’s main freight forwarding platform, which is aimed at helping large companies manage international freight transport. It is configured for corporations with more complex supply networks, order management systems and contract rates for air and ocean freight. 

Flexport has raised $2.5 billion in venture capital, including $935 million from Andreessen Horowitz and MSD Partners in early 2022. That transaction valued the company at $8 billion. Ladd opined that Flexport is only worth $2 billion and “is the most overvalued company in the industry.”

Click here for more FreightWaves/American Shipper articles by Eric Kulisch.

Contact Reporter: [email protected] 

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The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

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