News / It's a struggle for 'digital' forwarders, with 'poster boy' Flexport losing value

© Thomas Heden

The proposed sale of ‘digital’ forwarder Forto, as well as EV Cargo, which also considers itself ‘digital’, has shone a spotlight on a sector said to be reaching maturity – or at least running out of funding. 

“The first wave of digital logistics struggles was characterised by distress, selling off, and bankruptcies, like the insolvency of Instafreight, and the collapse of Convoy, a company that had raised $1bn and was valued at $3.8bn just before facing trouble,” explained Wolfgang Lehmacher, partner at Anchor Group and former director at the World Economic Forum, in a recent article. 

“The current second wave is about recognising that scale requires resources beyond the capability of these companies, and requires patience, which most shareholders of VC-backed firms lack.”

That leaves just a few originals, such as ‘digital poster boy’ Flexport, which has just admitted a failure to meet its profitability target in 2024, owing to weak demand for ecommerce fulfilment and distribution. CEO Ryan Petersen explained that too much of its 5.2m sq ft of warehouse space went unused, according to the WSJ. 

But he said he expected Flexport to be “quite profitable” by the end of 2025. Plans for an IPO have been pushed back. Revenue last year was $2.1bn, up from $1.6bn in 2023. 

Mr Lehmacher wrote: “These events underscore a trend in logistics technology, where the initial hype and massive influx of venture capital are giving way to a more sober reality. The ‘cheap capital trap’ that fuelled growth at the expense of sound returns continues to force players to face harsh economic realities. However, interpreting these setbacks as a wholesale rejection of the digital-first freight forwarding model would be premature and probably wrong.”  

He explained: “Our interviews with multiple players in the sector, both on the buy- and sell-side, hint at a recognition among digital-first players that further growth requires a level of balance sheet strength that incumbents have, but digital-first actors lack and likely cannot replicate easily. Freight forwarding is a working capital-intensive business; the more one grows, the more capital one needs.

“When capital was cheap, most companies grew by regularly raising equity. Now that that path has closed, they can no longer grow as fast and must partner with balance sheets that can provide the necessary working capital.” 

He said struggles at digital forwarders became particularly acute at the end of 2023, when the Fed Funds rate – the US interbank interest rate – peaked at 5.33%, up from nearly zero, increasing bank and working capital lending expenses.

“It likely reduced digital forwarder gross margins by at least as much.” 

It leaves digital ‘start-ups’ in a bind – with no exit in sight. 

While Flexport doesn’t release its financial results, shareholder Shopify does. In a February SEC filing, Shopify noted a $22m loss on its Flexport investment for the July to September quarter, but it showed signs of improvement after two quarters of a $44m loss.  You can read more details on it in Loadstar Premium.

But Flexport’s valuation is certainly on the decline. According to Yahoo Finance, “Shopify’s total investment in Flexport is $642m, as of 31 December 2024, down from the $664m it had invested in the company three months earlier, and well off the $838m tallied as of 30 June 2023. 

“When accounting for the 17% stake Shopify had in Flexport as of 30 September 2023, the logistics company is valued at roughly $3.8bn, less than half of the $8bn valuation upon securing $935m funding in February 2022.” 

Mr Lehmacher added: “A final reason for digital-first actors’ continuous struggle is that exit options are now less prominent. The sector has lost its shine, and shares of companies such as Flexport now trade at a discount on several secondary share marketplaces, compared with their last rounds. These companies and their shareholders may have missed the IPO or SPAC bandwagon.” 

Flexport has allowed accredited investors to purchase private stock, available on digital marketplace Hiive, since May 2022. 

According to Hiive head of marketing Nathan Pitzer: “Flexport has been one of the most actively traded pre-IPO companies on Hiive, with prices frequently fluctuating. 

“The majority of our transaction volume comes from institutional investors, including VC firms, PE firms, and family offices,“ he continued, “Any accredited investor can use the platform to submit transactions. Our minimum transaction size is $25K, while the average transaction size is approximately $400K.” 

According to the WSJ, Mr Petersen is considering a secondary tender offering, to allow some of its investors to cash out. 

But lack of profitability could be an issue for Flexport’s longer term plans. 

One VC investor told The Loadstar: “In the VC game, you’re trying to track and build value, and  the way you do it is to build revenue for the company. VCs mark the market on a quarterly or monthly basis so they can track their own funds’ performance. They don’t really care for a period of time if the company’s not making money, as long as the value is increasing.” 

Once the VC cash has dried up, then there is the allure of an IPO. The investor explained: “There’s two reasons why you go public. One, to exit. Because you’re profitable. Because you have cash. Two, is to raise money.” 

That option is still a way off for Flexport. 

 “At the end of the year, we can actually entertain [the idea of an IPO],” Mr Petersen said. “For now, it’s off the planning horizon.”