Investing in FreightFlows
The following excerpt is from Allied’s original deal memo to investors. To review investment opportunities in full, please consider joining the syndicate at Allied.vc/join
Source: CNBC
On March 23rd, 2021, one of the world’s largest container ships got stuck in the Suez Canal for nearly a week, disrupting more than $9B worth of global trade per day (or $400M per hour) and sending shockwaves throughout global energy markets.
Hundreds of ships became stranded, and supply chains ground to a halt while additional cargo piled up in ports around the globe, as ship operators lacked the necessary data and insights to effectively re-route vessels.
Even after the ship was dislodged, the negative impacts continued for months as the backlog of ships began arriving simultaneously in ports, creating extensive and costly traffic jams.
Shipping schedules, which are created months in advance, had to be entirely reorganized as valuable cargo sat wasting away on ships and in ports.
As a result, this blockage exposed one of the most widespread and costly problems within the global shipping industry: a severe lack of predictive visibility and market intelligence throughout maritime supply chains, costing the shipping industry billions of dollars each year (source: CNBC).
Enter FreightFlows – a company that is solving this real and urgent global problem with their proprietary real-time predictive intelligence platform for maritime trade.
Company Overview
Headquartered in Boston, FreightFlows provides real-time data and predictive analytics for global maritime trade, enabling shippers, traders, cargo owners and brokers to identify market inefficiencies, minimize risk and make better decisions, reducing shipping costs by up to 30%.
Historically, the shipping industry has been very slow to adopt new technology, with no one having actionable insights into what’s happening out on the water. This fragmentation has led to a global shipping market where multi-million dollar deals still rely on relationship-based gut feelings.
As a result, these opaque market conditions, speculation, and lack of real-time data make for a shipping industry rife with inefficiencies, unpredictability and volatility. As such, cargo owners overpay by up to 25% on transportation costs, while nearly half of all bulk cargo and commodity ships sail empty, costing the shipping industry billions of dollars each year and contributing 4% of global climate change emissions.
Source: MarketWatch
The Covid-19 pandemic has only exacerbated these inefficiencies in the global shipping industry. Coupled with the international attention garnered by the Suez Canal blockage, the shipping industry is at a critical inflection point, demanding new technology to reduce volatility and uncertainty among global supply chains.
Led by a team with deep domain expertise and a previous exit from their former shipping & logistics company, FreightFlows launched the MVP of their predictive analytics platform in early 2020.
In H2 2020, after winning the $50k gold medal prize at the MassChallenge Boston Accelerator, the company onboarded their first few paying customers and began an iterative process of refining their maritime intelligence dashboard in preparation for global scale.
Now, with the dashboard complete, FrieghtFlows is primed to ramp-up its customer acquisition strategy and begin onboarding its evergrowing pipeline of international clients.
Why we are thrilled to support Matt and the entire team at FreightFlows
As with each of our investments, we look for highly scalable companies backed by expert teams and within a rapidly expanding multi-billion dollar target market.
Exacerbated by the Covid-19 pandemic, coupled with international media attention from the Suez Canal incident, we were instantly drawn to the market opportunity for technological disruption within an antiquated shipping industry responsible for 90% of world trade.
Specifically, all vessels which carry seaborn trade fall into one of three categories: container ships (e.g. consumer goods), dry bulk cargo (e.g. grain, iron ore, coal), and commodities (e.g. oil tankers, petroleum products, gas).
Container ships, which only represent 13.5% of global trade, operate on fixed-route itineraries (like busses), whereas dry bulk and oil tankers, which represent 71% of trade, operate on flexible-route itineraries (like taxis).
Source: Shipping & Freight Resource
DWT: Deadweight tonnage. Value: % of total shipping industry.
Unfortunately, while numerous companies have succeeded at disrupting the container shipping industries (e.g. Transfix valued at $1B+, Flexport at $3.2B), the bulk and commodities shipping industries have remained largely untouched.
For example, a vessel that just offloaded a shipment of bulk chemicals cannot simply pick up a shipment of grain – the hull is not adequately cleaned nor ready to accept this type of cargo. Instead, the grain shipper must wait and search for a vessel suitable to carry its cargo, creating costly delays, while the chemical ship sails empty to its next port of pickup.
This severe lack of visibility into the types of cargo (and suitability of ships) has plagued the bulk and commodity shipping industries for decades. Although many tracking programs show vessels in real-time on a map, none of them provide the vital context required for traders to find a suitable ship, thus quickly and efficiently moving their cargo.
As a result, the bulk and commodity shipping industries are subject to considerable volatility, where the cost of a voyage can swing by millions of dollars, and as much as 25% to 50%.
Lastly, with shipping currently contributing 4% of global greenhouse gas emissions, this figure is expected to more than triple by 2050, with the OECD and governments around the globe already imposing stricter requirements to maximize ship utilization and reduce the nearly 50% of ships travelling empty.
Therefore, when we met the talented team at FreightFlows, it was instantly clear the importance of their mission to solve such a real and imminent problem within the bulk and commodity shipping industries. Specifically, by providing industry participants with the necessary actionable intelligence and visibility to reduce risk and save billions of dollars each year.
1) Large and Rapidly Expanding Market Opportunity
As highlighted above, while several companies have succeeded at disrupting the container shipping industry, the much larger bulk and wet cargo industries have remained mostly untouched.
Representing 71% of global trade and worth billions of dollars each year, demand for bulk and wet cargo continues to increase, with the dry bulk shipping market expected to reach 6.8B tonnes of freight by 2027, expanding at a CAGR of 5.1% (source).
With most industry participants still using historical data, which lags months behind, there is exponential demand for technology that can provide greater supply chain visibility while reducing costs.
2) A Proven Team with Deep Domain Expertise and a Prior Exit
Founder and CEO Matt Morgan comes from a multigenerational shipping family and has worked in the industry for decades.
With a degree in Computer Science, MBA, and his previous logistics company (backed by a16z) getting acquired in 2018, Matt’s extensive experience and intrinsic knowledge make him one of the absolute best people to build & scale the FreightFlows platform.
Most notably, Matt has attracted an incredibly talented team with significant expertise in data science, commodity analytics, software engineering, machine learning and product development.
3) Timing – a Convergence of Market Forces supporting the Rapid Adoption of Technology
As described, weaknesses in global supply chains have only been exacerbated by the Covid-19 pandemic, along with recent international ripple effects from the Suez Canal blockage.
Compounded by an antiquated shipping industry which has historically been resistant to technology, a new generation of tech-savvy individuals are making their way into the industry and are demanding new technologies to minimize pricing volatility and risk.
IN SUMMARY, we are investing based on the team’s ability to execute its vision of becoming the best independent trade data provider – at the intersection of rapid technological adoption within one of the world’s largest and most critical industries.
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