(UPDATE 2 May 4, 2023, 2:50 p.m. ET with quarterly earnings news from Shopify and sale of robot division.)
Digital-oriented freight forwarder Flexport has agreed to acquire the logistics arm of publicly traded Shopify Inc. and Deliverr, the tech-enabled shipping services provider Shopify bought last year for $2.1 billion, moving the emerging import-export firm into e-commerce fulfillment and last-mile delivery.
In exchange for its fulfillment assets, Shopify will receive a 13% equity stake in Flexport and a seat on the board, Flexport CEO Dave Clark told FreightWaves.
The deal is the first since Clark, who engineered the rollout of Amazon.com’s transportation and logistics network over a dozen years, joined Flexport eight months ago and became full-time CEO on March 1 with a mandate to sustainably scale the 10-year-old business. It positions Flexport to compete with Amazon on home delivery with a more holistic port-to-porch logistics system designed for small and medium-size merchants.
Shopify (NYSE: SHOP), which enables merchants to build online storefronts and leverage other services, invested an undisclosed amount in Flexport last year as part of a nearly $1 billion funding raise that valued it at $8 billion. The two companies have worked closely together since then. In February, Flexport created a tool that helps sellers on the Shopify e-commerce platform manage and track inbound ocean shipments.
“With this acquisition, we’ll be able to complete the journey. So we’ll be able to import [an order] and get it to its final destination at a store or a customer’s home” under one technology platform, Clark said in an interview.
Flexport is essentially taking over the Deliverr team in the Shopify network. Deliverr’s nationwide fulfillment network, which has warehouses within 100 miles of half the U.S. population, gives sellers benefits like two-day shipping and easy returns. Co-founder and CEO Harish Abbott will continue to run Deliverr.
Flexport will also be the primary provider for Shopify’s Shop Promise feature that enables sellers to apply a badge to products that have been verified for fast delivery in five days or less.
While Flexport will integrate more deeply into Shopify, the last-mile logistics capabilities will be available to all customers in a single operating system where they can plan and coordinate supply chain activities from the manufacturing origin to final destination.
“We’re going to have one Flexport application that integrates these systems. This is not purpose-built for Shopify,” Clark explained. “We don’t care whether they sell on Shopify or Walmart or Amazon or Target or in their own store. We just want to enable them to be able to plan and deliver their goods at the lowest possible cost with the least amount of waste when they want.”
Clark said the deal came together as Flexport’s new senior leadership team gained experience collaborating with Shopify counterparts. “I think we really came to the realization that we could go a lot faster for merchants if we were operating as one logistics team.”
Flexport founder and Executive Chairman Ryan Petersen is listed as an adviser on Deliverr’s website.
Shopify is shifting its strategy after investing heavily in logistics services. In 2019, it acquired warehousing automation firm 6 River Systems for $450 million. But the company lost $822 million and cut 10% of its employees last year as growth slowed with the cooling of the e-commerce shopping boom. On Thursday, Shopify released financial results showing an operating loss of $193 million in the first quarter and announced it is eliminating 20% of the workforce.
Meanwhile, Ocado Group, a U.K.-based online grocery delivery platform, announced it has acquired 6 River Systems, which makes autonomous mobile robots that assist warehouse pickers. Financial details were not disclosed.
Shopify founder and CEO Tobi Lütke has said the company needs to lower expenses after an aggressive expansion period. And now the company is going back to its roots as an operating system for commerce, enabling consumers at a physical store or a website, or facilitating payments, while Flexport takes on the complicated piece of goods distribution.
In a letter to employees Thursday morning, Lütke said Shopify is downsizing to focus on its core mission. “For the past year we’ve been subtracting everything that’s in the way of making the best possible product. This is extremely important, because we are heading into a decade of high velocity and massive change. We will require speed, agility, and a great deal of innovation,” he said.
“Building logistics infrastructure is a side quest every e-commerce entrepreneur is eventually pulled into because of the way the logistics industry works: a series of disparate players, all focused on different aspects. To run your store you work with extremely carefully designed software. To run logistics, you will use pen, paper, and phone calls a lot. And most of the time your service providers don’t talk to each other. Coordinating them to act together is your burden.
“Instead of every merchant individually taking on their own side quest, Shopify decided to accept it on their behalf. We set to work building software addressable logistics that didn’t exist before.
“Logistics was clearly a worthwhile side quest for us, and started to create the conditions for our main quest to succeed. From the beginning, we worked with lots of partners on all aspects of this same problem: warehouses, robotics, transportation, cross-dock, freight. We iteratively built a solution, step by step, through software, leases, and M&A deals, that could be an independent company one day. Shopify was the perfect place to bootstrap this effort from 0 to 1 and we have done this. The next step is to take what we have and take it from 1 to N as a main quest,” Lütke wrote.
Reimagining Flexport
Flexport grew at an incredible rate during the pandemic, fueled by demand from shippers that needed a helping hand to navigate massive supply chain disruptions and name recognition generated by high-profile founder Ryan Petersen. According to public accounts, Flexport generated $5 billion in gross revenue in 2022 but laid off 20% of its workforce early this year because of the global freight recession.
Flexport has spent heavily to automate supply chain processes and enhance the shipper experience through shipment transparency, fast response times, data analysis and flexible services. And the forwarder is moving aggressively to double the size of its software engineering team, using large cash reserves from before the downturn, to take its systems to the next level.
The layoffs were necessary, Clark said, to rebalance the company toward digital product development, as well as small-business support, automated customs and financial services. The company created a separate business unit to serve large enterprise customers as a fourth-party logistics provider rather than a simple forwarding agent. A new trucking team will also be established this summer, he added.
Critics say Flexport’s technology isn’t any more special than that of other top-tier logistics providers and doesn’t live up to the hype. But Clark, who also was in charge of Amazon’s retail platform as head of the Worldwide Consumer unit, said Flexport will address the problem most companies face with unrelated transportation partners on disparate supply chain technology platforms that aren’t interoperable. He described how Flexport is creating a multimodal freight forwarding platform that drives out inventory and transit inefficiencies by connecting capacity so stakeholders gain shipment density and save money.
“Logistics is really just about scale. The more people who participate, the more scale there is, the lower the costs, the faster the speed, the less waste, both financial and environmental, in the system. And we want to be able to have a system that allows people to, to combine the scale of all these different customers together to create a much more efficient low-cost system.
“That’s the system that I was part of for a very long time at Amazon. I understand how beneficial that can be to small businesses. And I think we can help a lot of businesses that aren’t part of the Amazon infrastructure.”
Flexport, he added, isn’t trying to be a one-stop shop for every logistics need. “There’s a lot of fantastic individual partners and providers in each leg of the supply chain. There’s just not a lot of people putting it all together” with one set of data, technology stack, optimization rules and controller, Clark said.
“A year from now, I think Flexport is going to look like a very different company than it did last summer in terms of the capabilities that we bring to bear across the marketplace, the technology that we offer, and the quality of the execution,” he said.
He downplayed the suggestion that Deliverr puts Flexport in competition with Amazon’s Fulfillment By Amazon service, saying different merchants have different needs.
The transaction is expected to close during the second quarter, subject to regulatory approval and other conditions.
Shopify is scheduled to publish first-quarter earnings Thursday morning. Analysts expect weaker revenues as consumers pull back on goods purchases in the face of economic uncertainty, inflation and a desire to spend more on experiences.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
Sign up for the weekly American Shipper Air newsletter here.
RECOMMENDED READING:
Flexport juices trade finance program with $200M credit line from KKR