Flexport shuts dedicated freighter service for multi-airline space guarantees

Blue jumbo jet on taxiway

Digital-first freight forwarder Flexport will no longer offer its transpacific private air service and instead revert on Jan. 25 to more traditional industry approaches for securing freight capacity on airlines. 

For nearly two years, the transportation intermediary contracted with a carrier – most recently Nippon Cargo Airlines (NCA) – to provide a Boeing 747-400 freighter painted with its logo on a dedicated schedule between Hong Kong and Los Angeles three times a week, giving Flexport greater control over delivery times, rates and capacity. Under the lease arrangement, the aircraft were operated by Atlas Air. 

The product enabled the start-up company, which was struggling to secure space commitments from airlines in early 2018, to offer a very fast, dependable premium airfreight service between South China and the L.A. at a time of scarce capacity in a hot market. 

But company officials say the service was only meant as a temporary solution until the company achieved greater scale. The transition was accelerated by a much weaker airfreight market beset by uncertainty due to U.S.-China trade tensions and political unrest in Hong Kong, and the rapid shift in manufacturing operations in China to other parts of Southeast Asia.

The new model, which relies on reserving allotments for space on specified flights or booking ad hoc shipments at spot-market rates, gives customers many more shipping options than a point-to-point, single airplane offering, Neel Shah, executive vice president and global head of airfreight, told FreightWaves.

“Hong Kong-L.A. started to lose some of its clout as the most important trade lane in the world, and we believed a more diversified, network strategy was going to serve our customers best,” he said. 

Last year, Flexport’s air volume out of China grew in the high single digits, but business grew between mid-double digits to mid-triple digits for countries such as the Philippines, Vietnam, Indonesia, Malaysia and India. 

Beginning, Jan. 25 the venture-capital backed forwarder will shift its partnership with Plus Logistics, the NCA subsidiary that markets the carrier’s excess capacity, to a wider network of block space agreements (BSA) on multiple flights per week from five locations in Asia – Hong Kong, Shanghai, Bangkok, Singapore and Taipei – to six in the U.S. and Europe – Los Angeles, Chicago, San Francisco, Dallas, New York and Amsterdam, Shah said.

The company began notifying customers about the change on Friday.

The new business model is less risky for Flexport and diversifies its operations. Although the freight agent will lose some control over shipments and the marketing associated with it, it will have smaller commitments – and more flexibility –  with the BSAs compared with having to fill a 115-ton aircraft.

Under the strategic partnership, Flexport will sublease a portion of NCA’s freighter space through Plus Logistics. Flexport, which received $1 billion in funding last February from the SoftBank Vision Fund, will supplement the guaranteed space by purchasing capacity on the spot market.

A Nippon Cargo Airlines 747-400. (Photo Credit: Flickr/Robert Stankiewicz)

“Just because we don’t have our own airplane this by no means dilutes our premium offering between South China and the U.S.,” Shah, a former cargo chief at Delta Air Lines, said. 

When Flexport launched the private air service it was in hyper growth mode and had difficulty convincing airlines to allocate dedicated space to a newcomer. “Being the new kid on the block that most airlines hadn’t even heard of, we weren’t getting the access to capacity” needed to service customers and meet our growth plans because BSAs are locked up months in advance, he explained.

Now Flexport is a more established player and has BSAs with major airlines around the world, Shah said.

Although Flexport will have to wait for its cargo to come off the plane and be processed along with other shippers now, Shah insisted there will be no change in delivery speed.

“In fact, our premium service has been enhanced because our network of BSAs give us capacity every day of the week between South China and the U.S. as opposed to three days a week that flew with our own private air service. We are now offering significant daily uplift to customers as opposed to sometimes waiting a day or two to catch a private air flight.

“So, there is no impact to our service levels and ability to service existing clients, as well as our projected growth,” he said.

BSAs can be structured in multiple ways, with pricing determined by shipment weight and space, including whether positions taken are on the upper or lower deck. Under a BSA, the forwarder pays for the space whether or not it gets used, but partners can negotiate for considerations such as whether a volume shortage one day can be made up another.

Logistics companies may pay more, or less, by locking in capacity with a carrier depending on market conditions at the time. When traffic is weak, for example, shippers prefer to book loads in the spot market.

Six-year-old Flexport generated $441 million in revenue in 2018 and has 1,600 employees and six warehouses in the U.S. and Asia, according to figures provided by the company, but has yet to turn a profit.

Flexport is trying to disrupt an entrenched industry that has been slow to change inefficient processes.It has created a cloud-based ecosystem with applications and analytics designed to simplify supply chain planning for shippers and give them similar visibility and decision-planning to found when shipping within a closed network like that of UPS. The software organizes end-to-end international shipments by streamlining communications between manufacturers, warehouses, air and ocean carriers, truckers and other entities in a unified platform

Its model faces competition from large logistics companies that are adding digital capabilities and Amazon, which is using its vast physical and digital infrastructure, and buying power, to move ocean freight.

Flexport originally partnered with Western Global to run its private air service, but switched to NCA after experiencing what it said were problems with performance and reliability. Atlas Air operates all of NCA’s 747-400 freighters as part of an agreement with Japanese regulators to resolve concerns about earlier maintenance problems.