Startups are transforming global trade in the COVID-19 era

'The idea that we go back to normal the moment we lift restrictions is unlikely, fanciful, even'

Global trade watchers breathed a sigh of relief on January 15, 2020.

After two years of threats, tariffs and tweets, there was finally a truce in the trade war between the U.S. and China. The agreement signed by President Trump and Chinese Vice Premier Liu He in the Oval Office didn’t resolve all trade tensions and maintained most of the $360 billion in tariffs the administration had put on Chinese goods. But for the first time in months, it looked like manufacturers, importers and shippers could start to put two difficult years behind them.

Then came COVID-19, at first a local disruption in Wuhan, China. Then it spread throughout Hubei province, causing havoc in a concentric circle that eventually engulfed the rest of China, where industrial production fell by more than 13.5% in the first two months of the year. When the virus spread everywhere, chaos ensued: Factories shuttered. Borders closed. Supply chains crumbled.

“It has had a cascading effect through the entire world’s economy,” says Anja Manuel, co-founder and managing partner of Rice, Hadley, Gates & Manuel LLC, an international strategic consulting firm based in Silicon Valley.

The crisis has caused a drastic contraction in global trade; the World Trade Organization estimates trade volumes will fall 13-20% in 2020. And spinning activity back up could be tricky: Even as China starts to get back online, the slowdown there could reduce worldwide exports by $50 billion this year. When factories do reopen, there’s no guarantee whether they will have parts available or empty warehouses, says Manuel, who also serves on the advisory board of Flexport, a shipping logistics startup. “Our supply chains are so tightly-knit and so just-in-time that throw a few wrenches in it like we’ve just done, and it’s going to be really hard to stand it back up again. The idea that we go back to normal the moment we lift restrictions is unlikely, fanciful, even.”

Getting to that new normal, though, is a job that a number of logistics startups are embracing. Already on the rise, companies like Flexport, Haven and Factiv see a global trade crisis as a setback, but also an opportunity to demonstrate the value of their digital platforms in a very much analog industry.

Information is king

As companies along the global supply chain reel from these fast-moving events, they are increasingly turning to firms that can offer them information — and the options that come with it.

“In moments of lots of volatility, you want to make sure the data you’re looking at is real,” says Sanne Manders, Flexport’s COO. “Where before you could get away with a weekly supply chain update, now you need accurate and timely data every minute. If you don’t, you’re not agile to make decisions.”

For an historically analog industry, that means change, says Brad Klaus, CEO and co-founder of Haven, a startup that provides transportation management system software. The first problem software solves, he says, is visibility. “What’s going on with my shipments? What’s delayed? What’s missing? Visibility into supply chains has become critical because it’s not normal and therefore there are more exceptions than normal.”

“It used to be if someone canceled a sailing, you had a month of notice,” says Phil Levy, Flexport’s chief economist. “Now you’re getting notices for the next week or next day that a sailing won’t take place. That means you need information and agility, which is where tech comes in.”

The second problem, Klaus says, is managing volatility: “How do you manage rates optimally? How do we ship from ocean to air in some cases, or vice versa? Software is helping address those kinds of problems.”

Companies that haven’t embraced software to manage their supply chains are scrambling now to handle new tariffs, regulations, rules and standards for documentation — while still relying on manual processes like Excel and email. “It’s hard to adapt to those new changes if you don’t have a system that can manage those workflows and you’re trying to do it through people and email and paper,” Klaus says.

Manders concurs. “Digitalization is about having to spend less time managing your supply chain. It should run. [Flexport’s] software reduces that by 60% and the quality of our data is four to fives times better than that shared on email because it’s standardized.”

In addition to providing extra customer support, Flexport has responded with new services, including a COVID-19 help center, an advisory team to help customers understand shifting regulations and closures and a feature that allows customers to prioritize shipments. “When things aren’t going well, you need a lot of advice. Technology gives us a platform to provide it,” says Manders. “Digitization is not an option; it’s a necessity.”

Working from home

Digitalization has another, more mundane benefit: enabling employees to work from home. “If you’re a company that has to have their employees go into the office to create the necessary documents, get approvals you need when your organization interacts with your shipping partners — you’re very much being disrupted,” says Haven’s Klaus. “But if you’re using a cloud-based software like Haven and you can log in from anywhere, you’re certainly not as disrupted.”

Manders concedes that as a tech company, Flexport’s staff has shifted to working from home with ease, but as a freight company, there have been complications — adjusting to physical distancing in warehouses has slowed down operations, for example. And software only takes things so far; most clients, he says, want to ultimately speak with an advisor in such volatile times.

But that newfound interest in logistics has spurred tech firms to engage with customers in new ways. “I don’t think I ever would have thought supply chains were a hot topic,” says Dave Evans, CEO and co-founder of Fictiv, which describes itself as a hardware manufacturing ecosystem. But, he adds, between the trade war and pandemic, “supply chain has been one of the primary themes in the boardroom in 2020.”

“People are craving information,” says Manders. “They want to understand how the world works and what it means for their supply chain.” To meet demand, both Flexport and Fictiv are producing frequent blog posts and webinars. Fictiv’s features Evans interviewing experts across the logistics field.

All the information in the world can’t change the simple economic reality, that consumer sentiment is down and more sectors are losers than winners. Many clients have canceled orders and others are having to negotiate payment terms. With so much volatility in the wider economy, making a bet on a big order — and then shipping it across an ocean — is a risky proposition no matter how easy the logistics are.

How the disrupters became the first defense against disruption

If the coronavirus pandemic has uniquely disrupted the logistics industry, it has also offered an unconventional opportunity for the disruptors: sourcing and distributing medical supplies and personal protective gear (PPE) amid a global supply crunch.

The challenges are multifold, Manders tells me. First, many PPE buyers are used to domestic supply chains and are simply inexperienced sourcing PPE from China. Second, it’s the “Wild West; lots of gold diggers think they can make a quick buck on masks.” Third, “regulation is changing every minute,” and while some of that is a result of attempts at quality control, the result is it’s “very hard to read because it’s so fast.”

Meanwhile, there is “total chaos” at airports because there’s “way too much PPE for air capacity. The waiting time to deliver cargo from passenger terminals is 28 hours because they aren’t prepared for it. I’ve seen videos where it’s like, ‘how are you ever going to get a forklift in there?’ ”

In addition to their normal services, logistics companies are finding new ways to apply their technology to these challenges. Flexport has started a new center of excellence for PPE customs regulation, for example. Meanwhile, Fictiv is leveraging its data and artificial intelligence technology to instantaneously provide quotes to medical device companies seeking to make new orders — and to link together new actors in the medical supply chain. “If I can help connect a government agency with a supply-chain manager in a hospital with manufacturers,” says co-founder Evans, “all of those elements create a better ecosystem.” That includes working with California Gov. Gavin Newsom’s team to build a marketplace for medical goods.

Fictiv is also helping traditional manufacturers shift to making medical devices and PPE. “We spun up tools in the U.S. and China to be able to have the capacity to produce over a million units of face shields a month by leveraging existing supply that was maybe doing automotive or consumer, but because they have excess capacity, we were able to fill it with PPE,” Evans says, adding that the profits are being sent to the WHO fund for front-line workers. The firm is also exploring greater use of technologies like additive manufacturing and 3D printing.

Meanwhile, partnered with former California Gov. Arnold Schwarzenegger and other celebrities to launch the Frontline Responder Fund, which has funded the purchase of PPE and medical supplies for front-line workers and facilitated their delivery using Flexport’s logistics. Flexport is similarly a leading member of the C19 Coalition, a public-private partnership that aims to double PPE production and distribution, through which it is providing pro bono advisory customs clearance services to suppliers and helping new manufacturers cut through red tape. Altogether, Flexport says it has moved 92 million units of medical gear, including at least 10 million through its nonprofit arm.

Looking (freight) forward

Moving forward, the pandemic might cause a bump in the road in the logistics tech space but will not likely cause a major setback. “We don’t see cancellations yet,” says Manders. “We don’t think we will stop growing. We’ve been growing 80% year on year, so even if the market is down 20 or 30%, we’ll be net positive.”

That’s because it’s exactly the type of digital disruption these firms are pursuing that is smoothing over the uncertainties that come with COVID-19. And those who are behind the curve know it. “We see a lot of adoption of digital technology [happening in] the second half of the year [as companies] dealing with disruption look for solutions in the next few months,” says Haven’s Klaus. “These organizations are realizing that to compete in the future will mean digitizing their operations more, especially in a world where people work from home more often. It will be critical to have cloud-based software solutions.”

But they’re also preparing for the inevitable changes. The pandemic has “caused serious examination about how comfortable people are with the system we have,” says Levy, the Flexport economist.

Despite calls by some politicians to bring back critical industries and supply chains, he doesn’t think that’s likely. “You have the same price pressure in the long run and if you have a U.S. company that re-shores everything, that will raise its costs. Will customers pay more competing against a German or Canadian company that uses more efficient suppliers? I don’t think experience would suggest that they are. If you want to insulate yourself, it’s going to be really costly.”

Ironically, for an industry that has been slow to disrupt, decades of prioritizing efficiency and failing to modernize have left the global freight industry vulnerable to disruption. Innovation seems inevitable.

COVID-19 is accelerating trends, says Flexport’s Manders, that bode well for technology firms. “This situation has created a new sense of urgency. We’ve been having conversations with our customers around ‘what can you do to reframe your mission?’ ‘Are you there to save costs on ocean freight or get goods to stores?’ But you need data and options.” That means digitization, software and network effects, the elements logistics tech firms provide.

Evans agrees. “Everyone wants to talk about COVID and the disruption to the supply chain, but I think that’s a very narrow slice. Supply chain disruption happens due to large macro events — earthquakes, trade policy, a pandemic. In the past, either severity or frequency gets people to change. We’ve [now] had severity and frequency with tariffs followed by a pandemic. There’s no way supply chains will continue to run with the risk they’ve had. But people won’t be willing to pay more because of supply chain inefficiencies. So supply chain leaders are going to have to figure out how to keep the same cost structure while reducing risk. And the only answer I have to that is technology.”

It remains to be seen whether or not manufacturers agree. Decades of prioritizing efficiency over redundancy and relying on dated technologies left them uniquely vulnerable to shocks in the supply chain. Only time will tell if the twin shocks of COVID-19 and the trade war will prove enough to provoke the digital revolution that some in Silicon Valley think they need.