Did Flexport Find a Convenient Scapegoat in Dave Clark?
Did Flexport Find a Convenient Scapegoat in Dave Clark?
Clark's abrupt departure from Flexport leaves questions unanswered. A chronological review of events may shed light on this emotionally-charged management split.
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It has been less than a week since the drama surrounding its change of guard, but Flexport's Ryan Petersen is already looking to put that behind him with the launch of the company’s new product on Tuesday. Targeted at SME e-retailers, Flexport+ — as it’s called — will help sellers manage freight movement from the factory to the customer’s doorstep. Regardless, the company’s carefully sculpted pressers and explainers on Flexport+ do not reflect anything substantial nor something that could become Flexport’s USP.
But before discussing that, we’ll have a closer look at the recent turn of events. A bit of perspective first. In Feb ‘22, Flexport hit the news for raising an eye-popping $935 million in funding at a valuation of $8 billion in an investment round led by Andreessen Horowitz, Michael Dell’s MSD Partners, and e-commerce firm Shopify.
Beyond its investment, Shopify had additional strategic plans for Flexport. In May ‘23, Shopify divested its logistics and order fulfillment operations to Flexport. This included Deliverr, a last-mile delivery startup that Shopify bought for $2.1 billion, taking a significant write-down in the process.
Shopify divested its logistics and order fulfillment operations to Flexport.
In return, Shopify charged Flexport with creating a comprehensive, end-to-end freight solution. This new system aims to benefit Shopify merchants who, until now, had only used the platform for marketing, sales, and payment processing. The goal is to enable these merchants to seamlessly manage their supply chain, leading to cost efficiencies.
This collaboration with Flexport was Shopify’s attempt to rival Amazon’s highly successful ‘Buy with Prime’ offering with its own ‘Shop Promise’ solution, wherein any merchant selling products on Shopify could leverage Flexport to import, store, and fulfill consumer orders.
In June ‘22, just a month after the Shopify-Flexport partnership was made public, Flexport made another headline-grabbing move by bringing on Dave Clark as co-CEO alongside Petersen. Clark, known for masterminding Amazon's fulfillment operations, announced his decision to join Flexport days after stepping down as CEO of Amazon's worldwide consumer business.
Clark's departure from Amazon to join a freight-tech startup certainly piqued interest, though not always for the most favorable reasons. Firstly, although Clark had established a strong reputation for scaling operations within a well-established enterprise like Amazon, he was relatively new to the more agile and uncertain world of startups. Secondly, while Clark brought with him a wealth of experience in fulfillment, questions arose about his expertise in managing Flexport's core competency — freight movement, a sector characterized as a commodity business.
Being a commodity, freight is inherently subject to market cycles. As an executive with virtually limitless capital and part of a company with a robust outlook for expansion, Clark played a different ball game at Amazon. And even among established companies, Amazon stands apart — its unique ability to secure funding while sustaining substantial losses due to aggressive pricing and market expansion is rare (it certainly doesn't hurt to have a highly profitable AWS segment to pay for the retail excesses).
As an executive with virtually limitless capital and part of a company with a robust outlook for expansion, Clark played a different ball game at Amazon.
When Clark took over in Sep ‘22, Flexport’s vision for the future was connecting freight movement and fulfillment, building a technology layer encompassing the entire freight linehaul.
“The whole plan put in place was that when Dave Clark took over as co-CEO, he would take the resources available to build the ‘Shop Promise’ offering in record time to help Shopify level up in their fight against Amazon,” said a person familiar with the matter who asked not to be identified. “The plan flopped big time. It ended up costing a lot more than anticipated, given the very expensive executive hires and acquisitions under Dave’s leadership.”
The escalating operational costs and delays in rolling out 'Shop Promise' led Amazon to outmaneuver Flexport by persuading Shopify to enter into a direct partnership. This move enabled Shopify merchants to integrate with Amazon’s ‘Buy with Prime’ program. As a result, Shopify vendors now have the option to store their inventory in Amazon warehouses and leverage Amazon's robust international and domestic shipping networks for both bulk and last-mile fulfillment, among other services.
The escalating operational costs and delays in rolling out 'Shop Promise' led Amazon to outmaneuver Flexport by persuading Shopify to enter into a direct partnership.
“Perhaps more significantly, inventory stored in Amazon's warehouses can now support a merchant's operations on both Amazon's marketplace and their Shopify storefront. It's a somewhat ironic twist for Shopify; it's like letting a fox into the henhouse. Amazon gains unprecedented access to Shopify's customer base, and Flexport's offerings simply can't compete with the logistical prowess of Amazon — something that's widely understood,” said the source.
In early September 2023, just a week after Shopify announced its direct partnership with Amazon, Clark took to Twitter to announce his immediate resignation from Flexport. His departure was punctuated by Petersen’s pointed "I am back" tweet, complete with a few thinly veiled jabs aimed at the departing CEO.
Although the abruptness of Clark's exit startled many, the writing had been on the wall. The Shopify fiasco was one of many things going wrong for Flexport, besides the general fall in fortunes due to a limp freight market.
"While Flexport had somewhat cracked the code on customer acquisition and exhibited rapid growth in the forwarding sector, they grappled with spiraling operational expenses,” observed the source. “Numerous strategies were deployed to rein them in — such as widening margins and bolstering attach rates on ancillary services like trade finance, customs advice, and warehousing — but none proved sufficiently effective."
For a brief while, Flexport had a product called Flow, which was envisioned as a ‘conveyor belt’ for the world. The idea was that a shipper could drop off freight at designated locations on one end of the world, and the freight would show up on the other side at specified locations for a flat rate.
“Flexport signed up a lot of fulfillment players for Flow. They said they’d give them a commission if they sent their customers their way,” said the source. “It all stopped when Flexport went ahead and acquired Deliverr. The move was quickly seen as predatory by Flexport’s fulfillment partners, who had given a big chunk of their customer list to the company.”
So…was Dave Clark the fall guy for the Deliverr and ‘Shop Promise’ debacle?
It’s anyone’s guess.
For starters, Clark has gone on to delete his experience at Flexport from his LinkedIn page. Such a reaction from a seasoned executive shows the departure was not amicable enough, at least not from Clark’s POV.
And then, there’s a lot of discussion around Petersen’s flurry of tweets, one of which was about rescinding the offer letters of 75 people who were about to join the company the week after. A chunk of executives who joined Flexport over the last year from companies like Amazon and Microsoft have also been fired.
Petersen argued that he was unaware of the hiring decisions made during his absence from the CEO role since March, expressing surprise at the more than 200 open positions listed on Flexport's careers page. It’s doubtful that this is true, considering he has always been part of the board, and the board would have approved all the expensive hires during Clark’s stint as CEO. Plus, it is preposterous that Petersen failed to look at his own company's ‘Careers’ section listing hundreds of job openings all through this year.
Petersen went on to say Flexport failed to focus on customer relationships during Clark’s tenure, which he felt was one of the reasons why the company wasn’t doing as well as it should. While Clark concentrated on building the Flexport+ product (which launched a few days after Clark’s exit on Sep 12), Petersen now mentions wanting to grow the core freight business (again).
Regardless, common sense tells us that things were already looking south for Flexport when Clark arrived at the scene last year. A commodity business like freight ebbs and flows, and Flexport was guaranteed to do less business this year than the one before due to unflattering market conditions. Acquiring Deliverr and delays with ‘Shop Promise’ exacerbated the company’s slide. While it is possible Clark wasn't brought in to be a scapegoat, he certainly became a convenient explanation for Flexport's declining performance.
While it is possible Clark wasn't brought in to be a scapegoat, he certainly became a convenient explanation for Flexport's declining performance.
The recently launched Flexport+ appears to be a membership-based program offering community access and trade financing options — seemingly more sizzle than steak. Given that this new product was developed under the stewardship of executives who have since been terminated, questions are likely to arise regarding the sustainability and robustness of the product's operations.
Concluding this by pointing out Petersen’s evident fondness for PR maneuvering. Flexport chose to launch its Flexport+ product in Seattle, a city where the company does not have a substantial footprint. A deliberate jab at Amazon, perhaps?
Amazon's response was swift and unequivocal. They rolled out a strikingly similar product, 'Supply Chain by Amazon,' with a PR that nearly matched word-for-word in context — on the very same day. And it just so happens that Amazon is much larger, knows what it is doing, and has a higher chance of following through with its promises.
Harder times are yet to come for Flexport.
The Week in Snippets
North American railroads are taking proactive steps to regain market share lost to long-haul trucking by addressing longstanding issues such as unreliable service and uncompetitive pricing. The stakes are high, as the decline in intermodal's share of domestic transportation from 2016 to 2023 has reportedly cost the rail sector up to $4 billion in annual revenue.
The newly ratified labor contract between UPS and the International Brotherhood of Teamsters is setting a new bar for workers' wages and benefits in the logistics sector. As UPS employees see significant pay boosts, competitors like FedEx may be pressured to follow suit, particularly in a tight labor market where workers are increasingly advocating for better compensation.
West Coast ports, despite securing a new six-year labor contract, struggle to reclaim their trade share as US importers diversify their supply chains. The share of containerized import cargo at these ports dropped to 35% in June 2023, down from 37% the previous year. Meanwhile, ports like Savannah and Charleston are seeing less significant declines, benefiting from their closeness to emerging manufacturing hubs in the Southeast.
Trans-Atlantic westbound shipping rates have plummeted, falling 57% compared to pre-pandemic levels in 2019, due to excess capacity and weak US import demand. Despite some carriers reducing services, the decline in demand continues to outpace capacity withdrawals, leaving the industry grappling with significant challenges.
Quotable
“In our survey, a substantial 64% of senior executives in supply chain highlighted that their primary challenge in the recruitment process for supply chain leadership roles lies in finding candidates who possess the appropriate skillset.”
- Radu Palamariu, the managing director of executive search firm Alcott Global, commenting on the issues companies face with finding supply chain talent
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