Xeneta changed everything by connecting shipping’s customers to each other. Now it’s about to show how the power of its disruptive platform works for shipping too.
Some people get a bit apprehensive about talking to the media. And although we aren’t quite the same as most media, that often extends to Futurenautics too. But those who do speak to us quickly find out that while we do ask difficult questions, we’re not in search of splashy headlines. In fact we’re known to offer interviewees the chance to check over what we plan to print. Because in order to produce a magazine like Futurenautics the ability to have open conversations in an atmosphere of trust with senior industry people is essential.
It’s a policy that works well, but I’ll admit to a slight concern when I called up Xeneta Founder and CEO Patrik Olstad Berglund for our video interview, and discovered that following knee surgery he was full of heavy-duty painkillers. Hence I did wonder if a newly-sober Patrik would read the resulting draft and declare everything he said completely un-publishable.
Send to KindleHe hasn’t, which is good news because as we identified when we asked him to be our inaugural Futurenaut in the January 2014 issue, Xeneta is a truly disruptive force, and its trajectory since serves to confirm that.
Xeneta’s offering—for those who haven’t come across it before—is pretty straightforward. The Norwegian company offers a crowdsourced price comparison service for sea freight allowing companies to share the prices they are given on its platform and compare them to the market average and ‘best of class’ for thousands of routes and lanes. That enables cargo owners to make more informed and therefore better decisions around how freight is shipped.
That’s Xeneta’s offering, but its purpose is bigger. Much bigger. What Xeneta intends to do is to use cutting edge big data analytics and crowdsourcing to re-write the playbook on how logistics decisions are made, and in so doing drag the $200bn sea freight industry into the new century.
“We came from the industry and we understood the volatility and opacity of the market, but what we wanted to do was to help the buyers in the industry get a better grasp of how the market moved,” explains Berglund. “In this kind of market the buyers pay a wide range of prices and they aren’t certain whether what they have is competitive.”
Which in today’s world is somewhat of an anomaly, when you consider that a container is just a commodity the same as an air ticket from London to New York. But whereas you can go online and get an immediate and comprehensive view of all your routes, options, carriers and prices for a trip to New York, if you want to send a container from Egypt to Mexico you won’t find any online service that can help you.
“That means you have to go through a time consuming process to try and map out the market, but if you do that today then, in a week the market maybe will look quite different,” explains Berglund. “So it’s impossible to stay on top of all the routes moving around the world and the price at any given time.”
But Berglund and fellow founders Vilhelm K. VardØy and Thomas SØrbØ realised that bringing together anonymised data from freight buyers onto a platform where powerful software turned it into actionable intelligence, could solve the problem.
Xeneta’s offering is straightforward, but its purpose is bigger. Much bigger. It is using Big Data analytics and crowdsourcing to re-write the playbook on how logistics decisions are made, and dragging the $200bn sea-freight industry along with it.
“With crowdsourcing you ask everyone to chip into a network with their data, and from that we can tell them what the market looks like, and how they compare to the market. If you are a buyer with 50,000 containers and 3,000 routes and all these routes have different volatility at a different point in time we can tell you every single day how well you are performing and on which routes you should focus to get some cost saving potential. And of course which routes you can leave be because you are competitive there.”
The network effect is really powerful. With every company that joins the platform gets better and better as its reach and accuracy improves. But Xeneta requires a certain critical amount of data for a combination before it can really say anything about that route. “It’s very simple, we start with four companies that have prices on the same route for the same container type on the same period of time,” explains Berglund. “Then you have four overlapping prices and you are legally allowed to say something about the average.”
But as Berglund is the first to admit, the average of four contracts isn’t a great one, which is why the density of data in the Xeneta platform is so important. Put simply the more data you have the better the system works. To demonstrate just how dense Xeneta’s data is Berglund takes me into the back end of the system to show me one particular route which over the past six months has had over 1400 contracts uploaded. “The data density is growing nicely and giving us a lot of traction. Customers can see this and that gives them confidence in how much data is generating the insights.”
Judging by Xeneta’s growth the confidence is not misplaced. The company recently completed a $5.3 million Series A round of funding with investment coming from previous backers Creandum, Point Nine Capital, and Alden, together with new investor Alliance Venture. It brings the total raised by Xeneta to $8.5 million since it was founded in 2012.
The average annual sea-freight spend of companies on the Xeneta platform rose from $3.7m in 2013 to $19m in 2014, and it’s still climbing. The power of the network means its crowdsourced database now represents over $3bn in freight spend and market intelligence on more than 50,000 port-to-port combinations.
With such a radical idea though, the worry in the back of everyone’s mind must have been engaging the crowd that was essential to making the platform work in the first place. However Berglund found encouragement from an unusual source.
“I showed an early version of Xeneta to a c-level executive at a big shipping line and he said, ‘if you bring my customers this platform then they will kiss your hand, but someone is going to kill you.’ So I thought that was pretty decent proof of concept.”
In fact that executive was one of the more polite. “When we tried to approach the supplier side they literally told us to ‘F-off’,” recounts Berglund. Which may not have been a bad thing. Freed from the distraction of working with the carriers and freight forwarders, the team concentrated on developing a robust and valuable platform for buyers. The resulting growth has been remarkable.
The average annual sea-freight spend of a company joining the platform in 2013 was $3.7m; by 2014 it had leapt to $19m, and it’s still climbing. As a result Xeneta’s crowdsourced database of prices now represents over $3bn in freight spend and the market intelligence it offers has grown from 1,000 routes to 50,000 port-to-port combinations.
And it’s caused the supplier side—carriers and freight forwarders—to wake up. “We started building up so many buyers, so many importers and exporters who were the important customers of the freight forwarders and the shipping lines, and they started bringing Xeneta intelligence into the negotiations with the carriers and freight forwarders,” says Berglund. “Which led to a situation where the customers knew more about the market than the one selling the product did. That’s when the supply side started reaching out to us.”
Berglund shows no sign of smugness, although if he was you couldn’t blame him. But bringing the supplier side to heel is not how he and the team sees it. It’s just a natural evolution in the development of the platform. Where it was always destined to go.
“Our hypothesis has always been that if we start with the customer side of the industry the seller side will eventually budge and join the platform and that’s what we’re working on now, how to bring them on board, how to give them an attractive platform that’s both beneficial for the buying and the supplying side.”
Xeneta has positioned itself in a spot where it provides price transparency globally and the pace of development of the database has allowed it to cover more and more routes around the globe, but what Berglund eventually wants to achieve is a platform where buyers and sellers in the industry connect.
“The vessels are state of the art very often, but the whole transaction between buyer and seller is very old fashioned,” says Berglund, adding for emphasis, “We still see faxes.” Not only faxes but emails, phone calls and numerous in-person meetings. Typically today a freight owner will issue an RFQ and then run a tender process which can take six or sometimes twelve months, and which, when completed, will lock in a price for a further six to twelve months. But in a highly opaque and volatile market tying into a price for that amount of time comes with a lot of risk, and wasting perhaps a year to do it seems, in Berglund’s eyes, “crazy.”
“To get prices a buyer can either go to the freight forwarder, who would then go to the shipping line, or they can go directly to the shipping line. The process will depend to an extent on the size of the buyer—whether you have a thousand containers per year, or 200,000 or 300,000—but it’s still cumbersome.”
What Xeneta want to see is that time-consuming, wasteful collection of emails, phone calls, faxes and meetings replaced by a real-time dynamic interaction on its platform. “It would eliminate so much waste,” says Berglund. He goes onto describe a fairly normal process where a buyer releases a tender and invites a mixture of thirty freight forwarders and shipping lines, lasting six months and out of which perhaps five shipping lines get more business.
“At the end of that process though, there are twenty-five companies which have wasted half a year’s work. I want to enable them to answer not 500 tenders a year but 5,000 tenders a year, without lifting a finger.”
Berglund sees benefit for his core customers, the freight buyers, too, “If we have all the data and we know everything about which supplier they should connect to they should also avoid that six month process, and immediately have their new suppliers available to them through our platform.”
Xeneta’s key focus is still on the freight buyers as it believes they are the ones who will allow it to truly change the industry, but discussions opened with the first suppliers nine months ago and Berglund estimates there are around ten to fifteen companies with which the team are working to tighten and tweak the platform this year so that it has real value for them.
It has to be a balancing act though, because in shipping circles it’s an article of faith that whatever benefits its customers will automatically disadvantage the shipping line. But Xeneta is confident that it can identify non-conflict areas where it can build the relationship with the supplier side too.
“It’s quite complex of course because we are under strict NDAs with both the buyers and the carriers so we have to be exceptionally careful how we treat the data, but what we do is very sophisticated,” counters Berglund. “We can’t build a platform that gives transparency and benefits to the buyer side and then discriminate against the supplier side, so in theory I want to have a platform that offers market intelligence to both parties and then I want to leverage that to utilise the data and develop into a platform that allows them to interact and engage in contracting.”
At the end of an average tender process, out of thirty carriers or freight forwarders twenty-five companies have wasted up to half a year’s work. Xeneta wants to enable them to answer not 500 tenders a year but 5,000 tenders a year, without lifting a finger.
That balancing act becomes increasingly delicate as Xeneta develops richer, more qualitative features. Building on the standard price metric detailing market average, highs and lows, the platform is now offering a quality metric too.
Berglund picks on one route, Hong Kong to Hamburg for a forty-foot container in order to demonstrate. In addition to the price metric buyers can also see all the schedules on the route mapped out. Looking at the various options I notice that you can go with Hyundai, or CMA CGM with 3 stops over 30 days, or Evergreen which, despite it using the same vessel, apparently only takes 29 days. It’s a fine example of the problem of vessel sharing, but that isn’t what Berglund wants to show me. We’re looking at the other information on the screen which tells me that if I decide to use Evergreen and its apparently faster ship I am buying 71% reliability, whereas if I choose Hyundai I’m buying 82% reliability.
“Container is 70 per cent of the industry, and it is truly old-fashioned, so changing it is a massive play on its own. I’m cautious to make sure we really get it right.”
For a freight buyer that difference in reliability is very significant. Expanding this kind of quality metric requires Xeneta to create a comprehensively matching dataset including tracking all the container vessels out there, but for its buy-side users it’s a powerful feature, and one imagines they’re going to keep coming.
“We have the technical ability to do a lot and it’s just a matter of time. We also have a rating system where everyone can rate their suppliers and we aggregate the data and give intelligence back, but like everything we are developing all the time, it’s always work in progress.”
It’s one of the hallmarks of these exponentially growing, lean technology businesses. When I spoke to Berglund in 2013 there were only five or six of them but that’s growing all the time with fifteen now working for the Oslo-based company, and new hires set to grow that total to twenty-two by the end of May. With the platform entirely developed and built in-house, together with the analytics capability I wonder if Xeneta has got one of those elusive data scientists on board?
“I think that’s one of those roles. Everyone talks about them but no one really has any,” laughs Berglund. “That’s because they love the idea of one but they’re really difficult to find.” I tell him that this month’s Futurenaut Richard Rivlin of VesselsValue found one of his data scientists working in his local newsagent having just finished his degree. Berglund isn’t surprised, “It’s not really my field but I believe that we’re in dialogue with one guy pretty much straight out of university, and we have the inside track on a few more.”
With the kind of data Xeneta has, the potential for new services based on new analytics, including predictive ones should be huge. Berglund acknowledges that pulling in external sources and utilising the information that the platform has about future contracts could be an area for development, but his focus for now is on fact-based historical data. “We can leverage all kinds of analytics on this data which could be of interest to other stakeholders, but our prime focus is how it can benefit the buying and selling side of the industry.”
Similarly, despite being asked frequently to broaden its scope Xeneta is staying focussed on the container shipping industry. “Container is 70 per cent of the industry and it is truly old-fashioned, so changing it is a massive play on its own,” Berglund reminds me. “I am cautious to make sure that we really get it right in the container market, but we could do the same in other segments, in air and road freight, and because our customer base of freight buyers are also buying road and air, when we do expand it’s likely to be that much faster.”
With its team growing, and precious little time for photo calls, the Xeneta corporate mug shots only show 15 of the 22 strong team. But new photos are on the list following this week’s launch of a newly developed website and video. CEO Patrik Berglund stands second-from-left.
It’s clear talking to Berglund that there’s a huge amount that Xeneta knows is possible, and it’s really itching to do it. Because underpinning all the technology and cutting-edge analytics is a simple and abiding love for the industry. “I love container shipping, it’s fascinating and such an important part of the global world we live in, and yet very few people really relate to it. Besides us in the industry.”
And that’s where Xeneta has a real advantage, because I’m not sure Berglund’s obvious love and enthusiasm for shipping is really mirrored amongst the carriers whose customers are joining his platform in their droves. And that they reacted so violently to the idea of the crowdsourced Xeneta platform in the first place tells us much about the adversarial approach carriers have towards the freight buyers who pay the bills.
I’ve written before about the need for that adversarial relationship to alter radically if the industry is going to function properly and be profitable in the future. And according to a report by the Boston Consulting Group container shipping has reached a point where it isn’t just unprofitable, it’s actually destroyed value over a significant period.
Over the past fifteen years the sector’s return on net assets (RONA) has only been around 3 per cent compared to the 9 per cent RONA of the S&P 500 over the same period. Not only is that far lower, it’s also nowhere near enough to cover the approximately 7 per cent cost of capital needed to finance the assets deployed. That’s value disappearing before our eyes.
Things don’t just need to change, they need to transform, and making death threats towards those with a vision for how the industry can leverage digital opportunities to innovate, isn’t the way forward.
How the power of networks and the crowd can work to the advantage of freight buyers has been ably demonstrated by Berglund and co. But now they have to do something far more profound. They have to show that this technology and the philosophy underlying it—which is of real value and benefit to our customers—can also provide the same to shipping. In short that, as the old saying goes, what is sauce for the goose is also sauce for the gander.
And if Berglund can pull that off, then Xeneta really will have laid the golden egg.