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Making Indian Exporters Win | Sanjay Bhatia @ Freightwalla
179 Plays3 years ago
The international logistics industry is a critical enabler of global trade and commerce. In India, it is around 13% of GDP. However, in this era of technology and digitization, most of the activities of this industry are handled in traditional ways, which are not only time consuming but also prone to errors.
In this edition of Founder Thesis, Akshay Datt speaks with Sanjay Bhatia, Co-founder and CEO, Freightwalla, a full-stack digital platform where businesses can plan, book and manage their international freight shipments online.
Sanjay has previously worked with PWC as a strategy consultant. Here, he closely observed the issues faced by the logistics industry. While working for Solera Partners and Everstone Capital, he came across various technologies that could potentially solve numerous problems businesses face in this industry. He started Freightwalla in 2016 with a mission to bring transparency and simplicity to the import-export process.
Tune in to this episode to hear Sanjay speak about how Freightwalla, with its unique digital solutions, is transforming international maritime logistics.
What you must not miss!
- Digitising the entire logistics process
- How to work towards achieving the best customer service?
- The roadmap to the future
Recommended
Transcript
Introduction and Background
00:00:01
Speaker
Take a minute, I'm dead. You're not dead. You're not dead. You're not dead.
00:00:27
Speaker
Hi, my name is Sanjay Bhatia. I'm co-founder and CEO of Freightwalla, which is a digital freight forwarding company.
00:00:36
Speaker
When you buy that shiny new phone or a brand new television, some part of the money that you're paying for that product is actually going towards the cost of freight forwarding of that product. A lot of products we use in our daily life actually reach India through a shipping route on a container.
Logistics Industry Overview and Freightwalla's Role
00:00:54
Speaker
And this was something we were all made painfully aware of during the Evergrande day crisis.
00:01:00
Speaker
Despite being such a massive industry, in fact, it's projected to hit $200 billion globally soon, it is largely an unorganized sector in India where mom and pop operators, who my guest calls as briefcase valor agent, run the show. These agents essentially manage the requirements of their customers who are exporting or importing out of their briefcase.
00:01:30
Speaker
And this is where a company like Freetwala comes in to make this whole process digital and seamless. Freetwala was founded by Sanjay Bhatia, who despite coming from a business family, never thought that he would end up being an entrepreneur. He was all set for a career in the VC space when the inspiration to start up hit him. Here Sanjay is talking about his journey.
00:01:55
Speaker
So what was the thesis then that you started with? Like, you know, you would have quit that job with some original thesis in mind. What was that?
00:02:03
Speaker
The thesis was actually very simple. So if you look at importers and exporters in India today, and you look at the average state of India's logistics industry, even if you just try to shift houses, you've gotten some flavor of how organized the logistics players are. And you know how painful it can be to interact with them.
00:02:26
Speaker
Now, imagine as an importer and exporter, you're doing some fairly complicated work, lots of documents to be filed, you have to tell, you know, file documents with custom saying, okay, I'm going to export such and such good. You have to coordinate with also the truck owner to get your cargo to the port, the ship owner to load your cargo on the ship, etc, etc.
Challenges in Digitizing Freight Services
00:02:46
Speaker
I mean, I'm not saying it's like rocket science, but it's a fairly complicated process. Lots of moving pieces. Lots of moving pieces. And the average quality of logistics provider you have, service provider you have to connect all of these services for you is
00:03:04
Speaker
not up to the mark, right? The existing providers are, there's about, you know, the estimates vary for, you know, what we would call a freight forwarder, which is the person who will connect all of these pieces for you. Estimates vary, then it could be anything from, you know, I think the lower bound of estimates I've heard of is that there's at least 15,000 freight forwarders in India right now. And on the upper end, I've heard, you know, 27,000.
00:03:32
Speaker
So this is an incredibly fragmented market and
00:03:37
Speaker
If you ever go into, you know, one of the offices, especially like some of the relatively small guys and you see the way they operate, we have a saying in the industry, you know, like, Oh, he's a suitcase operator. What does a suitcase operator means? He has a suitcase with documents and he just bounces around and gets the work done. No, no office, no staff, nothing, you know? Now that's obviously an extreme case. I'm not saying everyone is like that, but you know, the fact that this term even exists is troubling, you know, like that it says something about the industry.
00:04:06
Speaker
So this would have been like, say, the travel industry where you had tens of thousands of travel agencies pre-make my trip. Like, you know, where most of the people would buy from a travel agent who would maybe have one guy on ground in the destination who would make a package or would have a separate arrangement for bus, separate for plane and all that. So this industry is something akin to what the travel industry used to be.
00:04:32
Speaker
Yeah, you can say it's similar, but there's one key difference here. So if you think of the travel industry, just think of what the demand side of it looks like. So you have, let's say, a nation of a billion people out of which maybe 100 million are using planes, or maybe 50 million. I don't know the exact number. Now, the difference between the most active user, someone who's taking maybe 20 flights a year,
00:04:59
Speaker
And the, one of the least active users, maybe one flight a year, right? Or maybe one flight in two years. That scale difference is only about, you know, depending on how we calculate, you know, 20 to 40 X. But in imports and exports, think of the smallest company and the largest company, you know?
00:05:17
Speaker
smallest company might do like, let's say one shipment per month, right? And the largest company might be doing 5,000 shipments a month. And there are companies who do even more than that. So the degree of fragmentation of demand over here and the recurring nature of the jobs is the two biggest differences between a standard make my trip model, which is like, you know,
Freightwalla's Digital Solutions
00:05:42
Speaker
a simple marketplace platform where you just get connected with the airline and that's it, you know, that make my chips job is done compared with our business where the guy who's doing 5,000 shipments a month is not going to listen to you when you, you know, if you go and tell him, hey, here's a platform, just put whatever you feel like. He'll say, no, I want special service. You want my 5,000 shipments, you do something extra for me.
00:06:06
Speaker
Which is what these freight-forwarding agencies would be doing. Essentially, they provide that personalized, high-touch kind of a service of taking care of all the handoffs, as being a single part of contact to manage all the handoffs.
00:06:21
Speaker
That's the second, I think the second part of it, which I was going to touch upon, which is that, you know, also given the nature of the business where you have multiple touch points, you need someone who's actually going to ensure that it's seamless, right? So yeah, effectively, these two things make for a different set of dynamics than a Make My Trip. Now, is it possible that a Make My Trip could exist in our industry?
00:06:46
Speaker
Yes, but then you are going for a certain layer of the market, right? You're going for the very ad hoc shipment player. The people whose demand is very irregular, who don't want a dedicated provider, right? And you can go after this and it's fine, but it's just not a very large chunk of the market because you then start applying the Pareto rule or the 80-20 rule and say that
00:07:07
Speaker
80% of the volumes are going to be held with 20% of the most regular clientele. You can build that and it'll be a business, but how big can it get? What are the various points of handoffs? Who are the various players whom a freight-frowding agency bundles? A freight-frowding agency is essentially a bundler, right? So what all is he bundling? Let's say you're an exporter. Let's say your factory is in Gujarat and your buyer is in London. And you're targeting exporters or importers also?
00:07:37
Speaker
We mostly do exporters. Okay, got it. Now, between the exporter and the overseas buyer, they'll agree on how to split up the responsibility of logistics. And the most typical way of splitting it is the guy in London will tell the Indian supplier, okay, you delivered till London bought, and then I'll take care of it from here. Okay. So that's called a CIF shipment.
00:07:59
Speaker
What is CIF? Cost insurance and freight. So the guy, so the overseas buyers paying for the cost of the goods, uh, you know, add some insurance into it and the freight component or the logistics component. This is one of the most common ways. There are many different ways of splitting the responsibility, but this is one of the most common ways. Now in this, the Indian exporters responsibility is to deliver till London. So his factories in Gujarat, and he basically needs three basic services to be completed so he can deliver till London, right?
00:08:29
Speaker
He needs a truck to get the cargo from Gujarat down to some sea port. Maybe he'll go to Hazira port in Gujarat. Maybe he'll come to Navasiva port in Bombay.
00:08:39
Speaker
Then at the port, customs clearance is required because you need to file all the documents with the government telling them what you're exporting. Maybe you get some incentives for your exports, maybe not. And the third part is the freight, the ocean freight. So you need to organize the cargo being loaded on the ship and then take the ship going from let's say Mumbai port to London.
00:09:02
Speaker
And that is like, you know, your typical three services that an exporter would require. And all of these services can be bundled under a freight forwarder. Again, I'm saying many different ways you can spread it up. The guy could, the overseas buyer could even say that, no, I'm not going to do anything you deliver until my door. And then, you know, the freight forwarder can help take care of that also. It's common to have door-to-door service, but it's not a prevalent form of operating in the industry.
00:09:31
Speaker
Got it. Okay. So, and what was your thesis? So you were talking specifically about the business model you selected. You know, recognizing that the nature of demand of the industry, right? Where there is a certain section of the 80-20 rule, right? There's a certain section of clients who control a vast majority of the overall trade. We started thinking like, okay, you know, who are the people who, number one,
00:10:01
Speaker
will be okay with quality, relatively standardized service, and two who still have sufficient volumes that they can be, that they find that to be, they find international logistics to be a real challenge.
00:10:17
Speaker
And what we narrowed down was on the SME Indian exporters who are doing anywhere between, let's say, five shipments a month, going up to a few hundred shipments a month.
Go-to-Market Strategy and Client Engagement
00:10:30
Speaker
So the guys who are doing the 5,000 plus, our take on that is, they've been dealing with the hassles of... So they would have an in-house team already. They would already have in-house expertise to handle.
00:10:46
Speaker
Exactly. They've been dealing with these hazards and challenges for a long time, so they've got some good solution figured out. And people below that scale, below our band, are just so irregular that they don't actually even care enough to look out for a better way of doing things.
00:11:02
Speaker
So that's how we ended up choosing these guys and what we are offering to them is basically a far more efficient standard relatively standardized service delivered through automation and technology. Right. So what is the main problem when you have a suitcase operator in our industry is that he's doing everything manually.
00:11:23
Speaker
It's a fairly complicated process. Again, not rocket science, but fairly complicated. And if you're doing a complicated process completely manually without any technology or process sophistication, you will make mistakes.
00:11:36
Speaker
guaranteed right and every mistake that he makes ultimately leads to either a cargo delay or a cost escalation for the exporter. In order to solve for this we've got our you know we figured out our demand people who have sufficient volumes but not quite the scale to build do everything in house and our solution is
00:11:57
Speaker
automated service offering which minimizes the hazards of international logistics, ultimately delivering to them better on-time performance of their cargo movements at a lower overall cost of logistics by cutting out the incidences of those errors in the process. When did your go-to market happen? When did you launch the solution? Yeah, January 2017.
00:12:24
Speaker
You would have essentially gone to these SME exporters and told them that we are a better freight forwarding agency as compared to the traditional option because we are digital. That would have been your pitch, right? Yeah. How did you digitize the process? What were the things that you did to make it more digital?
00:12:46
Speaker
Okay, so on the process itself, you can think of it as broken up into two parts, right? So there's your pre-shipment tools, right, for getting further efficiencies, and then there's your post-shipment tools, which is basically mostly related to execution and tracking. So on the pre-shipment side, you know, one thing you have to recognize, and this I think will sound similar to make my trip, but, you know, I sort of
00:13:09
Speaker
use that analogy with a bit of a 10-foot pole. It sounds similar, but it's not exactly the same. So on that side, we have a platform where you can come in, type up your requirements. Let's say you have cargo moving from Surat to London using the same example. Now there's multiple different route options you can take. So like I said, you can either bring the cargo down to Navashiva port near Mumbai, or you can take it to Hazira port in the south of Gujarat.
00:13:38
Speaker
at each of those different ports, getting it there itself comes with different costs and different timelines. Then at each of the different ports, you have different shipping line options. So different ships will carry it to London. Some of them may go direct, some of them may go indirect. In this particular example, everything goes direct, but that's not necessarily the case. It depends where exactly you're looking, your cargo. And each of the ships also have different transit times, different costs associated with it, et cetera, et cetera.
00:14:07
Speaker
So when you are actually sitting there as a SME exporter, you don't actually have the visibility into all of these things. If you are a very, very dedicated exporter who has one buyer or let's say a handful of buyers in just a few different countries, then you have a good sense, but you still don't have exact information. If you are the typical SME who's getting new orders from different places every now and then,
00:14:31
Speaker
you need to go and figure out all of these details. So we've got this platform, you type up your requirements, you hit enter, and then all of the different route options with the associated costs, the schedules, the transit times, everything is delivered to you. So that's your pre-shipment side of things.
00:14:49
Speaker
Got it, got it. So this is like the way on Make My Trip you can put your from and to and it will show you options like with one stop in between with zero stops and how many hours travel time, what cost and stuff. Got it. Okay.
00:15:02
Speaker
Yeah, again, it's similar, but then what happens thereafter is clients will typically have some follow-up questions or they want to take care of a few certain details or whatever. And that's where the service aspect kicks in. So then they have someone dedicated who will walk them through all of their different options. The guys on our team who are taking care of making sure their shipments go smoothly.
00:15:27
Speaker
then they'll get involved and then you know we'll figure out the right option for them and then it moves forward to like the the execution side you know once everything is confirmed so how does things get confirmed do they pay something upfront like no no no when does a lead become a customer
00:15:44
Speaker
A lead becomes a customer basically when we invoice them. I mean, they don't have to pay anything upfront, right? So the idea again over here is that we want to, we're not in it for the transaction, we're in it for the client. Most exporters, again, where the meaty chunk of the market have regular business. Every month they have multiple transactions.
00:16:06
Speaker
Okay. So, so there's a monthly settlement kind of a thing which happens. Like the industry norm is essentially not upfront, but like a monthly, that's like the industry norm, I guess. Yeah. Okay.
00:16:17
Speaker
Yeah, so then when we come to the down to the execution side of things, right? So then this is where really I feel like what we've really focused on as a company really begins to shine, right? So, you know, as I was mentioning to you earlier, we've put a lot of efforts into automating the process, recognizing that it is the manual errors that ultimately cause all of the frustration for the clients, you know?
00:16:41
Speaker
So if we can reduce the incidences of those manual errors, we know the clients are going to be happy and they're going to come back for repeat business. And as we get repeat business from multiple mid-sized clientele, these SME clientele of reasonable scale, then we're going to build up our scales to such a degree that we're going to build a very large and profitable company.
00:17:03
Speaker
Our focus was on actually getting into the nitty-gritties of the process, you know, with a very fine tooth comb, trying to figure out where typically the process fails, right? When you're talking about regular operations and then seeing what sort of technology interventions and automations can be brought into it to close those gaps.
00:17:25
Speaker
and ultimately give the clients the sort of service that they desire, you know, in terms of transparency of information, in terms of problem solving, in terms of proactive issue identification because, you know, logistics ultimately is a fairly messy business. Things do go wrong. Sometimes it goes wrong for no one's fault whatsoever.
Motivations and Impact on Indian Logistics
00:17:46
Speaker
If you remember, I think last year, in the middle of the first lockdown, the cyclone that came to Bombay literally knocked over one of the cranes at the port. What are you going to do? All the efficiencies and planning of the world is not going to stop the cyclone from doing that. But then you need to start taking corrective actions very quickly, right? And that's where the technology begins to shine. Because if you're dealing with someone offline,
00:18:12
Speaker
This guy is not doing any tracking work whatsoever. He has no idea when things are going wrong. And what I have seen in Indian clients most complain about is that when something goes wrong, the logistics provider is not the one telling them that something's gone wrong. They find out from the overseas buyer who is tracking all of the cargo.
00:18:35
Speaker
And he will say that look, the cargo was supposed to arrive on the 1st of November, but now it's going to arrive on the 15th of November and you didn't even inform me. That's what the overseas buyer would say because they're used to a very different degree of professionalism.
00:18:49
Speaker
Then the Indian exporter will get really pissed off. He'll say, shit, I'm losing reputation in front of my bio. And he'll pick up his logistics provider and start yelling at him. Why didn't you tell me? All right. I mean, Baba, how is he going to tell you he doesn't know only it's happening, right? Because he doesn't have that, that he's not built those systems to take care of those problems. Yeah. I mean, in a way, you know, you can, you can boil down my motivation for all of this to a, to a simple line, you know, like I want to help make
00:19:18
Speaker
the whole Make in India campaign a reality because I recognize that there's many things that we can improve on and one of them is certainly the quality of India's logistics providers because if you have a logistics provider who's not giving you quality information and you're an exporter,
00:19:34
Speaker
and you have dreams of building a large export business, you can't. You can't do it unless you get someone who's giving you quality information so that your buyer is not the one getting pissed off with you. That's ultimately what this is all about. So that's like a big driving factor for me. I want to make Indian exporters win.
00:19:52
Speaker
Amazing. Tell me about post. So one is the onboarding experience, which you have digitized. Then once they get onboarded, then what is the automation or the digitization that's happening there? Like your responsibility would start from the trucking, right? Like getting the
00:20:10
Speaker
stuff loaded on a truck and transported to a port so does that get digitized or how does the custom clearance part get digitized like tell me about all these steps like how you are digitizing them.
00:20:22
Speaker
You know, we recognize that logistics is a process driven industry, right? So step A, only once it's completed, can you move to step B and then step C and then step D. Now in international logistics, it starts getting quite complicated because you have two parallel streams that you have to work on. One is the physical movement of the cargo. So let's say it's coming down from Surat to Navashiva port in Mumbai, and you have the documentation work stream, which is a separate one that can happen in parallel while the cargo is moving.
00:20:52
Speaker
And they interface with each other. So you can't prepare certain documents until the cargo reaches a certain physical location, you know, and vice versa. So what we basically, what we've done is we've identified this entire work stream that's there, right? And all of the interfacing points and all of the contingencies. And we started automating the flow of the shipment.
00:21:16
Speaker
Our software itself will start flagging the next steps that need to be done by the team and for the client as well. So let's say the client has to submit a document without which the Tagoo is not going to be loaded on the ship. Now, when you have an offline provider, this guy needs to keep track of whether the document is received or not. Yeah, he needs to send a WhatsApp message or something.
00:21:37
Speaker
Yeah, or an email or a phone call and if this guy is busy, you know, I've actually seen cases where, you know, the guy says, Oh, no, no, my kid fell down in school. I had to rush to the school to pick him up and take him to the doctor. And because of that, you know, some document filing wasn't done and the cargo was delayed at the port for one week, you know.
00:21:55
Speaker
I mean, I'm not blaming this guy, but like these are the realities of the, you know, of dealing, of doing business. So when these situations happen, you know, if this guy is not doing the work because of whatever reason, you know, valid or non-valid reason, ultimately is the exporter's target that stuck. But for us, the software is the one who identifies what needs to be done.
00:22:16
Speaker
when it needs to be done by, which shipments are becoming critical that if it's not done like ASAP, there's going to be extra charges or delays that are going to incur. And it is the one that is coordinating all of the different actions of all of the different parties to make sure that this cargo is ultimately loaded on the intended ship that it was supposed to be loaded on. Because the other thing about ship schedules is that, you know, for most locations, you only get one ship a week from India.
00:22:45
Speaker
Right. So if you miss it, your car was laid by seven days. Now there's not a hard rule. There are locations that are service more than once a week, but you know, as the rule of thumb, you can just basically say that if you miss that it's delayed for seven days. Right. Okay. And, uh, but this information, uh, still gets fed in manually, like whether it was loaded or not. No. So that's, that's the backend integrations that we've done that pulls all of this information from the different systems.
00:23:14
Speaker
So what are the systems you have integrated with, like to pull in information? The port systems, container tracking systems. Container tracking system is what, it's by the ship or what does that refer to? It depends, yeah. So the shipping line could have it separately and then you could have like, you know, separate providers for that information as well. But container typically refers to on the ship, like the container on the ship, so tracking that.
00:23:42
Speaker
Container tracking is more than just the ship, right? So the vessel tracking is tracking the ship itself, but the container tracking can be like, you know, supposing you're loading it on the railways, right? So it's coming from Delhi to Mumbai. You know, you can have RFID tags along that entire route as well, which will tag the container and say that, okay, the container has now passed Gopal, you know.
00:24:07
Speaker
So there are container companies who provide you this information like this whole container service is run by a separate company or by the shipping company.
00:24:18
Speaker
They're two separate companies that run this, right? So one group for the domestic side, you got to interface with a different set of providers, you know, who have the physical infrastructure on land. And for the ocean side of things, you know, the shipping line can sometimes give you the land tracking as well, but not always. Mostly, they will get ocean tracking from them.
00:24:39
Speaker
And then not all shipping lines have container tracking period. So then you have to start tracking the ship itself. And if you want to, if you're getting conflicting information, then you need a tiebreaker.
Logistics Processes and Container Dynamics
00:24:49
Speaker
That's where the port systems come in. The data that's available right now, it's all there in silos. All of these guys have different little pieces of data. But we found that quite often they conflict with each other because the quality of data is
00:25:06
Speaker
good, but not 100%. So then you need to have, you need to overlay your tracking solutions with your own business intelligence, you know, to figure out what exactly is the status of that shipment at any given point in time.
00:25:22
Speaker
These containers are owned by whom? Are there companies which own containers and they lease it out to ships or railroads or whatever? Or do shipping companies own their containers? The shipping companies typically will give the container to you. How do they get it? They lease it from someone else.
00:25:42
Speaker
Okay, so they would be like these containers available in every city and where you either rent the whole container or a part of the container and you rent it from point A to point B, that point A again, so like we gave that example from Gujarat to UK for example, so you would rent a container from Gujarat to UK and utilize it for getting your stuff there or you would rent it partly like that could also happen.
00:26:06
Speaker
that could also happen. So if you want to do a full container rental, right? That's like your standard full container load shipment, which is what most reasonable scale exporters have. Of course, you know, it depends industry to industry. Some industries have a cargo, which is not very voluminous. Like it's not very big. Like jewelry. Yeah. Like jewelry, jewelry will go air freight, but something like that.
00:26:31
Speaker
You know, let's say electronics and cell phones, right? If you're ordering a small batch, then you don't need the whole container because, you know, you'll get like 50 lakhs of goods in a very small amount of...
00:26:43
Speaker
We have a few hundred kilos of cargo. So they'll book a space inside the container. But yeah, so you can do that. That is a different set of service providers you have to deal with. Full container loads is a different set of service providers. Air freight is a different set of service providers. So the complications ramp up pretty quickly.
00:27:02
Speaker
And you are integrated, like you are bundling all of these. You are bundling the container providers, the truck which will carry the container. So there'll be a truck on which the container gets loaded and the truck takes that to the port. So that also you bundle in. Okay. Got it. Yeah. Right now we're doing all Ocean Freight services. Okay. And how do you know if it cleared the custom or not? Again, there's a way to get that data.
00:27:30
Speaker
Yeah. The customs site is called Icegate. So how much of this is still manual work? Like, do you need people on the ground in the custom office to get the files passed? Like, I'm just picturing like a government office where there is somebody who's smoothening the way for the file. Is that what happens? Well, honestly, much, much less than you imagined.
00:27:54
Speaker
Right. I think what is really commendable is the way that the customs department has moved a lot of these processes online and made it fairly seamless. So, you know, those cases that you're talking about are only if you have a specific hardcore incentive for someone to smooth things over.
00:28:16
Speaker
Okay. Okay. Okay. So, but the document submission, all of that is online. So someone can upload the document to your platform and then you will further upload it to the customs authority through a direct integration.
00:28:29
Speaker
Yeah, all of the document submission now, I think pretty much throughout the chain is pretty much online. I'm sure in certain odd cases, there are instances where you have to go and make physical submissions and do some physical follow-up work, but those are specialized and sensitive carvos, which is not the majority of the industry.
00:28:53
Speaker
And how do the commercials work in this industry? Is there a cost plus margin? Or is there a flat amount that you charge and there is a markup inside that? How does it work?
00:29:07
Speaker
Yeah, so we work on a sort of flat fee basis that also helps in establishing the transparency with the end client, which is something that we are very particular about as a company, transparency of information flow, transparency of pricing, transparency of when there is a problem, transparency of how it can be solved. We really recognize that we are ultimately custodians of someone else's cargo and key enablers
00:29:35
Speaker
you know, in their growth or if you're not doing a good job, then, you know, there's stagnation as well. So what does that mean? Flat fees? Like if someone says, I want to move something from Gujarat to UK, then you'll say, okay, this is the cost of transportation plus this is our flat fees. Yeah. Yeah. Yeah. So it's flat fee per service used. So if you're doing customs clearance and trucking and ocean freight,
00:30:02
Speaker
then it's the same flat fee multiplied by three per service. Got it. And typically people will do online payments or they send a check to you or how does that operate?
00:30:14
Speaker
Yeah, bank transfers. Again, we're dealing in that sort of scale of company where things are regimented and process driven. So you can consider us to be a B2B business.
Financial Growth and Market Opportunities
00:30:27
Speaker
We don't focus on that very, very tiny type of company. Like I said, the guys were very ad hoc shipments. So the ones who have regular shipments have their regular processes against it. And typically that involves bank transfer.
00:30:43
Speaker
Let's talk about your funding journey. You said you launched it in January 2016, right? 2017. When did you raise your first round of funds? Yeah, first round of funds was raised in May 2018. That's the little over a year's bootstrapping.
00:31:05
Speaker
That was from K-Capital, who I think they've got some bigger investments across the country. I think the most notable recent one, which has done really well, is Z-Works, because we're hoping to follow in their footsteps soon. But other than that, K-Capital also has other good companies like Healthcart, Inmovine, Intra, etc.
00:31:28
Speaker
So by that time, by May 2018, how big had you become? What were the number of transactions happening or what was your revenue run rate by that time? Give me an idea of the growth from Jan 2017 till that fundraise round. Yeah, but from Jan 2017 to about May 2018, we grew about 30x. In what? In the top line, in the
00:31:57
Speaker
a number of shipments. Okay. How many shipments were you doing then? Like May 2018? So by May 2018, we were doing about 30 shipments a month, roughly, right? And these are for, again, like those need to be type clients. We had just about like, you know, gotten established in a way. And then we close the town with them. And then obviously, you know, the money that comes in really allows you to turbo chart. So
00:32:26
Speaker
How much did you raise in that round? It was about 800K US dollars. So if you're looking in INR, it's about five and a half rows. And yeah, so you were telling me how you use those funds? Yeah, so I mean the funds basically went into damping up the team. So there was
00:32:45
Speaker
logistics professionals in to take care of operations, started ramping up the technology team for all of the technology development and all of the features that we had planned. We got a sales team together to start driving the business. One thing that is noteworthy about that time is how nascent the startup ecosystem in India was. There was a lot of different sort of
00:33:11
Speaker
additional forms of financing that we were looking out for, scaling a logistics business, especially freight-forwarding business is not necessarily like very equity heavy. Why is that? Well, I mean, there's two forms of, okay, think of it this way, right? So you're a freight-forwarding business. Your role is to coordinate the movement of cargo, right? You don't actually own any of the assets.
00:33:38
Speaker
Your main expenses is building up your technology platform. Now you can plow as much money as you want into that, you know, depending on your plan, but ultimately it's not the sort of business that requires, you know, like $15 million. Like if you're starting, like, for example, a neobank or something, you know, you just need a huge amount of upfront capital.
00:33:56
Speaker
So, you know, free forwarding is just not that kind of business. But where do you need the money, right? So let's say, since it's a B2B transaction, you need, you know, your clients might ask for some amount of credit, you know, and back to back, you may or may not get that credit from your suppliers. So you additionally need working capital financing, right? And if you have your working capital financing, then you know, you're pretty sorted.
00:34:20
Speaker
Your growth is fairly unlimited. And for us, in 2018, all of these venture debt funds and all of these guys, he was just coming up. NBFCs didn't really look at startups whatsoever. Banks will forget about it.
00:34:44
Speaker
So, that entire piece of the business or ecosystem was quite nascent.
00:34:53
Speaker
That was something that we look back on and now we see where we are today and what sort of services and facilities we're able to arrange for in terms of different forms of financing. I think the last few years I've seen an incredible growth on that side of the startup ecosystem, which is really commendable. Three years, such a big turnaround. It's amazing. So the money was deployed for those three main areas. And then, of course, as I mentioned, a little bit well towards working capital as well.
00:35:23
Speaker
What has been the growth since then, since you raised that first fundraise in May of 2018?
00:35:31
Speaker
Yeah, I mean, it's been pretty incredible. So as of right now, I think we have more than 400 clients who are onboarded with us regularly interacting. Teams also grown exceptionally well. So I think we've grown 10X. We were at that time barely eight, nine people as a company. We're right now close to 100 and still ramping up. There's a lot of vacancies that we're looking to close.
00:35:59
Speaker
And along with that, also, I would say the size of the clientele that we're able to approach is also getting larger. I think we're getting recognition now from some proper, large conglomerates for the work that we're able to do. And rather than us approach them, they're beginning to approach us, which is very heartening. Yeah.
00:36:20
Speaker
Okay. What is your customer acquisition strategy? Is it like cold emails, cold calling and stuff like that? No. So in terms of customer acquisition strategy, we're very focused on who are the sorts of industries and clientele who would do two things. One, most struggling with the current state of the industry. And therefore, number two, the most amenable to
00:36:47
Speaker
changing the way that they currently operate. And on those fronts, we basically identified, you know, industrial goods, chemicals, furniture, those sorts of companies, you know, you're sort of semi-finished and finished goods companies who are the most in need of an upgrade in the way that they currently operate. Now, within that also, obviously, we have further qualification criteria, you know,
00:37:16
Speaker
It depends on the team size, it depends on how many people that the client has who is operating logistics. For example, I remember we had once gone to this chemicals company who in that sense sort of fits our bucket. But when we asked them how many people they have operating their logistics, even though they want a very large company, they said they have 12 people.
00:37:41
Speaker
12 is a phenomenally large number of people to operate logistics and we basically figured out this guy's not going to be very interested and we've dropped him pretty soon. We stopped the pursuit. We have a fairly long list of qualification criteria but ultimately it comes down to just few segments, few industries that we've identified as being the most amenable to an upgrading because of the way that they currently operate.
00:38:09
Speaker
But how do you acquire them? Yeah, it's a mix. So we have, we have inbound clientele as well, you know, through all of our sort of digital marketing and VR efforts and etc, etc. And building efforts. So, you know, people who are looking for something better will find us, you know, they'll get in touch because they'll sign up on our platform and then we'll start engaging with them. And then for, you know, certain targeted industries where we see a very strong fit, we will go out and approach them as well.
00:38:38
Speaker
Okay. And what is your pitch to a company? Essentially it's like transparency or is there also a price advantage? There is a price advantage. The price advantage itself will improve as we ourselves scale up because then we start getting better operating efficiency ourselves, which we can then pass on to the clientele. But our primary pitch right now is improving
00:39:04
Speaker
the way that their current logistics is functioning, like all of the hassles and the daily headaches that they take when trying to move cargo across borders. We are basically stepping in there and saying, hey, if you use us, the technology reduces the hassles. We ourselves are a very knowledgeable team with expertise in how to do these things. And we can really lighten your load. And for an SME, which is quite often owner-driven,
00:39:30
Speaker
You know, he doesn't want to be involved in sorting out logistics and also dealing with his overseas buyers for new ship for new business. You know, I always tell my team, you know, like the ideal scenario is that the client never calls us because everything is going smooth and you know, they never have to call us. They never have to speak to us. And that's perfect. That's what makes them happy. And that's when we know we've done a good job.
00:39:55
Speaker
Are these SME promoters willing to transact purely online, like look at stuff online and see what is the status? Are they willing to do that or do they still need a voice on the other end with whom they can speak?
00:40:12
Speaker
Yeah, I mean, they do need a voice, but not in the way that, you know, it becomes a burden. So what they are looking for is a little bit of extra assurance and a little bit of problem solving. But when it comes to like the actual transaction and, you know, just the day to day functioning.
00:40:30
Speaker
I think it's pretty okay. They don't mind using the platform because again, they recognize all of the benefits that flow from there. So the SME owners are definitely, they're absolutely fine with it. The challenge comes when you are not dealing with
00:40:46
Speaker
owner of the company, but you're dealing with, you know, someone more down the line, you know, because then over there, then it's no longer about what's best for the company is about what's best for that individual. And that then introduces other complications on how we are going to interact with them. Maybe that person would have been receiving a kickback previously or stuff like that.
00:41:09
Speaker
Yeah, that is certainly possible. The other thing to think about is what is their KPI? If they've been incentivized to, you know, do A, B, or C, right? Which, you know, you might go to them and say that, look, if you pursue A, B, and C, that's a very short-term minded approach. And, you know, in the long term, you'd rather do X, Y, Z, you know, and X, Y, Z is better for the company. That's just going to be like, yeah, but I get money for ABC.
00:41:36
Speaker
And those additional complications then start, you know, complicating the entire approach. So how big is this market, the market that you are addressing? What is your addressable market size?
00:41:55
Speaker
Yeah, it's a pretty big market. I mean, you know, India has about three hundred billion dollars worth of three hundred and thirteen billion dollars. I remember the numbers correctly. Two thousand nineteen merchandise exports from India. Right. There's a very simple way to size this market. Right. So let's say there's three hundred and thirteen billion dollars of exports from India. I'm sure you would have heard of that stat right. Everyone's heard of like logistics is 13 percent of India's GDP.
00:42:21
Speaker
So a simple way to size the market is say that OK, forget 13 percent. Let's just take 10 percent. Let's see logistics is 10 percent as a percentage of the cargo value. Right. So you have three hundred and thirteen billion dollars.
00:42:36
Speaker
of exports, apply a 10% rule, so the logistics spend on exports should be around 31.3 billion. Now on this you can start doing some further calculations about which specific sub-segment you want to go after, another very common
00:42:52
Speaker
stat is that SMEs make up about 50% to 70% of India's logistics. So you can use that multiplier and then you come to around 15 to around $21 billion SME logistics spend in India on international exports. So that's essentially the market that we're going after. It's very sizable. And what would be your revenue potential from this spend?
00:43:15
Speaker
Yeah. So from this, I think, you know, you just have to subtract from this, let's say $21 billion, you then just subtract away, at least for the moment, or those extremely small clientele, right? Where I said, they know the ad hoc business and that would be no more than, let's say, you know, 20%, the long tail. So 21 billion less 20%, you're at around 16 billion.
00:43:38
Speaker
How much would the freight founding agency business be worth from that perspective? Maybe another 10% on this, 10 to 20%. Okay. So 10% of this about some 18, 20 billion. Yeah. I mean, I just did that math, but I don't necessarily agree with the calculations and the logic behind it.
Expansion Plans and Industry Challenges
00:44:02
Speaker
But yeah.
00:44:08
Speaker
What is the path for you to become a unicorn? What do you see as your roadmap over the next couple of years?
00:44:18
Speaker
Yeah, I mean, so we're gonna, what we have in mind is to ramp up our core business. We are now, a few years ago, we had the intention of becoming a Pan India player, which to a large degree we have succeeded in. We can now take care of shipments from any part of the country to overseas and vice versa. The path to unicorn is to basically just ramp up on our current sales focus.
00:44:47
Speaker
then start adding in air freight, warehousing as well, right? So start, you know, eating into more aspects of the overall value chain and that, you know, all combined should lead to a billion dollar business, you know, fairly easily.
00:45:03
Speaker
And then post that, I mean, you know, honestly, I think I guess one of the beauties of being involved in international logistics is that we fully recognize that the problems that we have discussed today about, you know, how Indian exporters and importers struggle, they largely hold true for other parts of Asia as well.
00:45:23
Speaker
And I think other parts of Asia also have, I mean, it's not like they also have 20 different digital founders that are coming up. So there is market share to be seized over there as well. So maybe a couple of years down the line, we fully see the internationalization of this company as a very distinct possibility. And that, again, just adds to the market size, adds to the revenue potential.
00:45:51
Speaker
And Southeast Asia actually, you know, we may think of them as like smaller countries, but they are much more internationally exposed, much more connected with global supply chains. So, you know, we did some rough back over here, we actually looked into the numbers in a decent amount of detail. I think market size for Southeast Asia, international logistics is about four times the size of India, even though these are theoretically tiny of countries.
00:46:18
Speaker
No, I mean, Bangladesh should be a good first country to go into, right? Like the physical proximity is there and they also have a large export reliance. Yeah, I mean, there is a very clear case for entering Bangladesh, you know, they do a lot of exports to the USA, especially textiles. So I guess what they're known for globally now. So yeah, I mean, broader South Asia and Southeast Asia.
00:46:45
Speaker
By when do you think you'll cross 100 million annual revenue, $100 million? We have a couple of years. Maybe 2025 or something like that. 2024, yeah.
00:46:56
Speaker
Ah, nice. Amazing. You said that you're at about 100 people today. So tell me about scaling up a team. You know, like you obviously prior to this did not have that experience of running such a large organization. So what were the learnings that you got along the way? What were the mistakes you made and what did you learn from them? Yeah, you know, I think primary learning for me was the ability to
00:47:26
Speaker
let go and you know not having to do everything myself which you know a little counterintuitive because you you recognize that scaling a team is important which you know i think we personally i also recognize that scaling a team was important but when i came down to like you know critical decisions or something i found it very hard to let go you know so when i came down to like few very important things all i was always looking to try and do it myself or be heavily involved in it
00:47:56
Speaker
And then over time, I think this is, like I said, this is my primary learning, right? So the over time I realized that, you know, that's good. I mean, you might be able to perfect that one particular decision, but then if it wasn't as major, if it wasn't like an earth shattering decision, the efficiency loss was actually tremendous.
00:48:16
Speaker
And it actually meant that you could do less things overall. That was like one of the major things, you know, like learning to delegate. And with that, a second learning related to this, you know, just how to identify a good leader, because as a company continues to scale, you know, beyond the founders, you need additional leaders as well. And identifying those leaders is in the logistics industry, fairly challenging.
00:48:43
Speaker
Do you, I mean, you know, there are two schools of thoughts. One says that, you know, that talent is fungible, that you don't need someone from logistics if the person has, for example, good leadership skills and a lot of startups do that. You know, they would hire people, let's say, from consulting companies because they know these are smart kids, so to say. So is that your preferred approach or do you place value on experience that experience in the industry is important?
00:49:09
Speaker
So I'll tell you where we were historically and I'll also admit that, you know, at the moment we are thinking harder and deeper about this problem. But where we were historically was that as a very young company, the only way that we were going to scale up to even where we are today is with people who actually know what the business is because it's, remember, it's not a simple business. It's not like buying and selling chewing gum, right?
00:49:35
Speaker
It's like you get from one place and you sell it to the other. There is domain expertise required to even do one transaction decently, right? So our preference in the initial phases was always about, you know, get the guy who knows how to do the job because you don't have time to sit and train someone on like the intricacies of international logistics for six months. You know, you may not have that much runway as a company, right? When you're a startup.
00:50:03
Speaker
So you can't afford to take time to scale those guys up. So that's where we were historically. And we took people from the logistics industry. It helped us. They were at least able to take care of day to day and allowed the founders to focus on more tactical and strategic decisions rather than day to day operations. Though, of course, being a startup, you also do get dragged into day to day quite often.
00:50:25
Speaker
So that's why we were historically. Now, in terms of fungible leadership talent, I would say that for us as a company, I don't want to talk about making any grand proclamations about what I feel for all startups all over the place. I'll just speak about our company. I think for us, that
00:50:45
Speaker
fungibility of leadership talent is a distinct possibility once there is sufficient amounts of domain expertise already available in the company that can take care of things so that your fungible talent when it comes in is either not taken for a ride by his own juniors and also has enough of structure and support to actually be able to execute on the promise and talent that they have.
00:51:15
Speaker
So I think that's where we stand. And yeah, as I mentioned to you, whereas historically, we would mostly take people from the industry, now I think, you know, with these pointers in mind, we are much more flexible.
00:51:30
Speaker
Okay. So, okay. Yeah. I want to understand more about who else is there in this digital freight-fouting industry. You said you were like one of the first in this market and then subsequently more people came in. So what does this market look like today?
00:51:46
Speaker
Yeah, so I mean, over time, you know, there were, I think maybe five or six entrants into the broader freight forwarding industry. Now, given the level of domain expertise that's required, I think what has happened almost
00:52:02
Speaker
by default is that each player has found his own niche within this industry. So there's us who's trying to be a digital freight forwarder, primarily for exporters. Then there is the other player who's trying to build the technology stack and a SaaS offering for the end client, the importer or the exporter.
00:52:24
Speaker
There's another guy who is building a technology stack for the freight forwarding companies. Everyone has come in recognizing that the industry is in desperate need of something better.
00:52:42
Speaker
Through time, we've all sort of found these individual niches in which to sit, where I think most of the guys in the industry, wherever they're sitting are pretty much the only guys in that space, which goes to show just how heavy on domain expertise this industry is, that there are only so many players. But at the flip side, it's good for everyone, because everyone has their niche and has freedom to roam and grow and develop in that space.
00:53:13
Speaker
So are you also looking at a SaaS offering because you have built a software which currently is for in-house use, but that itself could be a product to give out to larger companies? I mean, we're contemplating, you know, how we can further leverage the technology that we've already built out, but we have no concrete agenda just yet.
00:53:39
Speaker
But what is the way you're thinking about it? Like what are the pros and the cons of it? You know, one way that we look at this is that if we disperse or satisfy our product, if that's a word, I'm not sure if it is.
00:53:57
Speaker
But yeah, if we satisfy our product, one way of thinking about it is that, you know, hey, there's a little bit of secret sauce here that we've got, you know, in terms of how we've automated these internal processes. And then you give it out and, you know, it should come with a significant amount of earnings with it.
00:54:14
Speaker
And the thing about SaaS products is we're not very confident that there is a very large market for a SaaS solution in our space, a specific SaaS solution for international logistics. So that is something we're thinking about. But on the flip side, it does help in furthering the brand recognition and potentially expanding the reach.
00:54:40
Speaker
So those are the two thought processes that we're juggling with right now with no clear answer of how we are going to roll this forward. Would that additional data give you better decision making capability? Like if you were to open a route to companies and companies started feeding their data into it, would that make your system smarter? Like better machine learning happening and stuff like that?
00:55:07
Speaker
Yes, and that would be one of the arguments on the pro side. You told me that the path to becoming a unicorn is partly by expanding the range of services and partly by expanding the geography. And let me ask you about both of these. So for expanding the range of services, are you looking at acquisitions as the path to do that, or would you want to organically build it?
00:55:35
Speaker
Yeah, so I mean, I think both are definitely on the cards, you know, depending on the scale and the timing. But at the moment, we're pretty comfortable doing this organically. And, you know, we're looking at having our first overseas office set up within the next year itself, you know, to start ramping that up.
00:56:10
Speaker
Which country have you finalized? Mostly Dubai.