Large Corporations' Freight Transportation Platforms Not a Fear? The 'Flywheel' Prepared by Sendy
🚛 Reading this article, you'll learn:
- In October 2023, amid a downturn in consumption and an investment cold wave, a startup named 'Sendy' successfully raised 70 billion won in Series B funding for its freight transportation platform business. As is well-known, 2023 was the year when major corporations, including the three major telecommunications companies, Kakao Mobility, and CJ Logistics, consecutively entered the 'freight transportation platform' market. Despite the anticipated fierce competition, how was Sendy able to convince investors? Competing against large corporations, they say it's rather feasible? We sat down with CEO Yeom Sang-jun at Sendy's headquarters in Seomyeon, Busan, to discuss.
- Sendy believes competing against large corporations is manageable because Sendy focuses on a specialized area called 'light freight,' rather than the entire freight transportation market. However, to the general public, the difference between light freight and freight transportation may not be clear. We can understand what the Korean government defines as light freight, what Sendy defines as light freight, and how this definition allows us to find Sendy's competitive edge.
- Sendy describes their goal as creating a 'flywheel' that simultaneously achieves cost savings for shippers, increased earnings for truck owners, and revenue growth for the platform, Sendy. While this is indeed a noble goal, one might wonder if it's feasible without creating unprecedented value. However, Sendy believes it's entirely possible. We will look at how Sendy operates the flywheel with specific examples for shippers, truck owners, and the platform.
- The name Sendy (Send Everything) embodies the ambition to transport everything. Although Sendy currently focuses on the limited area of light freight, they aim to expand into the entire freight transportation market and beyond in the future. We've summarized Sendy's current revenue model, their near-future revenue model, and their long-term goals. If Sendy achieves these dreams, then competing with large corporations will not be an issue. After all, this is a goal not even multi-trillion won revenue logistics giants have achieved.
CHAPTER 1
70 Billion Won Investment in This Economic Climate?
Those in the startup industry must have felt the recent investment chill firsthand. Yet, in October last year, a logistics startup successfully closed a 70 billion won Series B funding round, which might not seem like a huge amount for a Series B round. However, what caught my attention wasn't the amount of investment, but the market the company operates in: the 'freight transportation platform'. This is the story of 'Sendy'.
In 2023, the freight transportation platform market saw entries from major corporations, including the three major telecom companies, Kakao Mobility, and CJ Logistics, indicating the market's attractiveness (with some estimates going as high as 40 trillion won). For startups with limited resources, the continuous entry of large corporations into the market could be quite daunting.
Investors in Sendy, such as KDB Industrial Bank, BNK Venture Investment, Shinhan Asset Management, Coolidge Corner Investment, and We Ventures, knew this better than anyone. Amid such challenging conditions, why did they decide to invest? And how did Sendy manage to attract a substantial investment by presenting their vision?
CONNECTUS visited Sendy's headquarters in Seomyeon, Busan, to hear directly from CEO Yeom Sang-jun. Yeom explained that during the investment process, he often faced questions about the entry of large corporations into the freight transportation platform market. Not only during this Series B funding round but also during the previous Series A round, he received numerous inquiries, citing failed attempts by large corporations like CJ Logistics' Hello and SK Planet's Trucking, questioning if Sendy could succeed.
Returning to the point, Yeom confidently stated that despite the intensified competition, survival and even growth were possible. He cited two main reasons: Sendy's focus on a 'specialized area' rather than targeting the entire freight transportation market, and, if considering Sendy's precursor, the moving platform 'MoveMoa', the company's extensive experience and understanding of the offline field since 2015.
What does this mean? Starting with Yeom's response, we explored what Sendy's targeted competitive edge, the 'flywheel', is. This flywheel's structure may seem impossible at first glance. It aims to simultaneously achieve three values: reducing transportation costs for shippers, increasing transportation revenue for truck owners, and enhancing profits for the platform, Sendy.
"Whether it's a large corporation or a startup, shippers tend to use the platform thinking they're purchasing a 'comprehensive transportation service'. They expect the platform to provide services previously offered by traditional transporters and brokers, not just simple dispatching. And to elevate such service quality, it's crucial for the platform to satisfy truck owners who actually handle the shippers' cargo. Sendy specializes in 'light freight'. Satisfying both shippers and truck owners in light freight requires overcoming higher hurdles compared to other industries. We believe that it's not easy for large corporations, which entered the market based on their subsidiary's cargo volume, to excel in this area. If both large corporations and we operate an app and a website, it ultimately comes down to who can add more value to the market. Sendy has experienced many failures in the freight transportation industry, developed various features within our platform based on these experiences, and reached a stage where we profit from arranging transportation through the platform. Thus, we believe it's worth attempting. Thanks to our investors who trusted us, we were able to successfully close this investment round." - CEO Yeom Sang-jun of Sendy
CHAPTER 2
Focusing on the Specialized Area of 'Yongdal (Light Freight)'
Like many startups, Sendy's goal for this year is focused on 'profitability'. Sendy's recent monthly revenue is around 1 billion won. With plans to maintain growth while achieving the goal of breaking even within the year, Sendy has been burning through investment funds to activate its platform ecosystem since its service launch in 2018. Now, the company aims to focus on optimizing internal costs based on the supplier (truck owner) and customer (shipper) network it has built.
A natural question that follows is 'how' they plan to do this. CEO Yeom Sang-jun mentioned focusing on shippers who can actually save on freight costs as both their method and strategy. More specifically, they plan to focus on the service area known as 'Yongdal'.
According to the Standard Korean Language Dictionary, Yongdal is defined as 'the business of delivering goods or merchandise'. At first glance, it might seem there's no difference between Yongdal and freight transportation. Traditionally, Yongdal followed the industry definition under the Freight Transportation Business Act before its 2019 amendment. Although officially discontinued after the law revision, Yongdal referred to freight transportation businesses using trucks with a payload of 1 ton or less.
The 'Yongdal' that Sendy talks about slightly differs from this legal definition. Typically, large shipping companies contract with transportation companies for the regular transport of goods, calling the truck owners operating under the transportation company's name and handling fixed volumes 'leased truck owners'.
However, there are always unforeseen situations requiring urgent cargo handling. Trucks dispatched urgently for these volumes are referred to as 'Yongcha', akin to mercenaries, and the transportation cost for these urgent dispatches tends to be higher compared to fixed vehicles.
Sendy's focus on Yongdal aligns somewhat with the concept of Yongcha, focusing on sporadic volumes rather than regular contract volumes. This focus comes from the belief that it's difficult for platforms to create 'efficiency' in the market for fixed contract volumes due to the strong business networks and price discounts based on the scale of shipping companies. In other words, Sendy believes there is room for platforms to create efficiency in the Yongdal market. They estimate the Yongdal market size to be about 8.6 trillion won, around 20% of the total freight transportation market, with approximately 170,000 trucks operating in this sector.
Sendy's revenue model is straightforward: they charge corporate and individual clients for transportation fees and settle the fees with the truck owners who perform the actual transport work. The difference between the fees collected from clients and paid to truck owners constitutes Sendy's profit. This is why Sendy sees itself fundamentally as a 'freight brokerage business', differentiating itself by using a 'digital platform' as the medium.
This is where the previously mentioned 'flywheel' comes into play. Sendy aims to satisfy both the shippers, by reducing transportation costs, and truck owners, by increasing transportation revenue, through its platform, while also generating profits. Although finding the 'right balance' may seem straightforward, it is a challenging task that many industry professionals can relate to. Let's see how Sendy plans to achieve its goals.
"Traditional transportation companies and brokers often focus on securing fixed volumes from large shippers, leading to 'low-price' competition. They also handle dispatching and unexpected situations. We thought this market wasn't suitable for a nascent platform. We tried, but the cost efficiency wasn't great. However, we saw our competitive edge in handling Yongdal volumes or 'on-demand volumes', which vary in destinations. Our investigations revealed that our satisfied customers were 'mid to low frequency' users of our platform. These companies, often overlooked by the traditional freight market, tend to appreciate the utility of our platform more significantly." - CEO Yeom Sang-jun of Sendy
CHAPTER 3
Why 'Transportation Cost Reduction' for Shippers is Possible
Firstly, from the perspective of reducing shipper costs, Sendy focuses on small shippers with monthly transportation expenses of less than 50 million won. These smaller shippers lack the bargaining power in transportation costs compared to large shippers. Hence, they can benefit from more affordable freight rates through Sendy's platform services.
Sendy fundamentally uses AI technology to estimate freight charges provided to shippers. The variance between estimated and actual freight costs is between 3,000 to 5,000 won, and for certain frequently traveled routes, the estimation accuracy is nearly perfect. Additionally, Sendy offers discounted rates for companies that use freight transportation services regularly. This 'dynamic pricing' structure, which exposes more affordable rates to frequent users even for the same route, is reflected in the algorithm for estimating expected charges. Thus, shippers using Sendy regularly can naturally see a reduction in transportation costs.
In the freight transportation market, where there is no standard fare like taxis based on distance, supply and demand imbalances and unexpected situations can occur, preventing dispatches from proceeding at the estimated freight rate set by Sendy. In such cases, Sendy strives to ensure dispatches at the desired time by the shipper, even if it means raising the pay to truck owners at the expense of the platform's profit. The operation doesn't stop at mere AI-based intermediation but involves human operation to ensure confirmed dispatches.
Although not directly related to freight rates, Sendy emphasizes that the platform can also help reduce additional operational costs for shippers. In the traditional analog method, the process of communicating between shippers and transportation companies via phone and email accumulates manual labor. This can be significantly automated through the platform. Sendy also offers dedicated account managers for corporate clients, allowing for dispatch without repetitive transportation requests.
Among the features Sendy is currently promoting is the real-time transportation monitoring and estimated arrival time service for the designated freight truck. Sendy has branded 'Yongdal is Sendy, Predictable Transportation' as its marketing copy, emphasizing that the service, from dispatch through the platform to monitoring, payment, and settlement, is all predictable.
"Even though Sendy uses AI for dispatch, delays can still occur. In such cases, we intervene manually to resolve the issue by any means necessary. For shippers, using a transportation company is akin to purchasing a 'comprehensive transportation service'. If the platform were to respond indifferently, we would fail to gain the shippers' trust, and they would have no reason to use us. In fact, Sendy's dissatisfaction rate among shippers is 0.48%, meaning there's about one minor claim per 200 dispatches. It's a metric we're deeply committed to. Nevertheless, dispatch delays can still happen. Our system might indicate that a truck owner will move by a certain time, but the truck owner might undertake another task, or sudden accidents can delay arrival times. While such cases aren't frequent, if there's a delay, Sendy compensates the shipper with a 'delay compensation'." - CEO Yeom Sang-jun of Sendy
CHAPTER 4
Why Increasing 'Transport Revenue' for Truck Owners is Possible
Sendy anticipates that if there are sufficiently many 'good' volumes within the platform, truck owners will naturally increase. The most preferred volumes by truck owners inevitably involve 'higher freight rates'.
Sendy operates by directly arranging the volumes between shippers and truck owners on the platform. This differs from the operation of freight information network operators represented by 24-hour national call freight, which intermediates volumes between shippers and truck owners. Sendy explains that its business structure allows for more competitive freight rates to be passed on to truck owners because there are no middlemen taking a cut of the profits.
However, the 'good volumes' truck owners prefer, as mentioned by Sendy, are not simply those with 'high freight rates'. In other words, factors increasing truck owners' revenue in the freight transportation market are not solely based on offering high rates.
For instance, from the perspective of a 1-ton truck owner operating in Seoul's Gangnam district, which volume would be more appealing: a 100,000 won job starting in Mok-dong or a 90,000 won job starting in Gangnam? According to CEO Yeom, considering the time and cost of moving to Mok-dong for loading, the truck owner might prefer the 90,000 won job starting in Gangnam, even if it pays less. The criteria for good volumes can vary depending on the distance between the loading site and the truck owner.
Sendy notes that many factors influence truck owners' preferred volumes. For example, some truck owners prefer long-distance jobs with relatively high freight rates and travel time. Those working as a side job may favor jobs with short waiting times for loading. The equipment installed in the vehicle, such as lifts or tarps (covers installed on trucks), can also determine the type of jobs truck owners prefer. Sendy incorporates these diverse contexts occurring during transportation into its dispatch and freight rate determination algorithms.
"The requests from shippers vary greatly depending on the nature of the cargo. Some require truck owners capable of driving forklifts for loading. There are requests for vehicles with lifts and fixed equipment for transporting heavy items like motorcycles. Some shippers require vehicles with tarps for cargo protection. On the other hand, truck owners' preferences are also diverse. Some strictly do moving jobs, while others refuse to transport agricultural products because they might leak. Sendy is learning its fare algorithm by reflecting these various contexts of transportation. It incorporates factors like fuel costs, weather, traffic conditions, and the government's standard fare guidelines. However, we believe the most crucial aspect is the operating data of truck owners who have completed jobs within Sendy. We are focusing on improving the algorithm by determining the most acceptable fare that does not decrease the satisfaction of truck owners and has the highest probability of being dispatched." - CEO Yeom Sang-jun of Sendy
CHAPTER 5
Why the Platform Can 'Profit'
The absolute task necessary for Sendy to offer fares that satisfy both shippers and truck owners is 'network size'. Here, the network implies the influx into Sendy's platform of a large number of shippers with their cargoes and truck owners of various dispositions and preferences who can timely handle these cargoes. Until such a sufficient network size is established, the platform may operate at a 'loss'.
Indeed, until 2022, Sendy was in a situation where the transportation fees collected from customers were less than what was paid to truck owners, clearly leading to losses in some segments. However, from the first quarter of 2023, it managed to secure a stable profit margin per transportation job. Based on these achievements, Sendy is aiming for a total profit turnover within 2024.
Sendy believes that as the network size grows, it will be able to construct a new model that satisfies shippers, truck owners, and the platform alike. A representative example is 'multi-stop transportation', where various stops' cargoes are linked and dispatched to a truck owner. This method is evaluated as increasing the cargo volume a truck owner can handle at the same time, thus simultaneously creating revenue growth for truck owners and reducing freight rates for shippers.
The revenue model of Sendy, which was initially limited to the 'commission' received from intermediating between shippers and truck owners, could diversify as the network size expands. Currently, Sendy does not charge a separate system usage fee from shippers or truck owners. However, as mentioned later, Sendy aims to become a platform encompassing the entire logistics beyond just light freight. When this happens, charging additional usage fees to shippers using specialized services could be entirely feasible.
Similarly, Sendy sees potential revenue models in 'finance'. If sufficient transportation data are accumulated through shipper and truck owner matching within the platform, it would be possible to offer installment financing services that allow truck owners to purchase trucks at affordable prices by connecting with capital companies. It is also seen as feasible to launch insurance products tailored to truck owners by linking with insurance companies. Here, it is mentioned that discussions are underway with a domestic insurance company, with the actual product launch imminent.
CHAPTER 6
What 'Sendy' Stands For
The ultimate goal of Sendy is to become a platform that encompasses all logistics operations. Currently, it is focusing on the specialized area of 'light freight' for efficiency. As the volume of cargo and the network of truck owners within the platform grow, Sendy anticipates naturally stronger competitive freight rates. Consequently, targeting a larger market becomes feasible.
According to CEO Yeom, Sendy encapsulates its mission and ultimate business objective in one word: 'LaaS' (Logistics as a Service). While starting, Sendy was targeting a market smaller than the actual freight transportation market size. In reality, Sendy aims beyond freight transportation, targeting a market that even the logistics giants with tens of trillions in annual revenue have not achieved.
"The reason we initially focused on 'light freight' as our primary target was clear: without a sufficient network and service areas, internal costs would inevitably rise. Sendy has previously operated a 'last-mile logistics' service. Last-mile logistics inherently involves more stops for truck owners compared to B2B logistics, and the per-shipment freight rates are lower. Consequently, the characteristics, revenue, and working methods of truck owners responsible for last-mile logistics were markedly different from those in middle-mile logistics. To properly handle logistics beyond light freight, we ultimately need to build a sufficient network. The logistics business fundamentally involves significant volume variability, so we are cautious about expanding until we feel confident enough to mitigate those risks. However, looking at the long term, we aim to encompass a broad range of logistics services beyond light freight, adopting a B2B SaaS (Software as a Service) concept. Sendy's mission, 'Send Everything,' embodies our ambition to operate a business that transports everything. Currently, we are a good match for shippers with monthly transportation costs of up to 50 million won. Next, we plan to target those with up to 100 million won, followed by 150 million won, and eventually aiming at export/import logistics and last-mile logistics." - CEO Yeom Sang-jun of Sendy
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