EPISODE 12
TRANSCRIPT

Episode Twelve

Modernizing Trucking in Indo:

Tiger Fang of Kargo

IndoTekno Podcast, 18 August 2020

(past transcripts)

 

ALAN  0:09  
Welcome everyone to our 12th episode of Indo Tekno. Selamat datang semuanya. I'm Alan Hellawell, Founder startup advisory firm Gizmo Advisors and Venture Partner at Alpha JWC Ventures for our Indonesian listeners, pendengar Indonesia dapat membaca transkrip Bahasa Indonesia kami. I've been waiting to secure this week's guest for some time, and my patience has finally paid off. Tiger Fang is the Founder and CEO of Kargo Technologies (that's Kargo with a "K"), Kargo sits at the intersection of the sharing economy and the logistics vertical. These are two categories that have delivered some of the most material change in at least my life, from being able to summon a ride from my smartphone, to enjoying ever improving customer experience as my consumption moves ever faster from offline to online. Thanks for joining us from Jakarta today, Tiger. Tiger it looks at first blush that the "Fang Clan" has been quite nomadic over the generations. You yourself grew up in Hawaii, yes?

TIGER FANG  1:08  
Yeah, that's right. That's right. And most people pronounce my name wrong. You're the first person to ever pronounce it correctly. It's "fahng" not "fang" from Chinese. So that's awesome.

ALAN  1:18  
Well, it helps to have a spouse, my wife, who is also surnamed Fang. Can you share with us the story which brought your family to Hawaii? And what in turn led you back from there all the way back out to Asia to forge a career here?

TIGER FANG  1:31  
Yeah, so "Mama Fang" was a true tiger mom. She was one of the first generations of folks to go to university after China's Cultural Revolution. I was born in China and moved to Hawaii, to the United States, when I was very, very little. And my mom was part of the first generation of folks to also study abroad in the US. So she really started and charted a path for our family. I grew up in Hawaii as a very normal Chinese American. I went to college there, and started my career in finance right in 2008, the best time ever to get into finance (I'm being very sarcastic.) And when I was on the trading floor, I thought everything was going to be replaced by computers. Half of our team got laid off, and the other half quit. And I didn't know back then, and I couldn't make the connection back then, but this is essentially what we're doing with freight in Indonesia, and I'll make that connection in a bit.

ALAN  2:27  
Well, Tiger, your resume indeed reads like that of a modern day explorer and settler. What with your work that you just mentioned in launching Uber in markets ranging from Indonesia to western China, and similar foundational work for Rocket Internet and Lazada in Thailand and Vietnam. So, I guess you could say you least seem to be someone who is not afraid to get his hands dirty. What about new market development appeals to you?

TIGER FANG  2:51  
After spending about what I consider a decade-or-so in finance, I really thought startups is where I wanted to be. I wanted to get back to my Asian roots. And an opportunity came up to launch Lazada in Southeast Asia in Thailand. And that's what brought me back to Asia. And I went to Uber in China after that. I think it was the best career advice I've ever gotten; that working in finance is leverage and what it is and how to use it. Capital is a form of leverage, financial leverage, or debt. Technology, I would say, is also another form of leverage. How to use technology to make operations better, to scale faster. So I always thought working in a fast growing industry, in a hyper scaling company, in an area of the world that's experiencing dramatic economic improvement and growth; each of these factors gives leverage to the other. And so what I really wanted to do is work in developing parts of the world for an internet company, hopefully a fast scaling internet company. And that's what I found in Lazada. My original role for Lazada was to head the business intelligence team because I had started my career in finance and working on a trading desk. So they thought I would be pretty good at Excel or something. And when I was hired to do that, when I finally got to Thailand, Lazada was just starting out and they had a huge clog in logistics. So coming here, with this fast moving startup, my first three months in Thailand, I was asked to help build Lazada's first warehouse on the outskirts of Bangkok. We had to build the first warehouse, we had to think about logistics. We were doing a couple of orders a day at that point, and already it was breaking down everything. We were completely overwhelming our 3PL (third party logistics) partners. I built our first cross-docking station in Thailand. And we thought about renting our own trucks because the trucks that we were getting were either too expensive or it was already not keeping up with the scale of growth. That was my first real interaction with logistics in this region. And the role just grew from there. I ended up looking after the commercial business for Lazada Thailand and Vietnam. And at the end of all of this, I never had to manage that BI team. And I think I just really fell in love with building things from scratch, starting from zero, when anything can happen and everything is sort of crazy. And you just have to figure everything out using spreadsheets and using the tools available to you. And that's exactly what I did at Uber. Uber had just raised a mega-round. They were looking to expand in Asia, and I help set up the first Uber in a couple of different countries; in Thailand, Vietnam and Indonesia. And going into a country you're thinking about: what is the legal structure? What is the business model? Who are the competitors, both online and offline? What are the pain-points of the customer that you can really solve? I think that was really ingrained into my DNA. And I think that's what really helped me to start Kargo.

ALAN  5:58  
I bet you could indeed write a book about the more than five years you spent it Uber alone. And I realized that you were the guy who got Western China up and running. I remember reading a few years ago that Chengdu was in fact, at one point, a larger market for Uber than even New York City. Clearly things have changed, haven't they? 

TIGER FANG  6:17  
Yeah, those were really interesting times. I think we were at one point, the biggest city in terms of volume, and we're certainly the fastest growing city in Uber at the time. And it's a whole different world now. Remember, that time when China and America were still friends and they wanted to invest in each other? I read the news that the US had to close their embassy in Chengdu and that just made me really, really sad. Because it was very symbolic of what, unfortunately, the US China relation has come to, and it's just a really sad state of the world for me I think. In order for China to rise does it really mean the US has to decline? I fundamentally disagree with the notion that the world is a zero sum game. I think as an entrepreneur, as a builder, you always have to think about growing the pie, creating a new market where it doesn't exist. And I just think our leaders just don't have that mentality. And that's just really sad, because I think investing in Chengdu, and Uber Chengdu growing to the size that it did, was because of a symbiotic relationship. It was a willingness of a company like Uber to invest in China. It was the willingness of Chinese entrepreneurs and Chinese people who are passionate about believing in the mission of Uber coming to work for Uber China. And unfortunately, I don't think that's going to happen anytime soon.

ALAN  7:37  
I realized we run the risk of embarking on a very animated geopolitical discussion, and the only thing I will humbly request that you do Tiger is get out and vote in November.

TIGER FANG  7:47  
Absolutely. I requested my absentee ballot already.

ALAN  7:50  
Excellent. All right. Well, we'll fix this you and me. So going back to business here, the logistics opportunity in Indo at first blush looks undeniably attractive, with the country spending no less than 26% of GDP on logistics. But at the same time, it's easy to envision a logistics company collapsing under the weight of ultimately servicing 17,500 islands. What is the reality of offering a next generation logistics solution in 2020, Tiger?

TIGER FANG  8:19  
Yeah, I get asked that a lot. Why build a trucking startup in an island nation? And I think the headline 17,000 islands, 25% of GDP, is what stokes interest. But if you dig a little deeper, Indonesia has one of the biggest markets for logistics, as you said. It's about $200 billion a year, $50 billion in roll logistics alone. And if you really look at the geography, three islands: Sumatra, Java and Bali, are really what counts for approximately 80% of Indonesia's economic output or GDP, and I think something like 60% to 70% of the population. And these three islands are connected by hourly ferries that can take hundreds of trucks on every single sort of trip. And I think that the Jokowi administration has spent, and is willing to spend, hundreds of billions of dollars in infrastructure building the Sumatra highway, the Java highway, etc. So they're very interconnected. So to us, at least in the very beginning, it's really about capturing these landmasses. And it's just one really big geography to us. We saw the opportunity because there was a huge disconnect between a truck's average monthly earnings and the size of the market in terms of what companies were spending on logistics. And when we went and started Kargo, we interviewed a lot of truck drivers and a lot of trucking companies, and the average earnings was not much higher than what Uber drivers were making. And there was just such a big disconnect. We think that with a platform like Kargo, we will make that entire ecosystem a lot more transparent. So there's not going to be all these layers of middlemen. We can connect directly the shipper, what we call the cargo owners, with the trucking companies and the truck drivers. And if we're able to remove a lot of the middlemen, that in itself creates a lot of value. And then obviously, if you add the technology component of optimizing carrier capacity, route planning, making sure that trucks are not running empty on their backhauls, there's even more efficiency that we can squeeze out of the system. I think that's ultimately our aim.

ALAN  10:26  
Now, Tiger, we see big pockets of venture investment in Indonesia focused on trying to modernize a lot of the traditional parts of the economy, whether it's bringing traditional Warung into the 21st century, or as another example, trying to drive distance learning into the more remote parts of the Indonesian archipelago. And a common obstacle is a lack of digital literacy or ability to use or even understand these new solutions. Are Indonesia's truckers quite enlightened, or are they very risk averse and slow to embrace innovation?

TIGER FANG  10:59  
I think for us, the digitalization of supply chain, and truckers coming onto a platform like ours, using the technology that's at hand, is not a question of if it will happen here, but a question of when. And I think there's a lot of investments that we put upfront to educate and train and acquire the marketplace, so to speak. And I think that's absolutely critical. And I think someone has to do it. I will ask the question: Who would have thought all of the "ojek" drivers that used to stand on the side of the road would now all come attached to a smartphone inside of five years? So I think this will happen. And I think it's a pretty safe bet that everyone in Indonesia will be using digital wallets, and merchants will be using QR codes. So the best way for us to imagine what the future of freight will look like is for us to do the dirty, and oftentimes hard, work of educating the market, because we are really creating what the future of freight will look like here.

ALAN  12:01  
What kind of efficiencies can Kargo drive with its current solution? Are there any facts and figures you can share?

TIGER FANG  12:07  
I think there's three metrics that we are insanely obsessed about, which for us, paints a picture of how effective our platform solution is and how digital adoption is increasing with our marketplace participants. So number one is average earnings. When a trucker comes onto our platform, obviously, the data is still very new and it ranges because there are different cohorts that just come to our platform versus folks that stay on our platform from the beginning. We see in a very optimal scenario that truckers are earning up to 50% more being on Kargo versus than not being on Kargo. We see that the downtime (this is the time that we're tracking between jobs) has come down by big percentage points. We see that sometimes the trucks that initially come to our platform are down for maybe 50% of the time. Now they're at 25 to 30. Dispatch time (the time that it takes for a trucker to bid on a job or accept the job for that truck to be loaded), used to take hours, and multiple hours in a day. And now it's instant. And lastly, payment terms: the cash flow cycle of a specific transporter: that used to be months when a trucker does a job for an enterprise level client. They have huge amounts of ToP (that's terms of payment). On Kargo, you get paid pretty much instantly after you have completed and finished the job. And so all of that is to say we get total cash flow to truckers, and that has gone up to about 50%.

ALAN  13:42  
Tiger, I would say that nearly all of the startups I consult for find building development teams the trickiest part of growing their value propositions. The blame has historically been laid at the feet of the unicorns who have a voracious appetite for building out their workforces. For instance, in the case of Kargo, is the entirety of your R&D team in Indonesia, and how has the labor market trended over the past several months?

TIGER FANG  14:07  
We're about just over 100 FTE's on the team, and about a third of them being on technology and product. And we've hired a bunch of folks from India, and from the US, a lot of "sea turtles", Indonesians that have gone to study abroad in the US and have come back. And I think one of the reasons why we have such success attracting this type of talent is because we have a technical co-founder. My co-founder and CTO, Yodi, is from Indonesia. I think he has a vision of really being able to build a very successful modern technology team based here. We hire a lot of folks one or two years out of college and we train them up. It's a really intensive training and upscale in terms of professional and personal development that we have in our tech team. And we do that because we always thought Kargo is going to be a global company. And we're going to build it from Indonesia for the rest of world. You mentioned Indonesian logistics is one of the most complex in the world. You've got to not only be able to solve problems with trucking and road freight; we've got to get containers and sea freight. E-commerce companies use air freight. So it's the whole supply chain that we are trying to digitize. And we think along the lines of what JayZ says, "if you can make it here, you can make it anywhere." And that is if we scale a solution in Indonesia, and overcome most of these challenges and build our product and solution for scale, we really think that is a transferable product anywhere in emerging Asia, and you couple that with the fact that our customers, our core customers, are global in nature. We do trucking today for folks like Unilever, P&G, Coca Cola, and they have operations in every country. And we think that we can scale these solutions really in any sort of place where they have operations. And lastly, most of the operations team were colleagues of mine from Uber in Asia. And we have experience building two-sided marketplaces to do a lot of offline-to-online acquisition. All of these are extremely challenging here in Indonesia, and a lot of the playbooks and a lot of the things that we run are really kept in great review, in a depository for ourselves. And we can take those and execute them really anywhere in the world.

ALAN  16:30  
What exactly has happened to your target industry throughout the COVID 19 pandemic?

TIGER FANG  16:35  
Yeah, it's been a really volatile ride for us. We target the B2B industry. Most of our customers today, our core customer base, are consumer packaged goods, FMCG producers, manufacturers and brands. We also help with import and export going into container trucks. So, at the beginning of the pandemic, we saw that consumer discretionary customers, these are things that are good to have, right? You love a restaurant and you have discretionary spending: they took a big hit. And we had to really pivot away from that and bring all of the trucks that we use to serve these brands and try to find industries that were still alive during this time. So this is like e-commerce, grocery, delivering food supplies. Import and export started off taking a huge hit. Some of our customers import auto parts. Auto sales and Indonesia is maybe at 5% of where it was a year ago. And so we saw a lot of displacement in the market for the demand of trucking. I think one thing that has stayed pretty consistent is consumer staples. So this is like heating oil and water. They initially skyrocketed because people were panic buying and it levelled off. But even if people are staying at home, even when there's PSPB (large-scale social restrictions) on, people still have regular demand for these things. And so they are very stable. And overall I think there's just a massive  amount of extra capacity in the market. We see that a lot of truckers have lost their business or their customers are not paying. And so they're really struggling to pay their bills. And we see that there's just a lot of overcapacity in terms of the trucking market even today. And that's really been driving prices down, which I think is good for customers. But it's obviously bad for the guys that are driving the trucks, that are transporters. And we're seeing that these transporters are really trying to find ways to make sure that their capacity is not just laying idle. And so we see a lot more downloads, we see a lot more engagement on the supply side. And I think that's generally where we're at today.

ALAN  18:43  
Tiger, what are the most powerful incentives you have applied to convert a target shipper or transporter? Do you ever take on inventory risk or offer subsidies or cashback of any sort?

TIGER FANG  18:55  
I would have loved to say "yes" here. I think in the beginning when we thought about applying some of the principles and tactics that we employed at Uber, to help build up the marketplace for trucking, we could just give a little bit of driver incentives and press a button and then give a little bit of cashback incentives in terms of customers. And...boom, boom, boom: we'll have a liquid marketplace. That unfortunately doesn't work in the B2B industry. I think the most powerful incentive today that we have is actually in the form of faster payments. We bring more liquidity to our truckers. And the problem that solves is that, usually in the trucking industry, customers pay 30, 60 or 90 days after the delivery of goods. And so the most common pain point that we've heard from our truckers is that even after they've delivered the goods, and the goods have been consumed, they still haven't gotten paid. And so I think this is something that we are really taking to heart and in the beginning of our company, we decided we're going to pay right away. We could have said, "Hey, truckers, whatever job you do, you're going to take on the payment terms of our clients", but we made a conscious decision to pay our truckers right away. And I think effectively the cost for me to finance that working capital is a lot less than the benefit that I get from a trucker coming on board to our platform using my technology and the data that we collect from that entire transaction and the visibility in the network. So that's been the biggest driver of growth I think for us.

ALAN  20:27  
That sounds definitely like a very powerful incentive for adoption. Tiger, is the business model for the industry largely commission-based and do both shipper and transporter generally pay a commission?

TIGER FANG  20:39  
That's right. I think the brokers in the industry that we've seen can earn up to about 20% in basically matchmaking. They take on a job from a shipper, they find a transporter that can do the job and they take a cut. So I think that's really the core of our platform today.

ALAN  20:56  
Can you share with us your vision around financial services? Whom does Kargo end up disintermediating with these new solutions?

TIGER FANG  21:04  
Yeah, I think all the products that we offer to the market really stem from the challenges that we face, and that our transporters and truckers face. For some context, 75% of transporters in Indonesia ,that we have seen various reports and from our own analysis, have fewer than 20 trucks. It is a very, very fragmented space. These are our core transporters on the supply side of a marketplace. And they face a lot of problems when it comes to their cash flow. So, when they do a job for someone that, let's say, pays in 90 days; what they have to do is have enough cash so they can float the difference. And so they have to have cash because all of the drivers they employ need cash. They go on the road, they need to pay for gas (that's cash), food, all of those operational expenses on cash. So, you have to have enough money that allows you to float your expenses, and while you're waiting for your job to get paid. If you can't, you have to go to your local community or very shady lenders out there that are willing to give some type of cash flow for these invoices. And they usually cost as high as 1% a day, but usually between 30 to 50% APR. And that's just very crippling for an industry that has very low margins, and is very operationally intensive. And so that's where we start: from our own platform. If you're on Kargo and you take a job from Kargo, you get paid right away, so you don't have to deal with that. And the natural next thing for us to ask our transporters is, "Hey, why don't you add more trucks to service cargo?" And usually the answer is, "Look, we're tied up. We don't have the cash flow to be able to serve cargo and our trucks are servicing others." So we saw that as an opportunity: why don't we offer financing-as-a-service to help bring some of these transporters additional capacity into our marketplace? And I think that's where it started. And we just saw that this is a great opportunity for us to partner with alternative lenders, and ultimately banks that want to get into this space. We're using our platform's data to inform the underwriting, the pricing and the disbursement of working capital for these transporters. And so working to really be able to access working capital helps these truckers to improve their overall P&L, because they have a lower cost of borrowing. It improves their cash flow, because they're getting cash right away, and allows them to service our demand at a cheaper cost. And they can even then go and procure and lease additional trucks to build their book of business to plug back into our Kargo platform. They're spinning the flywheel. So I think that's a really powerful, additional benefit our platform can offer. And we're really just scratching the surface there.

ALAN  23:41  
Yeah, definitely sounds like there's an exciting roadmap ahead of you. And on that topic, what is your top developmental focus right now?

TIGER FANG  23:49  
Our single biggest focus is how to create market efficiency and liquidity on the platform. So we're getting back to basics of balancing supply and demand. I think building a two-sided marketplace is extremely difficult. You have to make sure that whatever demand you get is serviced by the right type of trucks. And this isn't like ride-hailing or food delivery, where you push a button, and any car that comes and picks you up, it doesn't matter what model it is what color it is, you can get in as long as it gets you from point A to point B. You don't really care about the type of person that to go pick up your food on a motorbike or car as long as the food gets to you. But for trucking and for logistics it's very, very different. There's, I think, 26 different permutations of truck heads and tails. And you have everything from refrigerated trucks to big container trucks to flatbed trucks. And every industry that these trucks serve has different requirements and SLA's (service level agreements). So for example, some of our shippers might demand that, in order for you to pick up from this warehouse, you have to have a hard hat, you have to have a vest and you have to have steel shoes. And so we've got to go and match supply and demand at the right place with the right truck type at the right price. And so building liquidity is just very, very different than our previous experience, and it's something that we had to learn by making a lot of mistakes. And I think we're finally getting into it. If we want to tackle a specific segment or specific route or specific truck type, here's the playbook for us to make sure that we have balance on our marketplace. If we're over-supply, we need to go and find more demand. If our demand is really strong, this is the playbook for us to add additional trucking capacity and service this demand. And so I think that's the single-most important part of our core business. And I think COVID has just made such a big dislocation in terms of supply-and-demand. And we're really trying to get our heads around: how do we solve for that?

ALAN  25:36  
Fascinating. So, lot of variables to solve for. Tiger, is it possible to estimate what percentage of goods moved by truck relate to e-commerce and what impact does the growing penetration of e-commerce in logistics have on our industry?

TIGER FANG  25:51  
I don't know what the total market looks like. Certainly from our platform, we see that e-commerce is the fastest growing area, especially during this time. It's a very small portion of our total business, but it certainly has a lot of legs. And obviously, we're investing in making sure that we're developing relationships with different e-commerce players as well as 3PL's. I think most of the parcels that are being delivered today for e-commerce players are done with road freight. The guys who have a lot of cross border business, then it's air freight. I really don't see any sea freight, at least domestically in Indonesia, as well as rail. I think those are a very, very small part of the total e-commerce. But we focus on the mid-mile. So we do warehouse-to-consolidation, and usually from city-to-city. And that's, again, a very small part of our business. And we have to really work with existing 3PL's to make sure that our timing and our supply matches the exact demand. I think e-commerce has a lot stricter SLA than normal FMCG B2B trucking. For some of our B2B customers, as long as the truck arrives at a certain destination, give-or-take one day, it's okay. But I think where e-commerce is at and where it's headed, you've got to make sure that your truck arrives exactly on the dot. And there's a very specific time and schedule for you to load and unload just to make sure they hit their SLA so they can make sure they are operating in the parameters of 24-hour shipping or 48-hour shipping. So when our network is still in its infancy, it's going to be really hard for us to hit that milestone and that sort of trajectory. But I'm confident that as we build it up, we will be able to.

ALAN  27:35  
Interesting. What is your three year version of Nirvana for Kargo, Tiger? What world will you have created for the shipper and the transporter by, for instance, mid-2023?

TIGER FANG  27:49  
I think it's really hard to put a timeline on what the world will look like. My example is, if you had asked me last year what I wanted to do in 2020, I would have said, "Hey look, I want to raise as much money as I can, and I want to really lean in to Ramadan and Lebaran, which is the festive period, and really focus on acquisition and capturing market share. Well, this Ramadan, we saw that everything basically dipped, and there was just a lot of uncertainty in the market, and the whole world was about to end. I think there's two things I really like to focus on just to make sure that we're the best in Indonesia, certainly in our sector at doing. Number one is that we're hiring the right folks and developing the team that really aligns with our vision and our culture. We have six culture values that we really broadcast, and that we really want to make sure that team that we're hiring is aligned to. My co-founder and I still interview every single person that we hire. You might have the ability or the intellectual capacity to hit our bar, but if we don't align culturally, it's going to be a "No." And then secondly is: how are we solving our customers' evergreen problems? In 100 years from now, not even three years, I think trucks will still be used in Indonesia. It might be autonomous, it might be whatever, but the shippers, and the customers that we face, will have always the same demand for us, which is how do we reduce the cost? And how do we be more reliable? How do we be more transparent? And how do we get more data to them to improve their own business? And so as long as our product roadmap, our milestones, our operational excellence is really focused on delivering those results for our customers, and delivering the best results for our customers more than anybody else, I think I'll be very satisfied. And secondly: 100 years from now, truckers on our platform are always going to be asking how do I get more jobs? How do I get more earnings? How do I make my assets a lot more utilized, how do I get more jobs and less empty miles? And how do I get paid faster so I can reinvest into my business? And I think today, we work on some of that by giving them the right job and relevant jobs at the right time, according to their preference. We also pay faster. But how do we do that at scale? And how do we do that across every single industry that needs trucking? And if we do that well, I certainly think we'll be well on our way. I think in this industry, changes don't happen overnight. So, as far as Uber and Gojek, and Grab go, all of these things have really developed in the last five years. I think in B2B, it's going to take a lot longer. And changes happen a lot slower. But again, I think this is inevitable. And the digitization of this entire industry is just a matter of when, and we think that Kargo is definitely the company to really make that change.

ALAN  30:23  
This has been a super fascinating discussion, Tiger, and again, well worth the wait. I've learned a tremendous amount around what is clearly an exciting business. This concludes our 12th instalment of Indo Tekno, and thanks so much for joining us today, Tiger. 

TIGER FANG  30:38  
Thanks for having me on. 

ALAN  30:39  
The podcast was translated from English to Bahasa Indonesia by Alpha JWC Ventures. Terima kasih untuk mendengarkan. Sampai jumpa lagi.

Transcribed by https://otter.ai

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