A flotilla of startups wants to streamline global supply chains
FORTO SEEMS an unlikely darling of tech. It doesn’t make gadgets, build the metaverse, forge cryptocurrencies, or launch rockets. The six-year-old Berlin startup, whose main activity is to organize the transport of goods from one place to another, nevertheless managed to raise nearly $600 million from venture capitalists. Its backers believe the company can disrupt the archaic freight transportation industry. It has tripled its business in each of the past four years, boasts Michael Wax, its boss, and is now one of the top ten freight forwarders on the busy trade route between China and Germany. In March, it announced $250 million in new funding at a $2.1 billion valuation.
Forto isn’t the only freight tech startup to catch the eye of investors. As global supply chains are marred by bottlenecks, blockages and other disruptions, venture capital (resume) companies are pouring billions into companies offering ways to make freight transport more efficient. In 2021, supply chain technology companies raised more than $62 billion, according to PitchBook, a data provider, more than double the 2019 figure before the pandemic (see chart). Of that amount, nearly $9 billion went to freight tech startups. PitchBook has over a dozen private freight tech “unicorns” valued at over $1 billion. Viki Keckarovska of Transport Intelligence, a consulting firm, expects more funding rounds this year.
Part of the appeal is the size of the industry and its potential for disruption. The freight forwarding business alone accounts for $475 billion in annual revenue, estimates Armstrong & Associates, a supply chain research and consulting firm. The broader “third-party logistics” market, which includes transportation management and warehousing, generates $1.4 billion in sales. At the same time, freight remains technologically backward, especially cross-border sorting. “This industry is completely offline,” marvels Zvi Schreiber, boss of Freightos, a digital freight marketplace. “You’d expect shipping a container to be as digital as booking a flight,” he says, “but that’s not the case at all.” Just getting a quote can be a hassle. “For 90% of freight forwarders today, it still takes a day or two to come back with a price,” says Wax.
That’s starting to change thanks in part to some awesome new software platforms designed to streamline the process of shipping freight overseas. Flexport, a San Francisco-based digital freight forwarder, automates many supply chain processes that were traditionally done manually, including obtaining quotes, completing documents, and coordinating with shippers and carriers throughout the supply chain. The nine-year-old startup, which made $3.2 billion in revenue in 2021, was recently valued at more than $8 billion. Project44, a Chicago supply chain visibility platform, allows retailers and brands to monitor milestones in their cargo’s journey, like when it’s loaded onto a ship, leaves port, or arrives. to its final destination, all in real time. They can also make adjustments or reroute shipments if necessary.
A common feature of these platforms is the ability to glean insights from data. Large shippers and logistics providers typically manage their shipments in software known as a transportation management system (SMT), which tracks shipments as they make their way through logistics networks, from factory to port and finally to the customer. Such systems, which have been around since the late 1980s, are useful databases of information, says Evan Armstrong, president of Armstrong & Associates. But they are not smart. “The first step was to put everything on a SMT. Now the next step is to take these SMTs and make them smart.
Although recent supply chain upheavals have played a role in increasing the demand for logistics software, they are not the main force behind the boom. That, industry watchers agree, would be Amazon. The e-emporium “is the absolute number one catalyst for supply chain transformation, without a doubt,” says Julian Counihan of Schematic Ventures, a resume solidify. While the supply chain has always been seen as a cost center, Amazon has made it a source of revenue. With the rise of next day and same day delivery, consumer expectations have changed dramatically. As delivery times plummet, logistics requires “much, much more supply chain technology,” says Counihan.
Some skepticism is in order. Many startups look little different from the incumbents they seek to disrupt. Kuehne + Nagel, a large Swiss freight forwarder, has invested heavily in digitalization even though it doesn’t “sing and dance that it’s a ‘digital’ freight forwarder”, as Freightos’ Schreiber readily admits. CH Robinson, a large US logistics company, is “truly a digital freight broker,” says Armstrong. And while some of the big incumbents rely on outdated technology, he adds, they have far more scale than any of the new entrants. This allows them to get lower prices from ocean liners, air freighters and other carriers.
Yet, as Ms. Keckarovska points out, upstarts have a chance. The market for freight forwarders remains very fragmented, so they do not need to compete with a huge incumbent. DHL and Kuehne + Nagel, the two largest brokers, have a combined global market share of just 6%. And despite their digital aspirations, the incumbents’ technology leaves plenty of room for improvement. Of the 20 largest established freight forwarders, 15 apparently use the same standard SMT to manage their shipments. ■
For more expert analysis of the biggest stories in economics, business and markets, sign up for Money Talks, our weekly newsletter.