$4 billion US dollars – that’s the amount venture capitalists invested – at least – into more than 245 logistics startups in 2016*. This number might still compare as relatively small when seized against other sectors, however the overall amount has increased tenfold in just 4 years compared to the $420 million US dollars in 2013. And while there are no conclusive reports on VC investments into logistics startups in 2017 out yet, all indicators predict a continued increase. Exemplary for this trend is Fetchr, as the UAE based LogTech startup raised $41 million US dollars in funding and placed 3rd out of the biggest technology investment deals in the Middle East region in 2017**.
Logistics was previously overlooked by digital innovators
Compared to a number of other industry sectors, such as finances and communications, the logistics industry stayed mostly under the radar during the first rounds of the ongoing digitalization revolution. Innovations were mostly driven by the existing players within the market, logistics companies, as well as logistics departments within companies, and the focus was on incremental improvements. And while this proved somewhat successful in improving logistics efficiency and customer service, the industry remained relatively analogue.
It is hard, if not impossible, to pinpoint the root cause for this delay, but it is likely a mixture of a number of different factors:
- Logistics services are an extremely fragmented market; while there are a few global players like DHL, UPS and FedEx, the market also compromises tens of thousands of small to medium size companies – down to single driver trucking companies
- Supply chains have a degree of not directly controllable complexity that more internally focused functions often do not face and therefore the optimization of logistics and supply chains is a much more challenging endeavor
- Lastly, logistics simply lagged behind in attractiveness as double digit margins are extremely rare for logistics service providers
LogTech startups and companies focus on innovations surrounding the underlying technology of logistics. The common denominator of LogTech startups and companies is therefore the aim to change the way logistics is performed through the utilization of new technologies. This comprises a wide field, from management systems to robots and cobots for use in logistics. .
Disruptive innovations are finally arriving in the logistics market
Luckily for the logistics industry, these hurdles seem to have lost relevance for innovators and VCs financing numerous startups. An impressive 24 startups, mostly from German speaking countries, presented themselves at the Blue Rocket Congress in November 2017.
They showcased how broad the range of innovations in the field of logistics has become: From digital and asset-less forwarding providers and new approaches for the last mile handling in the CEP business, to robots specialized in performing logistical tasks, and an intelligent tracking system for multi-use transport boxes.
Sure, not all of these innovations and startups will move past their current phase, but it is critical to realize that logistics has finally become a field of interest. This will – and at some points already is – drive disruptive innovations into the market that challenge the business models of existing market participants.
Analogue logistics are no longer viable in a rapidly changing environment
For a long time many participants in the logistics market were able to provide services without looking for or driving innovations. The most prominent example is countless forwarders which still work with manual “gut feeling” dispatching and almost completely manually executed offering processes. Their USP however is directly challenged by digital forwarding companies that act asset-less and utilize algorithms to automatically match demands on their platforms with the supply in shipping capacity that they have access to. The pricing approach here is no longer a manual process – which often involves quite substantial guesswork during the tenders – but is completely digitalized and is already often supported by artificial intelligence.
Ultimately, founders and venture capitalists have finally realized that logistics was, and in many areas still is, lagging behind in digitalization. Therefore, it is good news for all companies which perceive their supply chain as enablers in a digitalized world. More disruptive innovations and the necessary capital to develop them is being pushed into logistics and doing the groundwork for truly digitalized supply chains in the future.
VC = venture capitalist
This post is also available in: German