Does Supply Chain Craziness = More Investment?

Welcome to the 60th edition of The LogTech Letter, a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I wrote about how cloud is so ubiquitous, we don’t even think about it anymore. This week, I’m digging into why the celeb status of the supply chain and the madness of the venture market are interrelated.

As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.

For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.

Earlier this week, London-based forwarder Beacon landed a $50 million series B round. As I wrote at JOC.com, that investment has crowned a five-month stretch over which venture investors have plunged $332 million into three European forwarders (Beacon, Zencargo, and Forto).

By my back of the napkin math, VC investors have poured something like $520 million into so-called digital forwarders around the world not named Flexport over the years. The lion’s share of that has come since the pandemic, and indeed most of that has come since spring of this year. What’s the story here? Are we to attribute most of this funding spree to the fact that the aforementioned digital forwarders have matured to the point that this type of backing is to be expected? Can we disassociate broad trends in the world of supply chain and in the world of venture from these rounds sizes (and the associated valuations)?

Maybe we can. Beacon’s series B size was precisely the same amount as Forto’s “second B” in July 2020 (more on this in a bit). It was, in fact, larger than Zencargo’s $30 million series B five months prior, but less than Flexport’s $65 million series B in 2016. In short, the amount being invested into individual digital forwarders is roughly unchanged over a fairly long period in which outside logistics market conditions have changed drastically. Not to mention the conditions in the venture market.

And yet, it feels like those market conditions do matter. It does feel like supply chain’s sudden celebrity status is having an impact on the number of logistics technology companies getting funding, the amount they are getting, and the valuations attached to those funding rounds (which is actually more important, but harder to publicly discern, than the round sizes). It also feels like the rounds are coming closer to one another, bunched in such a conspicuous way as to portray a market in desperate collective need of some juice.

But is that “feeling” of bunched rounds even accurate? Beacon’s funding round came 15 months after its series A, which came 14 months after its seed. Forto’s $240 million series C in June came 11 months after its second B, which came 14 months after its first B. For comparison, Flexport’s landmark $1 billion series D came in February 2019, 10 months after a $100 million strategic investment by SF Express, and 15 months after its series B, which came a year after its series A. So the patterns we’re seeing today are not really all that divergent from those of the recent past. Except for one thing…

And that’s when you view the investments collectively. When Flexport raised its rounds, there was no one (outside of early-stage Forto, then called FreightHub) that had a similar model yet. So the bet the venture world was collectively making was concentrated largely around Flexport’s success. That is no longer the case. The bets are now diffused into different individual businesses in different geographic markets. Whereas the first bet was into Flexport and its primary focus on the trans-Pacific market, the ones in northern Europe into Forto, Beacon, and Zencargo are based around European shippers. The next zone to focus on is Latam, and then maybe Africa. In the background, the digital forwarding model has not picked up as much steam in Asia, for whatever reason.

But back to the big picture: is the current supply chain upheaval, and the current uber-frothiness of the venture market, having an impact on the digital forwarding model? Despite the lack of historical divergence I note above, it feels hard to say that it’s had no impact. The volume of total rounds, not just the timing and size of which companies are getting those rounds, does matter. It’s not a single large investment into digital forwarding we’ve seen in 2021. It’s three major investments into three digital forwarders, all headquartered within 600 miles of one another - in a matter of a few months. That matters. That, to me, indicates three things.

First, that the size of the opportunity to unravel systemic logistics coordination issues has grown large enough during the pandemic-driven goods demand boom to convince investors that digitally-native forwarders will see huge traction. Second, that the spigot of available capital needs places to land, and that solving a headline problem in the world today is not a bad landing spot. And third, that investors have essentially endorsed a point I’ve been making the last two years: that the global logistics services market is an inherently fragmented one, and even $1.5 billion of collective venture investment into it doesn’t change that basic characteristic.

Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):

• Speaking of digital forwarding, Zim this week said it will soon launch a trans-Pacific digital forwarding subsidiary, which my colleague Greg Knowler reported. It’s not the first line to jump into this game, Maersk having done so a few years back with Twill, which has since evolved into a sales channel for small shippers more than an independent forwarder catering to all types of shippers.

• Cross-border freight marketplace/broker Forager unveiled an interesting new wrinkle to its platform this week, one that gives shippers and carriers a way to find new long-term contract opportunities via a load board. That’s an unusual mechanism for contract freight, in that load boards are typically seen as a means to match transactional spot volume. But a contract board is a key part of Forager’s vision for the cross-border market.

• My colleague Ari Ashe describes a new less-than-carload (the other LCL) service being offered by Norfolk Southern to shippers finding it hard to get less-than-truckload (LTL) capacity today.

And here are some recent discussions, reports, and analysis I found interesting:

• For anyone who missed my discussion last week with Angela Czajkowski of Shapiro on my monthly LogTech Live show, here’s the on-demand version.

• Speaking of which, the best way to make sure you don’t miss future episodes is to subscribe to the show, which you can do through this link at Let’s Talk Supply Chain. You’ll get alerts of upcoming episodes and details about guests and show topics, and you can also peruse the awesome range of other shows Sarah and her roster of supply chain experts has in store.

• You should also catch this replay of a discussion I co-moderated with Lisa Morales-Hellebo of Refashiond Ventures on the future of supply chains. Guests included WSJ columnist Christopher Mims, Deborah Dull, founder of the Circular Supply Chain Network, and my colleague Peter Tirschwell.

• For my trade compliance geeks, here’s a cool HS code tool developed in partnership with the WTO.

Some upcoming events I’ll be involved in:

• I’ll be moderating a panel at JOC’s Inland Distribution webcast at 2 pm Oct 14 with Ryan Schreiber of CarrierDirect and Bruce Chan of Stifel. The topic is What Does the Next Phase of Digital Brokerage Look Like? Given the events of this week, this should be a lively discussion! Register here for all three days of the free webcast series Oct. 12-14.

• If visibility is your jam, I’m moderating a JOC webinar at 2 pm Oct. 28 on the topic. Panel is still being assembled, but register here to catch this. Given the state of the market right now, and the number of discussions I’m having around global, multimodal visibility, this should be a great one!

Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.