Logistics' fragmentation inclination

Welcome to the 38th 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 explored the idea that individual optimizations fall short when they run into one another. This week, I’m dissecting how and why startups and logistics seem to go from curiosities to household names.

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.

🇮🇳 Before I get started this week, let me just say that the crisis in India is absolutely devastating. Probably worse than you can imagine. I have family ties in India and there’s not a single day where we don’t hear about someone succumbing to COVID. If you can, please considering donating. PBS has a list of places to contribute here. 🙏

Now on to this week’s newsletter…

I’ve had a number of discussions the past few weeks that basically boil down to this conclusion: me arguing that the global logistics market is inherently fragmented, not by some unhappy accident, but by subconscious intent.

Simply put, logistics is a business where parties carry risk and seek to disperse that risk as much as possible. A multinational shipper with a diverse set of sourcing locations and consumption markets finds itself in certain situations where it controls neither the cargo it has ordered, nor the conveyance upon which that cargo rides on, nor the warehouse where that cargo is stored, nor the data that moves in parallel to the shipment. All of that can be handed off to partners, and much of it is.

This dispersal of risk is generally not limited to a single party, though. The stereotypical “single throat to choke” is often a hypothetical aspirational state, not something that any shipper needs or even actually wants. In reality, a shipper uses a basket of direct carrier relationships (where that’s possible and dependent on the mode) and a basket of third party logistics providers (3PLs). Sure, there’s often a primary 3PL or a key carrier, but the very concept of allocating all of one’s eggs to one basket is anathema to a logistics director that wants competition between and among its service providers, and wants options in case things go awry with one partner.

This fragmentation, against all odds, has permeated the world of logistics software too. A decade ago, in a former role, I surveyed shippers regularly and those surveys always found shippers wanting to shrink the number of systems they use. They wanted to consolidate, or find single platforms that handled multiple functions. In part, this was sold as the promise of cloud-based solutions that were updated quarterly or monthly, where new modules could be downloaded and implemented in no time.

But a funny thing has happened. There are few dominant single suites of logistics software serving any market, and where there are, such as in the forwarding world, that market share has begun to erode. In short, there is no Oracle/SAP-type oligopoly in the world of transportation management, or visibility, or freight procurement, or anything really. Why is that? Why does the logistics industry seem to innately gravitate towards fragmentation and not away from it?

I’d argue the same principles that lead a company to be diversified in their portfolio of logistics service providers, asset-based or not, lead them to be diversified in the systems they use. But that systems diversification is almost subconscious rather than purposeful, since best practice to this day is to condense the number of systems a company manages. You’re not going to get written up in a CSCMP newsletter or the Harvard Business Review for saying “we strive to keep our fragmented constellation of point systems.”

That fragmented systems architecture serves a purpose though. It keeps a company from being overly reliant on a single system, lessening the chance of it having a single point of failure that cripples its logistics activities, and thus its broader supply chain. There’s another development at play that keeps the fragmented status quo in place: the rise of micro-services and APIs mean that an existing system can be juiced up, often more cheaply and less disruptively than a system overhaul. It’s an issue I touched on in this March feature at JOC.com. 

In other words, system fragmentation is not a problem as it once may have been described, and it may actually be desirable, in that the adoption of many easy-to-digest point solutions keeps a company on the vanguard of innovation. What I see is that the scars of the ERP implementations of the 1990s - admittedly, well before my time covering the space - linger in the collective consciousness of the industry. The very concept of long, all-encompassing software suite implementations creates buying friction in the minds of potential customers, who envision a world where adding functionality should be as easy as downloading a phone app. 

In this case, the natural inclination of the logistics world to diversify has put them in a place to experiment with different plug-in technologies, and to be more apt to unplug from systems that aren’t serving them well. If anything, the current environment is encouraging logistics technology fragmentation, not discouraging it. In which case, the dinosaurs of the logistics industry were right all along - it’s not wise to put all your eggs in one truck or ship.

🚨 LogTech Market Map Project

The clock is ticking for anyone who wants to submit to be considered for the LogTech Market Map I’m helping to put together with some of the sharpest minds in the LogTech space. The goal is to produce something that I think has long eluded the industry: a map that categorizes startups in the logistics technology area in a way that makes sense for practitioners and potential software buyers. Most maps I see struggle to properly contextualize early stage providers in the space. It’s because the landscape is inherently confusing (everybody says they do more than they do, everybody says their strengths are more numerous than they are). 

So Nick Chubb of Thetius, Brian Laung Aoaeh of Refashiond VC, Ben Gordon of Cambridge Capital, Radu Palamariu of Alcott Global and I have set out to build the defining LogTech Market Map, one that highlights companies along a number of key buying categories, one that prioritizes significance based on customer traction, funding, and size, and one that properly contextualizes startups in a highly fragmented space.

We are collecting submissions for companies that want to be considered for the map here, and thanks for your support in helping us build something that we believe will benefit the entire industry. Early stage, mid-stage, or mature, we want to hear from all of you. Get your submissions in now to be considered for the map.

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

• Visibility providers have dominated the news (and this newsletter of late), and last week that continued. I chatted on a couple occasions with the top brass at project44, about their revenue growth, acquisitions, and most recently, a focus on building truckload visibility in Asia.

•  I dare say no one has chronicled the partnership-friendly developments in the North American trucking technology space more consistently than I have, and here’s another: uShip and AscendTMS integrating with one another.

• I wrote last June about CognitOps’ getting seed funding to build out its vision of a “brain for the warehouse,” a system that would connect disparate silos of information to suggest actions to warehouse ops personnel. That was when the company had a single customer. It has added several more big names and leveraged that into a healthy series A announced this week.

• Pretty interesting how many trucking niches are being carved out around new technology approaches. Hwy Haul, which raised its own series A this week, is tackling the perishables industry by creating a way for shippers and carriers to interact without the need for a broker to connect them.

• My colleague Ari Ashe’s quarterly Intermodal Savings Index is the best gauge out there, and he wrote about the highlights of it Thursday.

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

• A few whispers - mostly tongue-in-cheek...I think - of freight and logistics technology companies this week, which made me find this piece pretty useful. 

• More on the news last week that MSC was making available an electronic bill of lading. Andre Simha explains how this may evolve over the coming decade.

• Using the Suez Canal incident as a catalyst for true change in the maritime industry. 

• You’ll want to catch the on-demand webinar with some of my IHS Markit colleagues to hear about the Container Port Performance Index they’ve assembled along with the World Bank. This was all over the news the past week, and rightly so. It’s first true apples-to-apples metric of terminal performance on a worldwide basis.

• Did not attend Miami Tech Week, but this was spicy.

• Guest VC of the week: a lot to choose from, but this was especially cute. 🙄

Some upcoming events I’ll be involved in:

• Joining a rockstar cast on a panel about the impact of VC on logistics technology at Alcott Global’s Makers and Movers event May 12.

• I’ll be moderating a panel about sustainability technology at reCONNECT21 May 14.

• I’ll be chatting with Guilherme Luz about forwarding technology at Parnity’s Forwarders Online Conference May 19-20.

• The JOC Breakbulk and Project Cargo Conference is happening May 25-26. Check the agenda here. I’ll be moderating a session on project logistics digitization.

• Registration is open for the IAPH World Ports Conference June 21-25. I’ll be involved in various technology-related elements of the program. The CEOs of MSC, CMA CGM and Hapag-Lloyd are scheduled to speak, among a huge range of influential ports and experts in the maritime sector. Don’t miss out!

• Registration is open for the IAPH World Ports Conference June 21-25. I’ll be involved in various technology-related elements of the program. The CEOs of MSC, CMA CGM and Hapag-Lloyd are scheduled to speak, among a huge range of influential ports and experts in the maritime sector. Don’t miss out!

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