Tech Not Yet a Path to Road Logistics Dominance
Welcome to the 45th 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 addressed the current fascination with the ills that plague global shipping. This week, guest Jonah McIntire, CEO of TNX Logistics, steps in to discuss why there haven’t been dominant winners (yet) in road transport technology.
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.
Note: TNX Logistics was acquired earlier in June by Transporeon.
Logistics is a great collector of technical advancements. A modern truck is like some sort of science fiction machine even compared to capabilities of the 1990s. It has a suite of sensors, operates in pervasive and high bandwidth connectivity, and prevents its operator from damaging it when backing, changing lanes, or nodding off at the wheel. It often also has a sweet sound system. But this glut of technical riches has lifted the industry as a whole, not determined who wins within it. A shipment across the US two generations ago took weeks to cross the continent. The truck sped completely incognito while moving, and cost a fortune. It’s now affordable, traceable, and fast: but still a commodity.
I say all of that to address a question Eric raised a few weeks ago: does the massive onset of logistics tech create massive winners, or does it just improve everyone? For road transport, I think no technology has yet created a meaningful and sustained competitive advantage. In fact, I think identifying such technology is perhaps the only technology question that a major logistics company CEO should have on their radar. Everything else can be delegated: it keeps you in the game but doesn’t ensure you win it.
I believe it is obvious that no technology has created sustainable competitive advantage for road transport companies. Take North America: the largest road logistics company has less than a 2 percent share of the market. In the US, it takes 50 companies to aggregate 10 percent of the road transport market. The 200th largest logistics company has 0.0025 percent market share. There are almost 2,000 logistics providers, and this hasn’t changed in a decade at least. What all that means is that no technology has created a sustained competitive advantage, because otherwise we’d see it in the form of market concentration. Everyone became better but no one became bigger.
While tech hasn’t picked winners, not much else did either. The closest the industry has to a sustainable competitive differentiation is access to and ability to husband capital. There simply are no Elon Musk or Steve Jobs technologist CEOs at logistics providers. The industry CEOs we all admire have the M&A wizardry of XPO’s Brad Jacobs, the PE-backing of Redwood Logistics’ Mark Yeager, or the VC backing of Convoy’s Dan Lewis. And the annual Transport Topics Top 100 lists shows that the top-quartile players use their capital to buy market share by reducing pricing, sustaining losses, or acquiring smaller competitors. Capital, not code, is their sustaining competitive advantage.
That everybody is used to these arrangements does not mean they are immutable. Proprietary technology does eventually create winners, even if it hasn’t done so yet for logistics. While the top-end of the market has the budget and the need to organize a new competitive differentiation over capital-access, we should not overlook the arrival of new entrants. Empirically, big things have begun by solving trivial problems: the sharing of photos or the booking of a taxi. Technology differentiation is not an urgent threat, but it’s also not pure fantasy.
Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):
I visited Dynamo founding partner Santosh Sankar four years ago to learn about an accelerator he was building for early-stage supply chain startups. That eventually evolved to become a full-fledged fund targeting key areas that I cover a lot. This week, Sankar and his colleague Jon Bradford walked me through the state of the state as they announced their second fund, $43.2 million that will go toward larger checks.
The week started off with a bang, European digital forwarder Forto snagging a massive $240 million round and a $1.2 billion valuation. There are now two SoftBank-backed digital 3PLs, suggesting further that logistics is just too fragmented, specialized, and differentiated to be winner-take-all.
Trucker Tools, which provides software to freight brokers and free apps to drivers, has been acquired by ASG, a SaaS holding company that specializes in scaling companies.
Freightos has joined the white label fray, with a quoting and booking tool for forwarders designed to leverage parts of its marketplace and rate management systems.
Finally, TradeLens followed news of its expansion into China last week with the completion of integrations with Hapag-Lloyd and ONE. That means it now has five of the world’s six largest container lines fully onboard its platform.
And here are some recent discussions, reports, and analysis I found interesting:
I wrote a while back about a funding round for Silq, and here’s a blog about how they’re leveraging their roots in LCL freight to give guidance on finding capacity in a nutso market.
Good piece here on just what digitization means in the forwarding industry.
The cloud infrastructure providers all have a eye on a bigger share of the global logistics industry. Here, BlueX Trade lays out the details of its partnership with AWS.
Some upcoming events I’ll be involved in:
I’ll be moderating a session on where TMS is headed at 10 am CET June 29 as part of SupplyStack’s TMS Insight Series. I’ll be joined by speakers from BMW and Wallenius Wilhemsen.
I’m also moderating two sessions at the SMC³ Connections conference June 28-30, one interviewing Chad Crotty, chief operating officer of DDC, and another talking to Steve Blough, president of MercuryGate.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.