The PED era of Logistics Tech
Welcome to the 29th edition of The LogTech Letter, a weekly look at the impact technology is having on the world of global and domestic logistics. Two weeks ago, I dove into the incumbent/startup divide in international logistics, and it generated a lot of debate. Apologies for not having a newsletter last week, but I was consumed with TPM21. This week, to make up for lost time, I’m tackling a couple of issues: whether or not the influx of VC money into logistics tech is inherently “fair,” and a recap of TPM21 highlights.
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.
Cast your mind back to America in the mid-90s. Major League Baseball had canceled the end of its ‘94 season due to a player strike, the first time since 1904 the World Series failed to occur. Baseball had long ceded territory to the NFL as America’s favorite sport, and in the NBA, Michael Jordan captivated not just the nation, but the entire world in a way few US athletes ever had.
Then, something happened in baseball. Home runs started increasing, and didn’t stop until it had culminated in a festival of long balls, highlighted by Mark McGwire’s and Sammy Sosa’s chase in ‘98 of Roger Maris’s single season home run record. Three years later, Barry Bonds broke that record again. The home run barrage likely saved baseball from itself - the game could have hit a death spiral coming off the strike season, but instead, it captured the nation’s attention like it hadn’t in decades.
But...of course...there’s an asterisk. The late ‘90s will go down as an era of unbridled baseball fun, but it will also go down as the steroids era. It’s impossible to separate the two.
Now, what in the world do steroids in baseball have to do with logistics technology? Good question. I’ll explain. More than a few people have suggested that the current phase of investment into logistics startups creates an unfair playing field The argument is this: when funding is bestowed upon companies before they’re profitable (and in some cases before they even have a product), it disadvantages companies that are seeking to build profitable businesses from the start.
Let me tackle this from two vantage points: the “fairness” issue and the “value creation” issue.
First, is it fair that a company with two founders, an engineer, a pitch deck and an idea can raise millions of dollars, while a company with 50 people, a fully-baked product, committed customers, and profits struggles to raise a dime? Well, that’s the wrong question to ask. Fair is a subjective term and saying it is inherently unfair that a legal equity class exists and some people get access to it is not constructive. Is it fair that some people get small business loans and others don’t?
The other dimension of fairness relates not just to access of funds, but pricing models. VC-backed businesses are in some cases encouraged to subsidize pricing (or even offer freemium models) to drive growth. That, again, aggravates incumbents that are trying to provide a valuable product and expect to be compensated for that value. On this point, one could argue that subsidized pricing creates an unfair advantage in a market that is, all things considered, relatively undifferentiated. This issue has come to a head most notably in the digital freight brokerage market.
If you gave all the principles involved in VC-backed logistics startups (founders, investors, maybe even customers) a truth serum, I suspect they might admit that this subsidization of pricing is inherently unfair. But, again, there is no truth serum, the industry doesn’t exist in a vacuum, and venture capital is a perfectly legitimate equity class.
In this way, you could argue that baseball players who didn’t take steroids were unfairly disadvantaged (because steroids were not allowed in baseball) but VC-fueled startups are perfectly fair because there is no such prohibition in the world of business.
Now, on to the “value” aspect of VC investment into logistics technology. Stripping away the fairness of McGwire, Sosa, and Bonds perhaps indulging in the use of performance-enhancing drugs, it was tremendous entertainment. The league benefited from the excitement and the associated revenue it brought.
In that sense, VC money into logistics is providing a similar value. At a baseline level, it delivers capital into the industry on aggregate. But it also drives attention, debate, and talent to logistics. Articles are written, LinkedIn posts are posted, blogs are blogged. People argue, people agree. Logistics becomes more prominent. As that prominence filters into the broader investment and software engineering universes, it attracts talent - talent that would certainly have gravitated to other industries if the opportunity in logistics didn’t look so enticing and exciting.
It has also served to make logistics more interesting, quite frankly. The debates over rates and service will persist until the sun burns out, but we now have other dimensions to discuss, virtually all data- and tech- and efficiency-related. Would those have come if not for the VC boom over the last decade? Perhaps, but not with the speed and force that they have due to VC’s interest in the space.
Savvy non-VC-backed companies have ridden this wave, not fought against it. They have leveraged the attention and talent that’s converged around logistics and used the competition to sharpen their own value proposition to customers.
The interesting thing, as Santosh Sankar of Dynamo Ventures noted in our panel at TPM21 last week, is that investment into logistics tech has lagged behind other industries that are smaller in size. So we could have a long way to go before this PED-fueled era of logistics tech value is over.
Tech takeaways from TPM21, which wrapped March 3 (but sessions are still available on-demand through April 2 for registrants):
Data accuracy and underlying data management should be the primary focus of every organization in global logistics. All the fancy toys out there won’t work right if the data stinks. And while execution and procurement and visibility software providers can play a role in making that data better, shippers and 3PLs can’t count on them alone to ensure data is in good shape.
If you want a clue as to how automation will butt its head into logistics, a good clue is to see which functions are outsourced through BPO services today by 3PLs and software providers. That’s the low-hanging fruit that’s already being addressed. The next step is what Alan Holland at Keelvar called “intelligent automation” during a session. That’s where the automation is tied to decision-making or actively guiding a person in a decision-making role.
Online freight rate quoting in international logistics is sort of a Trojan Horse. What the parties who are offering these services - whether a carrier, forwarder or marketplace - are after is the transactional data associated with the quote. But, they are also after a more sturdy contractual relationship, tied to true two-way commitments that have always been elusive in ocean freight.
Here’s a roundup of pieces on JOC.com the past two weeks from my colleagues and myself (note: there is a paywall):
Undoubtedly the news of the week is project44 buying container visibility specialist Ocean Insights to round out its multimodal capability. Lots of thoughts on this - too many for this newsletter so look for a special edition early next week.
Great recap by my colleague Cathy Roberson of one of the highlight discussions at TPM21: three software providers breaking down how tech can enable better procurement and container allocation strategies for shippers.
Another TPM21 recap here, this time on our kickoff panel diving into uptake of ocean freight instant quoting, and the knock-on benefits and challenges it creates, particularly for forwarders.
Will liner carriers turn 2020 profits into investments in more container tracking hardware? If so, it might be the need to track the equipment itself more than the need for better visibility for shippers that provides the motivation.
My colleague Bill Cassidy dives into how the truckload carrier Werner is using tech to reshape its business.
Another one from Cathy, this time looking at ReverseLogix nabbing a $20 million investment to grow its automated reverse logistics platform. Watch this space.
Interesting data from Container xChange, which found shippers are underutilizing so-called shipper-owned containers, largely because few forwarders can service that need.
More consolidation in the global trade management space, with Descartes acquiring QuestaWeb. Just in the last few years, QuestaWeb, Amber Road and Integration have been snapped up (and I’m probably forgetting some others!)
More movement in the front linking logistics with trade finance. The TMS provider BuyCo is working with a bank to enable such a service to be linked to shippers’ shipment data.
I spoke with Matthieu Somekh, CEO of Marseilles-based incubator ZeBox about the rationale behind locating a branch in the US, and why they chose Arlington, Va. in particular.
And here are some recent discussions, reports, and analysis I found interesting:
My colleague Ari Ashe’s JOC Intermodal Savings Index is criminally underused. There’s simply no better product to make apples-to-apples comparisons between intermodal contract pricing and truckload contract pricing.
This will be an interesting discussion about dynamic routing and rating, merging international and domestic. My colleague Mark Szakonyi is moderating the discussion with Freightgate and Cargo Chief.
Pay attention to this topic.
Weekly moving update: still not moving to Florida and my non-move to Texas is back on.
Guest weekly Paul Graham update (sitting in for Keith Rabois this week):
Some upcoming events I’ll be involved in:
I’ll be moderating a free JOC webcast March 30 on a pertinent topic: The New Frontier in Global Logistics Technology: Linking Customer Expectations to Customer Promise.
Registration is open for the IAPH World Ports Conference June 21-25. I’ll be involved in various technology-related elements of the program. Don’t miss out!
Next week I’ll be presenting and moderating at Zuum’s From Paper to Platform virtual event. A great lineup of speakers across the transportation spectrum.
I’ll be participating in Transporeon’s Visibility Day 2021 April 15. The focus will be on real-time visibility opportunities and challenges in Europe.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.