Who Is Going to Drink Logistics' Milkshake?
Welcome to the 17th (pre-Thanksgiving) edition of The LogTech Letter, a weekly look at a particular aspect of the impact technology is having on the world of global and domestic logistics. Last week, I explored the futbol tactic of the “double pivot” and its relationship to world trade and early stage logistics tech companies. This week I’m using an iconic moment in one of my favorite movies to convey what I see as a structural hurdle in the race to build dominant LogTech companies.
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.
I’ve only ever watched the Paul Thomas Anderson masterpiece There Will Be Blood once. It was on a plane, on an overnight flight, on one of those Ti-81 in-seat screens whose surface was so scratched it created a fuzzy Hallmark Movie of the Week effect. I was sleep-deprived and punchy. And yet still, that movie has resonated with me like few others. Daniel Plainview’s sociopathic need to succeed is disarming to the extreme.
The movie is often reduced to (SPOILER ALERT) the dramatic, climactic scene in his underground bowling alley, when he tells Paul Dano’s character “I drink your milkshake.” The context for this is important. Plainview is a ruthless, though misguided, visionary telling a competitor that he controls not just the ground he sees with his eyes, but the hyper-valuable commodity that lies below it. All of it.
I think about the movie often. But here’s something I think about in relation to the industry I cover: there is no such thing as “I drink your milkshake” in logistics.
Many a logistics startup was founded over the past decade on the notion that the industry could be a winner-takes-all market. I won’t go too deep down the venture capital rabbit hole, but understand that VC funds are designed with the hope that some companies in the portfolio will build dominant shares in a market (whether existing or newly created). You simply don’t plug venture into a company, over multiple rounds, if you don’t think it will draw enough of the market for it to either go public, get acquired at a massive multiple or keep drawing ever-larger funding rounds to cash in on the markup.
I’ve come to the realization, however, that the new landscape of logistics will likely resemble the old one, only with a new cast of characters mixed with some of the old ones.
“The idea that the market will consolidate in the hands of a few is a fallacy,” Julian Alvarez, founder of the forwarding technology provider Logixboard, told me in July. Logixboard is one of those companies that’s taken venture funding, by the way.
My basis for this assumption is an aggregation of feedback from founders and investors, who talk about the fragmentation of the logistics industry - both domestic and international - and the complex layers within it in a much different way than when I first talked to them.
Gone is language like, “This industry is so archaic and manual. It needs to be more simple. It needs to be like [insert consumer app].” In its place is language like, “We realized that customers actually don’t want a lot of change. We need to be as unobtrusive as possible. This is a complex industry and we won’t change it overnight.”
I thought about this proposition of dominant technology players when I saw news of the payment technology provider Stripe looking to raise a new round at a $70 billion to $100 billion valuation. Stripe competes with banks and other well-capitalized name brand tech players like PayPal and Square. It does not have the market to itself. And yet, it has a valuation that logistics software providers can only dream of.
Another anecdote that sticks in my mind: a founder in the space was scouting for other entrepreneurs he felt were venture-backable, and came up dry. It wasn’t that these founders were bad entrepreneurs, it’s just that he didn’t see a path to their model driving the type of scale VC investors were looking for.
But VC investors are still plunging money into the space at a remarkable rate in 2020, you say. Yes, that shows there are investors who still see huge potential to aggregate customers into a dominant market position, and their investments can be seen as a tangible counterpoint to the founder who sees difficulty in building VC-level scale in logistics.
But to date, no one has yet figured out the scale question. The most heavily-backed startups have not yet established dominant positions in freight brokerage, forwarding or SaaS logistics management software. Each additional investment into the space feels more like a micro-bet on a growing pie, than macro-bet on a defined pie.
One more element to consider as it relates to the “milkshake” question. I’ve starting thinking of the current phase of logistics technology innovation as the Italian Renaissance period of the industry. VCs and angel investors are the Medicis, and there is a flurry of ideas and talent in every direction. People who ordinarily would have gravitated to other industries are coming to this one, solving complicated automation, optimization, and visualization puzzles. The fruits of this phase are yet to be fully realized.
But the sheer amount of talent now entrenched in the industry means no single company will have a monopoly on it. That talent diffusion, coupled with the raw hussle gene that most logisticians have, ensures that ideas and IP and brand equity in logistics technology won’t be owned by a few companies. It will surround the industry. No one company will drink everyone’s milkshake, because the milkshake is too big, and there are too many straws.
Here’s a roundup of pieces on JOC.com the past two weeks from my colleagues and myself (note: there is a paywall):
I wrote this week about Altana AI, a platform that is developing a new approach to data sharing between customs authorities and the private sector (ie shippers and logistics intermediaries).
The progress of BlueX Trade in getting Asia-based container lines to build digital quoting and booking platforms is worth watching. It means there is starting to be geographic balance in that arena between lines based in Europe and those further east.
The freight marketplace Shipz has partnered with Xeneta, PayCargo and a cargo claims chatbot provider to extend the value of its platform beyond pure cargo capacity procurement. It’s a further sign that partnerships are both easier to build in current software architecture and necessary to amplify value for shippers.
🚨 TPM21 registration is live, and so is a preliminary agenda. We’ll have two days of #LogTech focused programming Feb 25-26, ahead of the main program, which kicks off March 1.
Here are some upcoming and past discussions I’ve had with various experts in the industry:
This one’s pretty niche, but it will be a fascinating discussion about using software to manage sanctions screening for military goods and dual use technologies. I’m moderating a panel Dec. 8 with representatives from IHS Markit, Kharon, and Société Générale.
I’m joining Brian Glick of Chain.io, Matt Motsick of RPA Labs, and Annette Mueller of TradeLens for what should be a really robust discussion Dec. 3 around how logistics technology investments can meaningfully enable resilience and agility for cargo owners and LSPs. Register for the International Trade Club of Chicago event here.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.