Why Less is More in LogTech
Welcome to the 77th edition of The LogTech Letter. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I recapped TPM22 and TPMTech and explained why order management is so fashionable again.
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@spglobal.com or on Twitter at @LogTechEric.
I’m pretty opinionated by nature, but also pretty diplomatic. Being a journalist requires you to have a voice but also be a good listener. Basically, I contain multitudes, like most people do. But this newsletter gives me a chance to let the odd thought or too rambling around my head actually see the light of day. So let’s get a little controversial this week.
My opinion is there are too many early-stage companies trying too many individual things, and there are too many venture capital firms all trying to find their diamonds in the rough.
Let me explain. I think it’s legitimately amazing that so many innovative people have been drawn to the logistics industry (and more broadly, to supply chain). The industry, as I’ve written before, has yet to even see the full benefits of this activity. As James Coombes, CEO of logistics automation provider Vector.ai, put it at TPMTech in late February, we are currently in LogTech’s Cambrian period, an explosion of technology biodiversity in the logistics sector.
But…more options equal more choice. More choice equals harder decisions. Harder decisions can equal inactivity. Call it the Borat cheese corollary.
Technology is always a confusing problem for buyers. “Have I made the right choice? Have I committed for too long, not long enough? Have I paid too much? Not enough? What if something better comes along? Will my team even use it enough?”
The reality is that there are several worlds all crashing into each other right now. The pre-tech bubble technology providers that emerged out of the Oracle/SAP-era ERP period. The post-dotcom-era providers that brought cloud and SaaS to the party. The first generations of venture-backed LogTech companies that are now in growth stage. The later stages of venture-backed LogTech startups aiming to get to growth stage.
That’s a lot of individual companies, some providing new versions of existing ideas, others creating new categories. As a buyer, it’s sort of a permanent challenge to add to their lists. Move freight, make money, study the tech market. Rinse and repeat. The sheer number of startups doesn’t help the individual startups either. Each one you add to the list is another name to remember, another model to internalize, another pitch to entertain. There’s a dilutive effect to that reality.
For investors, the growing number of companies is a challenge too. It means that for every company they come across they believe to be unique, there’s probably someone else (if not five) that have the same idea. More companies also bring more investors to the industry as well, like chum in the water.
Which creates a feeding frenzy. It also creates situation where an investor might back diametrically opposed models, because both have potential and there’s no clear indication that one model will wipe out the other. The digital forwarder model versus the digital enablement model comes to mind.
But the problem, of course, is that this is a free market. There is literally zero constraint on new founders dreaming up ideas and then building something substantial enough to draw the interest of early-stage investors. So this is a problem that only the market itself can resolve.
Let’s assume, however, that I have been granted the power to determine the optimal volume of LogTech startups? What would that be? And what would the presumed benefits be? Well, I don’t know what the ideal number of startups is. I’m guessing some investors would suggest to me that there actually aren’t enough startups yet. They need more to choose from.
But the benefits of a more constrained supply of LogTech startups would be that founders might be more willing to go beyond strategic cooperation and integrations and channel partnerships. They might actually have to merge and acquire and rationalize the total number of providers. For one, the market would have fewer systems to research. Those systems would have more functionality, larger networks, bigger databases, more combined resources.
Investors would have fewer but bigger companies to invest into, and with fewer companies offering solutions, the ratio of companies that would eventually succeed at a venture capital-preferred clip would increase. Selfishly, I might be able to write more stories that aren’t tied to funding rounds. 🙂
But the earth didn’t get to specify the size of the Cambrian explosion of life, and I don’t get to specify how many individual LogTech companies there are. I just have the perhaps counterintuitive view that less is more, that fewer names would drive better adoption, more desirable outcomes and a less confusing market.
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
Selling technology into container lines is never easy, less so when they are sitting on huge profits, have leverage in the market, and are not prioritizing operational efficiency. Which makes Flowfox’s progress especially notable. The German tech provider, which announced a pilot with Kuehne + Nagel this week, is working to automate a set of carriers’ import processes.
I’ve been talking with Joe Magee, CEO of Freightpay, for a couple years as he and his co-founder built his forwarder payment platform in the background. They broke out of stealth this week with a $2 million funding round, led by Defy.vc but with participation from notable investors, like Sheel Mohnot’s Better Tomorrow Ventures, Flexport and project44 execs.
One legacy of the pandemic SupplyChainCrisis™ is that this White House will undoubtedly go down as the one that has referred to logistics more than any other administration in history. The next manifestation of this fascination is a national data portal project, in which the administration has initially enlisted 18 participants, including shipping lines, chassis providers, terminal operators and shippers.
Another company that came out of stealth this week is Prompt, which has been working with a range of large global forwarders to automate workflows and system integration. The company started with CargoWise but is expanding to serve as a user layer for other widely-used forwarding systems, like Magaya, Descartes, and BluJay Solutions (now part of E2open).
And here are some recent discussions, reports, and analysis I found interesting:
My S&P Global colleagues this past week released a white paper on data management in the maritime sector, including perspective from PSA International, Hapag-Lloyd, Stena Bulk, and Koch Supply & Trading. Download the free paper here.
Good breakdown of a great discussion I led in February with Prompt, Metafora, Tive, and Portcast.
Interesting development here. I had a mini-thread on Twitter about it too.
Speaking of Flexport…
Some upcoming events I’ll be involved in:
I’ll be moderating a panel at the Supply Chain Summit at S&P Global’s World Petrochemical Conference next week. The session, March 22 and 2:55 CT, is about moving from a reactive stance on visibility to a proactive one. Speakers from Intellitrans, TradeLens and RecycleGO will join me. Register for the event in Houston here.
I’m also moderating a free JOC webcast March 31 on the future of freight procurement. A key question we’ll be addressing: What part of the procurement process has moved beyond the human scale, and what process still needs to be managed and executed by logistics professionals? Speakers include Wolverine’s Rachael Acker, Keelvar’s Alan Holland, and Transporeon’s Jonah McIntire. Register here.
The next episode of LogTech Live is April 1, and I’m delighted to welcome my friend Beth Pride, global trade consultant par excellence, to discuss sanctions, tariffs, technology and more. Subscribe here to get show alerts, and to see an archive of previous episodes.
I’m also leading a visibility panel at our JOC Breakbulk and Project Cargo Conference April 25-27 in New Orleans. My session, with representatives from Voyager Portal and FuelTrust, is at 4:25 CST April 26. Register for the event here.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or S&P Global, and any opinions are mine only.
Yeah it's starting to feel like the space is crowding doesn't it?
Five years ago when I started working on Terminal49 I felt that there weren't enough startups on the logistics side, and an explosion was waiting to happen. Well it's happening and it's not surprising as you said.
Although this is the normal ebb and flow of startups going after a space. Remember almost 10 years ago there were dozens of coupon startups and then only Groupon survived?
Most logistics tech startups will disappear as winners emerge. Good times.