What’s Driving The Private Billions In Freight Tech Investment
In venture capital’s race for returns, no one’s ready to pump the money brakes on disruptive technologies for freight logistics, an opaque, fragmented global market with an estimated $4.6 trillion in revenues.
This month, digital freight brokerage firm Loadsmart Inc. announced that it had raised an additional $19 million just to build out its app (the company has raised $53 million in total from a Series A funding round). The investors were Ports America, the United States’ largest shipping terminal operator and stevedore, and Maersk Growth, the venture capital division of Denmark’s A.P. Moller Maersk, which handles roughly 15% of the global container shipping market.
Beyond its matching platform, Loadsmart has also partnered with Starsky Robotics to develop driverless trucks, completing the first autonomous dispatch and delivery of freight this July when a load of raw corn was successfully delivered to a customer in Grand Prairie, Texas with minimal human involvement.
Loadsmart’s deal points to the still-ravenous appetite of private capital for digital freight management solutions which use software applications to match shipper cargo with available truck drivers. These technologies have predominantly targeted the U.S. trucking market, which handles 70% of all U.S. freight deliveries, and is very fragmented, with 97% of the market dominated by operators owning fewer than 20 vehicles.
Record capital raise
In 2018, trucking and freight companies raised $3.6 billion from venture capital funds, twice the amount in 2017 and a new record, according to data from CB Insights and reported in Trucks Magazine.
Early indications for 2019 suggest another record year in sight. As of May 2019, private capital invested $2 billion in trucking technology startups across 27 deals. Four of the five largest VC deals in the first quarter of this year went to companies involved in freight and human transportation technology. This included the single-largest deal, freight-forwarding startup Flexport, which raised $1 billion in February led by Softbank’s Vision Fund.
The lane of industry players is already extraordinarily congested. Competitors in the so-called “Uberization of trucking” space include Uber’s own digital freight venture Uber Freight, and Convoy (backed by LinkedIn founder Reid Hoffman’s venture firm Greylock Partners, and Amazon founder Jeff Bezos’s venture firm Bezos Expeditions).
Asset manager interest, European targets
Interest has spread from early-stage venture capital firms into mainstream private equity and asset managers. In May, NEXT Trucking, the $500 million freight startup founded by Lidia Yan, whose freight-matching technology focuses on the West Coast short-haul drayage market, successfully raised $97 million in a Series C funding round led by Brookfield Asset Management.
In June, just months after it was acquired by private equity firm Providence Equity Partners, GlobalTranz, the world’s eighth-biggest freight brokerage, launched its own digital matching platform, GTZamp, marking the first move of a “Top Ten” brokerage into the digital freight management space.
Digital freight management funding has also made significant inroads in Europe (where Blackstone just yesterday announced it was staking its own bet on the European delivery logistics market by investing heavily in warehouses). This spring, European freight forwarder FreightHub announced that it had successfully raised $30 million in Series B financing, with Loadsmart backer Maersk Growth also investing in FreightHub. Around the same time, London-based Zencargo closed a $20 million Series A funding round led by HV Holtzbrinck Ventures.
With private venture funding interest continuing apace, some of the enthusiasm may soon spread to public markets. As William Blair technology analyst Mathew Pfau wrote in a recent report, public investors may expect a wave of mergers, acquisitions and/or IPOs in coming years as industry relationships among transportation and technology companies reconfigure. This could affect public markets to the extent that listed companies are involved.
But while the barriers to entry are low, the VC checks are huge, and the freight industry is ripe for overhaul, the road to rolling out freight’s “killer app” may be a bumpy ride. As early-stage technology venture capitalist Brian Laung Aoaeh, who focuses on disruptive technologies in global supply chain networks, wrote for FreightWaves, two fundamental dilemmas confront would-be disruptors.
First, new entrants must provide a viable alternative to the longstanding alignment of shipper interests with freight brokers, who in turn facilitate relationships with carriers. “Conventional wisdom among industry professionals is that this trust relationship cannot be replicated with software,” he wrote.
Second, there is the sheer “stickiness” of shipper/broker/carrier relationships, which traditionally conservative industry players are disinclined to change.
Despite these issues (which would seem to safeguard legacy players), the sheer number of well-capitalized disruptive technologies in a low-barrier environment comes at a time of projected lower global growth, which affects shipping demand and could seriously alter the prospects for old-line shippers and technology upstarts alike.
Or as Brian Laung Aoaeh put it in his recent editorial: “No industry can escape turmoil if a supply-side disruption occurs within the same period as a demand-side disruption.”