The Strategist

Venture Capital Funds are Investing $ Hundreds of Millions into a New Type of Freight Forwarders

08/18/2015 - 15:51

Silicon Valley companies invest in trucking start-ups, adapting to the realities of internet era. The turnover of this sector is estimated at $ 160 billion a year.

Lisa M. Macias, U.S. Air Force
Lisa M. Macias, U.S. Air Force
Freight forwarders, who coordinate the delivery of products for retailers and manufacturers, are involved in everything - from the search for the optimal combination of air, rail and road transport to customs clearance. They work all over the world, but many customers have complained that freight forwarders are behind the times in terms of technical equipment. Orders are accepted by phone or fax, and the whereabouts of the goods is monitored by means of regularly emailed tables.
Dozens of companies are trying to enter the market of cargo delivery, becoming the second Expedia or Priceline Group in this region. They bet on that a thought out online platform and automatically calculated cost of services will mislead customers and they will flop over to the newcomers. Industry veteran look at these efforts with skepticism: shipping is too complex and dependent on long-term relationship business for someone to break it so simple.

However, the biggest Silicon Valley venture capitalists are willing to bet on new technologies. Since 2014, they have invested about $ 1 billion in such startups. It is 2 times more than in the previous five years, says the data research firm Pitchbook Data. This industry attracted almost no attention of the business angels two years ago.

For example, Founders Fund of co-founder of PayPal, Peter Thiel, last month invested $ 20 million in start-forwarding Flexport, which offers online ordering and tracking the movement of cargo. "You have direct access to information at any time. You don’t need to play phone games with brokers anymore",- touts Trae Stevens, director of Founders Fund.

Some clients have specific needs that are linked to a network of suppliers and distribution, which are not so easy to meet the automated system. In addition, the traditional freight forwarders offer additional services. For example, speculating its good relations with carriers, they ensure that the customer’s product will be the first in line for delivery, if a queue suddenly arise. A number of startups are not able to help with customs clearance, and it is critically important service for internationall shipments.

- Many online companies expect to bring together carrier and customer, and think that this is the added value of the freight forwarder, - ironically notes Matthias Hanke, a trucking consultant from Zurich. Professor John Langley in a joint review of the University of Pennsylvania and the consulting firm Capgemini says that 75% of customers are assured: the logistics can benefit from the application of modern technologies. But only 40% recognize that the logistics companies already use such technology.
Flexport says that it delivers loads faster than conventional forwarders by automating many processes. It electronically fills customs declarations and offers online tracking of cargo at sea and even in the air. Brian Hahn, co-founder of Nomad Goods, said Flexport helps him significantly save time on organizing the delivery of a telephone chargers party from China to the United States. Nomad Goods is growing rapidly, says Khan, and the prospect of delivery through traditional forwarders scares him with its complexity: "We're not trying to become experts in logistics, we are only the manufacturer who wants to deliver goods on time."

Startups are struggling rush to market with new technologies. Tel Aviv Freightos sells its services to conventional forwarders. Its software gives access to a database of carriers ratings, fees, fuel surcharges and other costs that can accurately calculate the price of services in advance. The company has received $ 9 million in venture funding. "The right technology is snatched right up," - says a spokesperson for the largest association of 15 lines forming the Transpacific Stabilization Agreement. Analysts predict that freight forwarders, that do not adopt new technologies, will lose market share. "Eventually, the technology will win, as usual, - says Alex Le Roy, an analyst at Transport Intelligence. - Anyone who does not have time, will be left out. "