Though the logistics industry is one of the largest contributors to the U.S. economy alongside sectors like software, oil & gas, and telecommunications, the former witnesses an extremely fragmented market that makes visibility hard and technology penetration much more arduous. Sensing a bottomless pool of opportunities, startups mushroomed in the market with an intent to infuse technology into an industry that has historically remained sluggish to change.

However, the landscape is now primed for further disruption. A constant stream of investment pouring in from eager venture capital (VC) firms and angel investors has propelled businesses to break through the industry's veneer of indifference and help technology percolate to its roots.

FreightWaves spoke with Matthew Cowan, partner at Next47, the VC investment arm of Siemens, to discuss the type of logistics startups that will potentially be on its radar and the general technology trends that loom over the industry.

"There are two key kinds of companies that we look at in the investment landscape one, that are trying to create a whole new approach from the ground up with a digital perspective in mind. And the second kind are the companies that are looking to digitally enable existing infrastructure," said Cowan. "If you were to use Uber as an analogy, they could have either sold their technology to taxi companies and remained a technology provider, or they could have become a transportation company. And they became the latter."

Cowan explained that the industry would see a steady stream of startups over the next decade, because the market is massive enough to accommodate new business models and a variety of approaches that ultimately aim to improve the overall efficiency of logistics processes.

"This is not going to be a winner-take-all market but is going to be much broader than that. We look at companies that work to digitalize existing infrastructure," said Cowan. "For instance, sennder is a European company we invested in, and it is looking to digitally enable existing shipping services. Turvo is a U.S. company we invested in, primarily for fast and informed shipping."

Many of the incumbent logistics companies operate in silos, which makes it hard to precisely locate freight as it makes its way through the supply chain. Shippers that employ several stakeholders to push their freight to the end consumer have to contend with supply chain blind spots a situation that can be phased out if processes are digitalized and data flows are centralized.

"Having a digital services layer that is seeking to connect all these disparate silos into one cohesive experience is key," said Cowan. "If you are anybody other than Amazon today, you probably don't have a solution to get a product in the hands of your customer the same day. Amazon has conditioned consumers in many geographies around the world to expect same-day and next-day delivery. To deliver on that promise, companies will need a whole new digital infrastructure layer."

Cowan argued that consolidation within the industry across specific niches is a scenario that is way in the future and that when it happens, it will be between companies with similar capabilities and also when it strategically helps to maximize geographic impact.

"There are several compelling opportunities for companies in terms of how they can drive efficiencies into their operations. For instance, digital transparency will allow people to see all the different possibilities to fill up trucks that were otherwise running empty before," said Cowan. "Such situations create the need for a whole category of companies that can come in and fill that need."

In the context of raising capital in the logistics space, Cowan pointed out that it was vital for startups to identify investors who can give their business an unfair advantage in the market. Working with investors who have established relationships with key shippers, warehousing companies, and major shipping lines will provide startups with easy access to customers and help them scale faster.

"It is important to reflect on the scale of this market segment. This is not, for the most part, a segment where small companies are going to win. In order to achieve scale, you need to invest in relationships," said Cowan. "Startups should look for investors that have deep pockets and access to those kinds of relationships."

Image Sourced from Pixabay

View original post here:

Understanding Startup Investment Dynamics Within The Logistics Ecosystem - Benzinga