Though this week was a quiet one in FinTech investments, with only few $100M+ deals – VCs seem to have found a new favorite place to invest – bringing the supply chain into the digital age.
[vc_row full_width=”” parallax=”” parallax_image=””][vc_column width=”1/1″][vc_column_text]The supply chain is an interesting combination of invisibility and indispensability. The vast majority of consumers will never think about it, however, even minor disruptions can be catastrophic.
In 1996, shoemakers at Adidas attempted to offer not one, but two technological updates to their warehouse management system. Neither update took, and by year’s end disruptions in the South Carolina distribution center where the upgrades took place were so severe, the company in total was only able to fill 20 percent of its $50 million North American orders, and much of that came from overseas plants shipping directly to the U.S. at a greatly inflated cost. After several months, when the system was under control and Adidas got to work on its next project: reclaiming all the market share one smallish attempted change to their supply chain had cost them.
Toys “R” Us had an arguably worse supply chain disaster in their early days of online ordering in 1999. The chain promised that any good ordered online by Dec. 10 would be delivered by Christmas, a promise that they discovered a few days before Christmas they were not going to be able to keep. So they wrote their customers the obligatory “we’re sorry,” emails and received responses curiously lacking in holiday cheer.
“How do I explain to my 4-year-old that his present will be coming a week late?” was typical of more gentle complaints in the avalanche of mail and calls the company received, noted then VP of Sales Joel Anderson.
“I’ve never been exposed to fouler language,” he said of the less gentle complaints.
Given the high importance — and high costs of failure when upgrades go wrong — the $160 billion-a-year industry dedicated to arranging cargo shipments in the Internet age has not been the most technologically innovative space up until now. Freight forwarders, the firms that handle everything from finding the most efficient combination of planes, trains and automobiles (well, OK, trucks) to making sure that everything in a shipment goes through customers, have generally been a conservative corner of the market. Orders which might be easily placed online and managed in the cloud are instead made via phone or fax and managed via a continuous exchange of emailed spreadsheets.
If that sounds to you like a system in need of a serious upgrade, you find yourself in the company of a series of serious startups that want to solve the problem and some serious venture capitalists who’ve been throwing money at those efforts.
According to reports, Silicon Valley investors have thrown about $1 billion into freight-forwarding startups since the start of 2014 — a startling sum since it doubled the amount invested over the previous five years.
And yet, for an investment area that was barely on the radar even two years ago, the action has gotten pretty hot lately.
For instance, Peter Thiel’s Founders Fund led a $20 million funding round for Flexport Inc., which offers online booking and tracking for cargo shipments.
“You have direct information without having to go through this game of telephone that you had to historically play with freight brokers,” said Trae Stephens, a principal with Founders Fund.
Flexport’s strategic improvement is a faster quoting process than is traditional in freight-forwarding through additional automation. The firm also makes it possible to manage customs paperwork electronically and offers real-time order tracking. One customer, Brian Hahn, co-founder of Nomad Goods, told The Wall Street Journal that by using Flexport he is able to create shipment of his goods to the U.S. from his homebase in China in “a few minutes.” That makes it vastly superior to his experience with traditional freight-forwarders, which he described as “complicated and scary.”
“I’m not trying to be a logistics expert here,” he said. “We’re trying to be a product company that delivers stuff on time.”
While freight startups are attracting lots of attention and enthusiasm, there are still some doubts about the sector’s long-term chances for successful disruption. Shipping is not so easily automated, some note, as shippers often have esoteric demands and needs depending on their specific supply chain and distribution networks. That kind of customization is not impossible on an automated pricing platform, but it is not easy to do.
Freight-forwarding is also about more than moving goods — long-term relationships with shipping lines, trucking companies and rail providers are among the sort of intangible assets established firms wield, and those assets can help get a client’s goods to the front of the line when there are shipping delays and someone’s stuff is going to be getting there late. Plus, not all of the new pricing platform can assist with customs, meaning they are not a viable option for businesses that ship internationally.
“Many startups just want to bring together a carrier and a shipper — they underestimate the value-add of a forwarder,” said Matthias Hanke, a Zurich-based transportation consultant.
However, this may not be a case of either the old way, or a new technologically enhanced way, and rather a matter of how to make it a “both/and.”
Tel Aviv-based Freightos, for example, does not market itself a competitor for traditional market freight-forwarders but instead as a collaborator. It provides its technology platform to traditional market players, who are then able to leverage various streams of data or carrier rates, port handling fees, fuel surcharges and other expenses in order to generate price quotes.
Others have noted that automated pricing models might be a boon to smaller entities with fairly direct shipping channels in need of a simpler solution.
Whatever its ultimate place and use in the market, however, it seems a technological upgrade is coming to the freight industry. As the rest of the world is going digital, it is becoming obviously problematic to lag behind.
“The right technology is badly needed,” said Niels Erich, spokesman for a group of 15 major shipping lines known as the Transpacific Stabilization Agreement.
And what is needed will ultimately become what is expected, according to analysts, meaning freight-forwarders will either get with the times, or be left in the dust of those who do.
“Ultimately the technology will advance, as it always does,” said Alex Le Roy, an analyst with research firm Transport Intelligence. “And those who do not adapt will fall behind.”[/vc_column_text][vc_text_separator title=”Banking Holds Sway in August – So Far” title_align=”separator_align_left” align=”align_center” color=”grey”][vc_column_text]August started out with a bang. For the first full week of the month, the Investment Tracker logged more than $10 billion in deal flow, with outsized impact coming from the banking sector. Two large financial deals hit during the past week, and contributed to quite nearly all the investment activity, as measured in dollars.
The biggest splash came from outside the United States as Banco Bradesco of Brazil said at the beginning of the month that it would buy all of HSBC’s operations in that country for about $5.2 billion. Under the terms of the deal, which had been rumored in the financial press for several weeks, the HSBC ops will be sold across business lines that include retail, asset management and insurance.
Following on the heels of that announcement was another banking transaction, this time closer to home. CIT Group finalized its $3.4 billion buy of Pasadena, California based OneWest Bank. The latter firm will continue to operate within the state, according to news reports.[/vc_column_text][vc_text_separator title=”A Few Tech Deals, Too” title_align=”separator_align_left” align=”align_center” color=”grey”][vc_column_text]Not to be overlooked was the tech sector, which saw a few sizable announcements in the week, and where again activity picked up abroad. The Snapdeal capital raise of $500 million from investors including Alibaba, Foxconn and Softbank help cement the trend that India is becoming a hotbed of fundraising for startups. The online shopping market may be in relatively nascent stages in comparison to wealthier nations, but growth has been exploding. The Snapdeal investment also points to continued movement by Alibaba to move beyond its core Chinese markets, where growth has been slowing a bit and represents Alibaba’s first direct investment in India.
And as if anyone needed further affirmation that Big Data remains a continued source of strategic takeout activity, last week, 1010data, which provides analytics across a range of industries, from media to telecom, was bought by conglomerate Advance/Newhouse for $500 million.
Below are the Top 5 deals for the week, as measured in U.S. dollars.[/vc_column_text][vc_raw_html]JTNDc2NyaXB0JTIwaWQlM0QlMjJpbmZvZ3JhbV8wX2dyYXBoXzFfX19iYW5raW5nX2hvbGRzX3N3YXlfaW5fYXVndXN0X19zb19mYXIlMjIlMjBzcmMlM0QlMjIlMkYlMkZlLmluZm9nci5hbSUyRmpzJTJGZW1iZWQuanMlM0Znam4lMjIlMjB0eXBlJTNEJTIydGV4dCUyRmphdmFzY3JpcHQlMjIlM0UlM0MlMkZzY3JpcHQlM0U=[/vc_raw_html][vc_column_text]Given the dominance of the banking and data sectors this past week, it’s worth a look to see how the overall financial technology sector and its subsets have trended over the past several weeks. Below we can see that, even with data “smoothed” for large, outlier deals, the rolling average has jumped to roughly $500 million (in total, not deal size) for the most recent weekly tally.[/vc_column_text][vc_raw_html]JTNDc2NyaXB0JTIwaWQlM0QlMjJpbmZvZ3JhbV8wX2dyYXBoXzJfX19iYW5raW5nX2hvbGRzX3N3YXlfaW5fYXVndXN0X19zb19mYXIlMjIlMjBzcmMlM0QlMjIlMkYlMkZlLmluZm9nci5hbSUyRmpzJTJGZW1iZWQuanMlM0YzNnolMjIlMjB0eXBlJTNEJTIydGV4dCUyRmphdmFzY3JpcHQlMjIlM0UlM0MlMkZzY3JpcHQlM0U=[/vc_raw_html][vc_column_text]Given the large banking deals mentioned a bit earlier, we can also see that Latin America held the lion’s share of activity in the week, followed by the U.S., in terms of millions of dollars.[/vc_column_text][vc_raw_html]JTNDc2NyaXB0JTIwaWQlM0QlMjJpbmZvZ3JhbV8wX2dyYXBoXzNfX19iYW5raW5nX2hvbGRzX3N3YXlfaW5fYXVndXN0X19zb19mYXIlMjIlMjBzcmMlM0QlMjIlMkYlMkZlLmluZm9nci5hbSUyRmpzJTJGZW1iZWQuanMlM0ZnbjclMjIlMjB0eXBlJTNEJTIydGV4dCUyRmphdmFzY3JpcHQlMjIlM0UlM0MlMkZzY3JpcHQlM0U=[/vc_raw_html][/vc_column][/vc_row]