The freight forwarding industry is ripe for a reboot, and tech startups and investors are on board to disrupt logistics and supply chain management.
Boyden's perspectives on the news and trends that are transforming industries
Investment in the freight technology or FreightTech sector has been increasing since 2014 – and surging mightily in the past year. Supply chain tech firms raised more than $62bn in 2021, according to PitchBook, more than doubling since pre-pandemic 2019. A nearly $9bn slice of this went to freight tech startups. Viki Keckarovska of Transport Intelligence expects still more rounds of funding in the sector this year, and freight tech unicorns are growing in number.
German startup Forto, which develops digital logistics technologies, is one such unicorn. It was founded in 2016 as FreightHub and rebranded in 2020. The firm attained unicorn status in 2021. This year it announced another $250m in funding, bringing its valuation to $2.1bn. Nearly $600m of Forto’s funding has come from venture capitalists, who see a digital destiny for the freight forwarding industry. Founder and CEO Michael Wax says that Forto has tripled its business in each of the past four years.
Forto exemplifies the boom in freight tech fuelled by investors willing to bet billions on the modernization of a massive industry. Armstrong & Associates, a supply chain research and consulting firm, estimates the value of the freight forwarding business alone at $475bn in annual revenues. The broader third-party logistics market, including transport management and warehousing, generates sales of $1.4trn, The Economist notes. But in general the industry has lagged technologically.
New software platforms designed to streamline the process of shipping freight overseas, such as U.S.-based firms Flexport and Project44, are changing this by automating supply chain processes and bringing more visibility to supply chain milestones. Platforms like these also enable data analytics. Shippers and logistics providers have used transport-management system (TMS) software to manage shipments for decades. These systems are useful databases, says Evan Armstrong, President of Armstrong & Associates, but they are not clever.
Supply chain snags are not the only driver of the freight tech boom. Analysts emphasize the impact of Amazon, which Julian Counihan of VC firm Schematic Ventures says is “the absolute number-one catalyst for supply chain transformation”. Amazon has drastically changed consumer expectations with next-day and same-day delivery. As shipping times plummet, Counihan says, logistics requires “way, way more supply chain technology.”
Big incumbents in freight forwarding have some advantages in this changing tide. First, they are not all behind the times in terms of technology. Swiss freight forwarder Kuehne + Nagel, for example, has invested heavily in digitisation. American logistics firm C.H. Robinson is “really a digital freight broker”, says Armstrong. He adds that while some big incumbents rely on old technology, they have much more scale than the startups. This enables them to negotiate lower shipping rates.
The freight forwarding market is highly fragmented, however, making it easier to topple individual players. And while some companies are fast-tracking digitization, many will need to invest more in the digital expertise needed to close the gap with fast-growing freight tech startups.