Investing To Keep The World Moving: An Overview Of Startup Funding In Logistics
Logistics is more than just moving boxes. It’s not only the backbone of the economy, but the key component that keeps goods and the entire supply chain flowing. This trillion-dollar industry has coped with inefficiencies, which only until recently began to experience signs of improvement. With much work still left to be done, the market fragmentation and lack of visibility keeps prices down, making the industry operate under a break-even point in certain periods and cycles. This low profitability has delayed the creation of new solutions and technologies. In consequence, there has been a great increase in startup funding in logistics in the last few years, creating a new generation of logistics startups which aim to solve and address old issues and meet new market needs. Next, we will look at how investment has increased over the years, the existing focus on road freight marketplaces, and the most important pain points being resolved in the industry.
Investment in logistics startups in recent years:
Venture capital funding in logistics began in 2015, at the sight of a huge market that continues to grow while facing disruption and challenges. Investment peaks have taken place in 2018 and 2021. According to McKinsey’s Startup Funding in Logistics: New Money for an old industry report, total funding in logistics startups has grown dramatically at a 76% compound annual growth rate from 2014 to 2019, and funding volume growth in logistics has outpaced overall venture growth by 15X in 2019. Funding is heavily concentrated in the logistics industry as in many others. This means that the top ten best-funded startups received 46% of total funding, and the top 20 received 66%.
Since the pandemic, the transportation of goods and pushing the supply chain forward became as important as ever. For that reason, funding for logistics startups almost doubled from 2020 to 2021 and focused on different subsectors. Supply chain technology startups raised $24.3 billion in the first three quarters of 2021, which is 58% more than the entire previous year. However, McKinsey’s 2021 report establishes that investors began to focus more on e-commerce, delivery, and supply chain visibility. The three most funded business models in 2021 were on-demand last-mile delivery platforms, road freight marketplaces and solutions, and new last-mile parcel networks.
The existing focus on the road freight marketplaces model:
The second most funded startup business model in logistics was road freight marketplaces and solutions in 2020 and 2021, which connect shippers and carriers via marketplaces or offer fleet management services. As platforms that enhance pricing transparency and digitize matchmaking and exchange between shippers and carriers, they also leverage data to resolve pain points and improve sustainability through efficiency. These solutions offer more visibility and a more customer centric service. On the other hand, platforms with focus on air or ocean transportation haven’t raised as much as those focused on road transportation.
This model continues to be an area of interest for investors since there is a large fragmentation of carriers, which brings the need for marketplaces. In the US, the trucking industry generates approximately $750 billion in revenue while made up of nearly a million carriers.
Solving the market’s main pain points:
Within road freight marketplaces and solutions, VC investors have their eye set on those that resolve some of the most important pain points: supply chain visibility and digitization.
- Supply chain visibility
Although supply chain visibility is key for improved agility, communication between multiple stakeholders or entities, and having more clarity on ETAs, it continues to be a major pain point and priority for shippers. In fact, 50% of the US’ largest importers still use spreadsheets to manage their complex international supply chain. This topic has gotten a lot of attention due to ongoing disruption in the last couple of years, and has led companies to understand the importance of flexibility and agility in their supply chains. A survey by Kenco determined that 90% of respondents reported that supply-chain visibility is a top priority.
Read about how the Nuvocargo platform saved the Vilher team over 10 hours a week by offering full visibility on their cross-border shipments here.
- Capacity and digitization
Digitization in the supply chain plays an important role when it comes to being able to book freight and lock capacity quickly. According to a Freightos Group survey, almost 50% of logistics executives of enterprises require two or more days to book shipments, and that 70% rely on spreadsheets for rate management. Considering that being able to book digitally and seamlessly has become important for shippers, digital offerings are incrementing in the logistics world. Nuvocargo focuses on facilitating trade between the US and Mexico, and giving shippers the tools to book shipments quickly.
If you’re interested in moving with Nuvo, book a shipment here.
Platform business models that offer rate comparison or supply chain visibility can experience strong economies of scale and benefit as they connect shippers and carriers via the platform. Though inefficiencies are still present in the industry, they have also created entry points for startups to experience rapid growth and momentum in their regions and niches. The industry at large is currently experiencing great changes and is expected to keep transforming decades and decades of outdated processes into something truly innovative and efficient. At Nuvocargo, we aim to keep shifting the experience of cross-border trade, making international commerce seamless and helping our customers focus on what they do best while we take care of the rest. Learn more about our product vision for 2022 here.