Shipping Technology 3.0 — A New Wave
90% of world trade is transported by sea, making the shipping industry a colossal one.
Until very recently, the shipping industry had seen little wholesale innovation since the international standardisation of containers in 1965. However, all this changed following the collapse of South Korea’s Hanjin in 2016/2017, which was at the time the 7th largest shipping company in the world. The dramatic demise of such a huge organisation stirred this giant of an industry, and a plethora of innovation has since ensued. Prior to this, many analysts regarded shipping as a ‘zombie’ industry due to its antiquated processes, which were at least partly responsible for freight carriers racking up a combined $20bn of operating losses in 2007.
Shipping’s innovation renaissance
This new influx of innovation, the first great wave of change since the 1960s, has been driven by digital freight forwarders, notably San Francisco-based Flexport, which to date has accumulated around $1.5bn of investment at a valuation of over $3bn since its formation in 2013. More generally, investment has been pumped into this category over the last few years from the venture capital world and elsewhere. Interestingly, major incumbents like Maersk and DHL have introduced digital freight forwarding capabilities over the last two years, both to ward off the threat of new entrants but also to tap into the digitisation trend that these startups have spearheaded. These digital freight forwarders also face the looming threat of Amazon, which entered the freight forwarding space in January 2017, initially offering services between the US and China for its merchants.
Although the digitisation of the freight forwarding space has been the focal point for much investment and innovation, partly due to the immediacy with which the tech can be implemented, there are several other potentially game-changing threads of innovation in the offing. Take blockchain-based shipping for example, which has the potential to affect each and every stakeholder in the shipping value chain. In fact, the World Economic Forum recently estimated that blockchain technology has the potential to generate an additional $1trn in global trade, through improving trade efficiency, security and transparency. Other significant innovations on the horizon include fuel efficiency technologies and autonomous shipping.
Our investment thesis
‘Why shipping?’ you may ask — especially from a fund that focuses on retail and consumer. Well, we look to drive innovation across the entire retail and consumer value chain and shipping is an integral part of that chain. As such, we’ve been considering where the investment opportunities lie for True and where we can add the most value. Indeed, we have spent a significant amount of time over recent months getting acquainted with this multifaceted space and are now at a point where we feel ready to deeply evaluate any relevant opportunities. True can add value in areas which significantly impact upon retailers, are technology-enabled, have low capital intensity and have reasonable defensibility against Amazon and other major incumbents.
For us, there are two major areas which best fit these criteria.
- We are very interested in SaaS solutions for freight forwarders and other market participants. This area is less saturated with capital than other areas of the shipping tech market and these solutions can also benefit from and augment existing key players like DHL and DB Schenker, rather than be in direct competition with them. Moreover, one of the key outcomes of the Hanjin collapse was that many shippers and consignees now seek to diversify their risk through using multiple forwarders and carriers. Hence, a tool which can be used by multiple market participants is more attractive.
- Cargo tracking and monitoring technology is another area of interest for us as supply chain transparency becomes an ever bigger focus area for the retail and consumer goods sector, particularly as retailers and their customers become more and more interested in where their products come from and how they arrive at their doors. Staggeringly though, around 50% of all product data today is either incorrect or missing. Blockchain is seen by many as the driving force that could address this problem and most startups in this sub-sector are blockchain-focused. However, blockchain is a longer-term play than the digitisation offered by digital freight forwarders and corresponding SaaS solutions. It is currently difficult to find market-ready blockchain solutions that are ready to enhance the shipping industry here and now.
There is a rich wave of innovation sweeping the freight shipping sector but investors and entrepreneurs alike must build a deep understanding of this complex ecosystem before wading into it through fear of missing the boat.
We are very keen to explore investment and innovation opportunities in this space and have identified SaaS solutions for the shipping industry and cargo monitoring technologies as our primary areas of focus. Please contact us if you are in this space.
I’ve also recently blogged about innovation opportunities in sustainable materials for the retail and consumer sector, which I hope is worth a read.
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