Logistics start-ups

Delivering on Their Promise

  • Why it matters

    Why it matters

    Traditional German logisitics firms such as DHL have been slow to react to the growth of web-based courier brokers, leaving them vulnerable.

  • Facts

    Facts

    • Almost $11 billion have been invested in logistics start-ups over the past ten years.
    • Last year a new logistics start-up was launched on average every five days.
    • German logistics companies have a combined total turnover of €250 billion a year.
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    Audio

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The container industry is fast going digital. Source: Marco2811 - Fotolia

Until recently, their names were known only by people who had bulky goods or urgent consignments to send. But now, firms such as Flexport, Uship, Uber Freight and Freighthub are transforming the freight and courier industries in the same way that Uber transformed the minicab business and Airbnb the hotel trade.

The firms allow users to book shipments of goods around the world without having to contact and directly book with independent freight operators.

If the start-ups are successful, traditional freight forwarders and courier companies could soon become endangered species.

The extent to which start-ups like Flexport have the potential to disrupt the traditional business model of German logistics firms such as Rhenus, Nagel or Hellmann has been the object of a new study by the consulting firm Oliver Wyman.

The days when logistics firms were synonymous with the smell of diesel fuel, sea salt, fork-lift trucks and wooden palettes are long gone. Logistics is now sexy and is attracting modern investors.

“If the established logistics firms do not respond to the challenge of the new digital business models, the agile new start-ups could soon become a real danger for the industry.”

Joris D’Incà, logistics expert

The Wyman study found that almost $11 billion (€10.5 billion) have been invested in logistics start-ups over the past ten years and that, in 2016, a new logistics start-up was on average launched every five days.

“If the established logistics firms do not respond to the challenge of the new digital business models, the agile new start-ups could soon become a real danger for the industry,” says logistics expert Joris D’Incà.

With established companies such as DHL, DB Schenker and Dachser, Germany has for years been a key player in the global logistics industry.

The importance of the sector to the German economy can be seen in the fact that German logistics companies have a combined total turnover of €250 billion a year and 3 million German jobs depend on the sector.

The experience in Europe of the minicab-hailing web-based app Uber has shown that it is only through the imposition of draconian laws that it is possible to protect the interests of local taxi industries from the steady encroachment of disruptive new technologies.

Despite the fact that the San Francisco-based firm does not own a single car, Uber’s vision was to create an internet-based market for minicab drivers and passengers. Since it was founded in 2009, the company has attracted $9 billion of investment capital and is today worth ten times as much as the car rental firms Sixt and Hertz combined.

Likewise Flixbus, the German mobility provider which offers daily intercity bus services across Europe. Since the firm was founded in 2013, many coach operators and other transport providers throughout Europe have become dependent on the market-leading disruptive newcomer – even the German state railway firm Deutsche Bahn has had to lower prices on some of its routes.

The market for holiday accommodation and overnight stays has also experienced major competition and disruption from online start-ups such as Booking.com, Expedia and HRS over the last ten years or so.

Now, it appears, the freight business is set for a similar shake-up. The start of that process was the founding in 2013 of the company Flexport, whose app-based product attracted prominent investors such as the actor Ashton Kutcher and the Silicon Valley and PayPal tycoon Peter Thiel.

Since 2016, the Berlin-based competitor Freighthub has been offering a similar concept. Financed with investment from high-profile start-up investors such as Rocket Internet, Heilemann Ventures, Global Founders and Cherry Ventures, Freighthub’s unique selling point has been to offer cheap container transport.

The company aggregates for its customers freight rates directly from shipping companies such as Maersk or Hamburg Süd and makes its money by charging a commission of between 10 and 20 percent of the order volume.

“Online freight forwarders make it easier for customers to find cheap transport solutions by themselves,” said logistics expert Max-Alexander Borreck of Oliver Wyman.

He points out that currently only 40 percent of freight transport volume is reliant on long-term forwarding contracts. The other 60 percent is short-term business, and it is this that is primarily attracting the interest of the disruptive newcomers.

The Uship freight exchange start-up, which was launched in Austin, Texas, has been particularly successful in this field.

The company focuses on private individuals and small businesses looking for transport solutions for the moving of furniture, cars or even horses. Over 600,000 transport providers in 19 countries advertise their services on the platform, which now has four million registered clients.

Uber Freight takes the concept one step further. In July last year, the offshoot of the California-based minicab-hailing firm Uber, bought the American truck manufacturer Otto, which specializes in self-driving freight vehicles.

Uber Freight’s aim is to become the Uber for long-haul trucking, and the $65-million firm could, if successful, eventually eliminate the need for truck drivers altogether.

When it comes to investment into transport and logistics start-ups, the U.S. and Asia are way ahead of Germany. According to Oliver Wyman, 45 percent of global investment in the sector stems from the U.S. and Asia.

The highest single investments so far came recently from investors in China, who stumped up around $1.54 billion for the data-driven Cainiao parcel service and $788 million for the Alibaba spin-off firm Best Logistics Technology.

Venture capital firms from California’s Silicon Valley, such as Kleiner Perkins Caufield & Byers and Andreessen Horowitz are also at the forefront of investment into logistics tech firms. Together, the two firms invested more than €250 million into logistics start-ups in 2016.

Only around 5 percent of investment for the sector is coming from Europe. For example, DB Schenker, Europe’s largest truck haulage firm, has contented itself with involvement in co-operative ventures – including the Uship freight exchange.

Meanwhile the German courier firm DHL, the world’s largest, is investing in its own start-ups such as the electric car maker Streetscooter. But the Deutsche Post subsidiary has so far found it hard going when it comes to competing with online freight forwarders.

In October, DHL launched Cillox, a new digital logistics platform that DHL claims will “disrupt the traditional road freight business” in Europe.

DHL describes Cillox as a “virtual B2B marketplace” that “brings together shippers and transport providers in Europe”. The platform aims to help companies match their full and part-truck load offerings with transport providers’ capacities.

The service is expected to launch Germany-wide this month and expand into the rest of Europe by 2018.

But other German hauliers appear to be reacting to the new competition only half-heartedly. Bernhard Simon, the head of the haulage firm Dachser in southwestern Germany, is aware of the importance of digitalization to expand the company’s own core business and has recruited 600 IT specialists to the firm. However, the family firm is not involved with any tech start-ups.

Another traditional German haulage firm Hellman, meanwhile, declined to comment on its views on the future of the industry.

Meanwhile U.S. competitors are meeting the challenge of digitalization head-on. The courier company UPS, for example, is plowing money into developing fast payment systems and 3D printers. And Fedex, the Memphis-based transport giant, is investing heavily in big data to optimize the use of its truck and aircraft fleet.

For Mr. Borreck, it looks like Europe is being left behind when it comes to investing in innovation in the sector and he fears this could have serious long-term consequences.

 

Christoph Schlautmann covers the logistics and waste management sectors for Handelsblatt. To contact the author: schlautmann@handelsblatt.com

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