STARTUP FUNDING IN LOGISTICS - NEW MONEY FOR AN OLD INDUSTRY? - MCKINSEY
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Startup funding in logistics New money for an old industry?
Startup funding in logistics New money for an old industry? Authors Ludwig Hausmann Tobias Wölfel Jaron Stoffels Oliver Fleck
Startup funding
in logistics
Logistics and freight The transport and logistics sector has the market, such as the introduction
transportation – a tale seen marked improvements in recent of containers and pallets. Along with
decades, despite its history of coping the facilitated handling of goods,
of inefficiencies and with inefficiencies. came an explosion in trade volumes,
gradual improvements and the resulting economies of scale
Fundamental efficiency increases brought costs down. As transport
have typically been linked to new and logistics became more efficient,
technologies and applications entering prices decreased (Exhibit 1).
Exhibit 1
The industry is undeniably under constant pressure to lower costs
Development of transport costs at real rates X% Compound annual
1830–2020, indexed, cost in 2005 indexed to 1 growth rate (CAGR)
1,000
-3.4%
Sea freight1
100
-6.7%
Air freight
10
-2.8%
Rail freight
1
0.1
1830 40 50 60 70 80 90 1900 10 20 30 40 50 60 70 80 90 2000 10 2020
1. Figures before 1930 are calculated indirectly, based on the share of transport costs of wheat.
Source: McKinsey analysis (US Air Transport Association (2010); Baldwin (1999); World Economic Outlook (May 1997))
2 Startup funding in logistics50%
Despite all this progress, inefficiencies reduction as high as 7 percentage
are still far from being eradicated. In points from their previously higher base.
fact, they are prevalent everywhere
you look in the industry. A high number Low profitability has made it difficult
of breakpoints (e.g., a normal cross- for the industry to experiment with
country trade has to go through more fundamentally new solutions – it’s
of the US’ largest importers still use than ten parties, each of which has hard to reinvent yourself when you’re
spreadsheets to manage their complex multiple touch points; dwell time struggling to maintain profits quarter
international supply chain in container yards can exceed five after quarter. The comparatively
days), complex pricing rules, intuition- low and continuously decreasing
based decision making, and little data prices (in real terms) have also kept
standardization present significant the industry’s customers relatively
challenges in the industry. Shippers quiet – increasing customer
and consignees need to interact with expectations and direct pressure
up to 25 different entities (customs, from the consumer that have led to
terminals, shipping lines, forwarders, changes in many other industries
authorities, etc.). A typical door-to- (travel, retail, mobility, and others) have
door spot freight quote contains been largely absent until recently in
more than 20 line items. 50 percent a traditional, B2B-shaped industry.
of the US’ largest importers still Today’s incumbent logistics companies
use spreadsheets to manage their have only gradually adapted to
complex international supply chain. new technologies. Requirements
These are only a few examples of the for flawless execution, operational
many inefficiencies that the industry efficiencies amid complexity, and low
continues to face. The complexity margins have prevented them from
of the industry’s landscape and testing radical solutions on existing
its operations has prevented the issues and shielded them from the
development of quick-fix solutions to first wave of disruptive startup activity
these inefficiencies. seen in other sectors with the advent
of the internet. Vessels have become
Furthermore, a high degree of market bigger and equipped with more
fragmentation, partly into micro- and more technology, but the basic
businesses (e.g., mom-and-pop operating model has stayed the same.
truckers, delivery drivers, independent The concept of asset-light third-party
freight brokers) means fierce logistics providers as supply chain
competition. Combined with a lack of orchestrators was born in the 1970s,
The analysis focuses on transparency, this keeps prices down and to this day, Kühne + Nagel, DHL,
startups that provide and has even forced the industry to and traditional family enterprises like
logistics services operate below a break-even point in Fiege are still the key players in freight
certain years and not earn its cost forwarding and contract logistics.
Logistics is defined as the of capital during some cycles. This is
outsourced movement or illustrated in more detail in the recently As incumbent logistics companies are
storage of goods and includes published report “Pathway to value often too rigid to bring about drastic
warehousing and storage, creation in transport and logistics.”1 changes, a new generation of logistics
parcel delivery, trucking, freight startups, backed by investors with deep
shipping, rail cargo, and air In fact, logistics costs as a share of GDP pockets, aims to solve some of the
cargo. The sample includes have decreased by 1 to 7 percentage industry’s oldest issues and address
companies active in the delivery points over recent decades. Developed entirely new and rapidly growing
of groceries but excludes countries, such as Germany, market needs. In this article, recent
startups in the area of delivering Switzerland, or the US, could reduce funding trends in the logistics industry
prepared food (e.g., Delivery logistics costs as a share of GDP by are analyzed, and a perspective
Hero), as these logistics services about 1 percentage point, while some is derived on the implications for
are traditionally insourced. emerging markets, such as Malaysia, incumbent logistics companies,
Taiwan, or the UAE have reached a logistics startups, and investors.
1
https://www.mckinsey.com/~/media/mckinsey/industries/travel%20transport%20and%20logistics/our%20insights/creating%20value%20in%20
transportation%20and%20logistics/pathway%20to%20value%20creation.ashx.
Startup funding in logistics 3>90%
More than 120 of the biggest logistics offers a bidding platform that allows
startups were analyzed; they are seven users to source truck capacity and
years old on average and represent an complements these services with its
estimated 93 percent (approximately proprietary tech platform as well as retail
of total startup funding in logistics to USD 26 billion) of total startup funding and finance services.
date has been analyzed (USD 26 billion, in logistics to date. Most of this funding
120 startups) comes from early- and late-stage venture The sample includes companies that
capital, but a few mature startups have are focused exclusively on logistics.
raised money from private equity or Diversified startups with the majority
through corporate rounds. Interestingly, of their business in non-logistics
only one company in the sample has gone segments are not part of the sample
public as of the time of this publication. (e.g., Uber or GoJek. Although Uber
Hangzhou-based unicorn BEST Inc. Freight and GoJek are engaged in
(NYSE:BEST) provides a wide range logistics, their main product remains
of logistics services and had its IPO in the passenger mobility platform; since
September 2017, raising USD 450 million. Uber raised well over USD 24 billion and
The company is backed by online retail GoJek well over USD 3 billion, including
giant Alibaba and predominantly offers these would significantly distort the
traditional logistics services, such as less- picture due to the big proportion of
than-truckload services, express delivery, non-logistics activities).
and cross-border door-to-door services
(from and to China). The company also
Exhibit 2
Total funding in logistics startups has seen a dramatic increase over the last few years,
growing at a 76% CAGR from 2014
Total funding and number of funding rounds 2010–19
Number A number of extraordinarily Funding,
of funding large funding rounds causes USD
rounds funding to skyrocket billions
120
100
+76%
funding growth
p.a. 2014–19 10.0
80
60 6.3
40
3.4 3.4
20 1.7
0.1 0.1 0.1 0.4
0
0
2010 11 12 13 14 15 16 17 18 2019
Source: CB Insights; Crunchbase; company websites
4 Startup funding in logisticsThe growth story is Venture capital discovered Exhibit 2 shows that the number of
no longer fueled by the logistics industry in 2015 reported deals involving the companies
from our sample was stagnant from
more funding rounds; Seeing an enormous market that is 2016 to 2018 and even dropped in
instead, it is fueled growing and is poised for disruption 2019, while the average deal size and
given the vast inefficiencies, the venture thus total funding grew threefold over
by startups reaching capital industry has increasingly cast an the same period. Therefore, the growth
maturity and receiving eye on startups in the logistics industry. story is no longer fueled by more
larger funding rounds Around USD 28 billion has been funding rounds; instead, it is fueled
invested, almost all of which was raised by startups reaching maturity and
in 2015 or later. Neeraj Bharadwaj, receiving larger funding rounds.
Managing Director of the Carlyle Asia
buyout team, explains the interest as 2019 began with strong tailwind in Q1.
follows: “We see significant potential Highlights include the USD 1 billion
for technology-enabled logistics in the round from Flexport, a US-based digital
country with the growth of e-commerce freight forwarder. However, the rest of
as well as increasing customer focus the year saw a significant slowdown
on on-time delivery and service levels.” compared to the boom in 2018.
This comment was made after the Nonetheless, funding is much higher
announcement of Carlyle’s investment compared to the years before 2018.
in Delhivery.2
2
https://www.carlyle.com/media-room/news-release-archive/carlyle-group-acquires-significant-minority-stake-delhivery.
Exhibit 3
Funding volume growth in logistics startups has outpaced overall venture growth
Venture funding growth in logistics compared to overall venture growth
Indexed growth, funding in 2014 indexed to 1x
20
17x Logistics startup
funding growth1
15
14x
10
7x
6x
5 5x
3x 2x
2x Overall venture
1x 1x 1x
funding growth
0
2014 15 16 17 18 2019
1. Excludes PE, corporate, and all other rounds; only venture rounds considered.
Source: McKinsey; Crunchbase; PitchBook
Startup funding in logistics 5Funding is highly This follows the pattern of the overall Similar to other industries, funding
concentrated, and venture capital industry. Stories of is highly concentrated, and several
failed IPOs and internal turmoil in startups with enormous funding
several startups with startups have led investors to become receive just as much funding as
enormous funding more cautious with their money; so the remaining startups combined.
2019, while much higher than the years Consequently, the ten best-funded
receive just as much before, didn’t break venture capital’s companies have received about
funding as the remaining record year in 2018 (see Exhibit 3). 46 percent of total funding, and the
startups combined top 20 have accounted for around
Even when excluding private equity 66 percent of total funding (see
and corporate rounds, logistics funding Exhibit 4).
in 2019 grew 17-fold compared to
2014 and has therefore clearly outgrown Most funding goes to startups
overall venture funding across all working on last-mile and
industries, which has “only” doubled freight platforms – Instacart,
since 2014 (see Exhibit 3). While only
Manbang, and Flexport
around USD 375 million was raised in
2014, USD 6.3 billion was invested in This significant rise in funding begs
logistics startups in 2019. the question: where does all this
money go, and what are the trends
getting investors so excited about this
industry? (see Exhibit 5 and Exhibit 6).
Exhibit 4
The 10 best-funded startups account for 46% of total funding
Cumulative funding
Percentage of total funding
100
90
80
70
The top 20 startups have
60
received 66% of total funding
50
The top 10 startups have
40 received 46% of total funding
30
20
10
0
0 10 20 30 40 50 60 70 80 90 100 110 120 130
Startups ranked by funding received
Source: Crunchbase
6 Startup funding in logisticsExhibit 5
Startups were assigned to 11 distinct business models challenging 4 traditional industry
segments: the last-mile delivery category has received far more funding than other segments
Traditional industry: CEP Storage Transport Tech
Startup business
model Description Total funding, USD billions Examples
New last-mile Offer innovative last-mile delivery New DaDa
delivery models services to retailers and individuals by HiveBox
9.9
using crowdsourced delivery, drones,
AVs, etc.
Road freight Increase efficiency by connecting Blackbuck
marketplaces shippers and trucking companies via Convoy
6.0
and solutions marketplaces or provide fleet Manbang
management services
Warehousing Develop logistics infrastructure or ESR
optimize the storage and fulfillment of NewEase
3.3
goods through robotics, self-driving
vehicles, micro-fulfillment, etc.
Air and ocean Offer booking and management of FreightOS
transportation international shipments, incl. value-added Flexport
1.6
services (e.g., track and trace, customs) Freighthub
Traditional third- Provide third-party logistics services Best Inc.
party or contract mainly in emerging markets with lack of Juma
1.4
logistics services established players Peisong
New entrants in Act as a traditional parcel business: Delhivery
the parcel include pickup, sorting, and delivery Ninja Van
1.2
business
Asset tracking Develop and manufacture chips, sensors, C3
and RFID technology to enhance supply Scandit
0.9
chain visibility
B2B Provide a specific value-chain-focused Shippo
e-commerce solution to online retailers (e.g., return ShipBob
0.7
specialists logistics, e-fulfillment, conversion
optimization)
Inventory/order Optimize inventory allocation through Optoro
management software and analytics Relex
0.5
Intelligence Develop software or AI applications, e.g., Xeneta
providers to provide better forecasts, optimize FourKites
0.5
replenishment, or increase pricing
transparency
Blockchain Develop distributed-ledger technology to ShipChain
enhance transparency and security
0.2
Note: CEP = courier, express, and parcel
Source: CB Insights; Crunchbase; company websites
Startup funding in logistics 7Exhibit 6
Startups in the CEP market have attracted the most funding, despite a smaller
addressable market
Traditional Market size CAGR Total funding
industry USD billions, 2017 2017–23 Challenged by startups in USD billions, until 2019
CEP 319
8–9% New last-mile delivery models 9.9
New entrants in the parcel business 1.2
Transport 2,249 2–4% Road freight marketplaces and solutions 6.0
Air and ocean transportation 1.6
Storage and
physical supply
340 3–5% Warehousing 3.3
chain solutions Traditional third-party or contract
1.4
logistics services
B2B e-commerce specialists 0.7
Tech 40 5–6% Asset tracking 0.9
Inventory/order management 0.5
Intelligence providers 0.5
Blockchain 0.2
Note: CEP = courier, express, and parcel
Source: CB Insights; Crunchbase; company websites
Most funding was raised Last-mile – venture around their unconventional delivery
by startups offering last- capital’s favorite modes as they anticipate The Next
Normal in last-mile parcel delivery. 4
mile delivery services to Most funding, around USD 11.1 billion,
retailers and individuals was raised by startups offering last- Nuro designs, manufactures, and
mile delivery services to retailers and operates delivery robots. Their robot
individuals – a venture capital bet that is being piloted in Houston, Texas, and
was analyzed in detail in 2017. 3 This Scottsdale, Arizona. Currently, Nuro
last-mile segment benefits from the works together with retailer Kroger to
growth in their addressable market, deliver groceries for a fee. The California-
e-commerce logistics (8 to 9 percent based company’s Series B brought in
CAGR from 2017 to 2023). USD 940 million in February 2019 and
was led by SoftBank’s Vision Fund.5
Most of the analyzed last-mile startups
rely on unconventional delivery modes, Hive Box, a Shenzhen-based startup, was
e.g., using crowdsourced delivery, established in 2015 and now operates
drones, AVs, and parcel lockers. As more than 150,000 parcel lockers located
they make up USD 9.9 billion of the across China, which handle more than
11.1 billion, these are more successful in 9 million parcels per day. Five express
raising funds when compared to their companies, including SF Express, have a
peers relying on a more traditional fleet. stake in the startup. The company raised
Companies like Nuro Inc. and Hive Box USD 323 million in a Series B round in
are major attractions for investors in January 2018 and currently totals more
this category and benefit from the hype than USD 700 million in funding.6
3
https://www.mckinsey.it/sites/default/files/the-urban-delivery-bet-usd-5-billion-in-venture-capital-at-risk.pdf.
4
https://www.mckinsey.com/featured-insights/the-next-normal/parcel-delivery.
5
https://www.theverge.com/2019/3/14/18265397/nuro-robot-delivery-houston-texas-kroger.
6
Crunchbase.
8 Startup funding in logisticsFreight platforms The freight platform market – are shipped or booked through online
received the most startups pushing forward, freight booking platforms, marketplaces,
incumbents catching up or online forwarders, which include
corporate funding, incumbents’ platforms like FreightNet.7
threatening to replace Another segment that has captured a
lot of attention and funding is freight Platforms with a similar approach but
traditional intermediaries platforms. This holds especially true for a focus on air and ocean transport
platforms that focus primarily on road have raised far less than their road
transportation, which have received transportation peers (USD 1.6 billion).
about USD 6 billion in funding. While the However, Flexport, with its strong
vast majority of this sum comes from offering and prominent customer
investment funds, this segment has base, clearly dominates this segment
also seen the most corporate funding. and accounts for USD 1.3 billion of the
For example, DB Schenker acquired a funding. Flexport recently announced
USD 25 million stake in the road freight a partnership with Chinese delivery
booking platform uShip. These platforms and logistics company SF Express
aim to enhance pricing transparency, “[…] to offer customers a one-stop
professionalize, and digitize the often shop for freight services, including
informally handled shipper carrier robust full container load (FCL) ocean
exchange. They focus on leveraging shipping and air cargo. Working
existing data as a means to address vast together, Flexport and SF Express will
inefficiencies that still exist in the market connect data and platforms to provide
(e.g., caused by empty runs). Thus, smarter and more advanced logistics
these startups contribute significantly services to address the specific needs
to improving the sustainability of the of Chinese companies.”8 Incumbents
transport and logistics industries, a have also reacted in this segment. Most
trend that is becoming more prevalent. prominently, Maersk launched its own
Moreover, the customer experience and digital forwarder, Twill, in April 2017. The
ease of use for truckers and customers is digital shipping platform initially focused
compelling. Even though the addressable on shipments between China and the UK,
market is gigantic (approximately but quickly expanded and managed to
USD 2.2 trillion for all modes globally), reach 27 countries by the end of 2018.9
growth is slower, as only 2 to 4 percent
CAGR is expected from 2017 to 2023. New entrants in the third-party logistics
market have also been successful in
While these road freight marketplaces raising capital. USD 3.3 billion was given
and solutions have yet to capture large to startups developing logistics real
volumes, they have surely challenged estate, such as e-Shang Redwood, and
asset-lighter brokers and freight USD 1.4 billion to asset-based logistics
forwarders by matching shippers, loads, service providers, such as Chinese BEST
and carriers directly, thus threatening to Inc. or US-based Blue-Grace Logistics.
replace traditional intermediaries. The
emergence of these solutions is pushing These are followed by companies
the traditional industry toward providing involved in asset tracking (approximately
better visibility and more convenience. USD 1 billion), specialized e-commerce
service providers (approximately
Some incumbent players have already USD 640 million), providers of analytics
reacted: DHL Freight launched the solutions (approximately USD 530 million),
online marketplace Saloodo in 2016, and inventory and order management solution
Kühne + Nagel launched FreightNet, providers (approximately 530 million), and
a road freight booking platform, in finally, startups involved in developing
2014. Transport Intelligence revealed blockchain technology for logistics
that around 10 percent of volumes (approximately 160 million).
7
https://www.ti-insight.com/product/global-freight-forwarding/.
8
https://www.flexport.com/blog/flexport-and-sf-express-partner-to-increase-freight-visibility-in-china.
9
https://www.maersk.com/news/articles/2019/06/26/leveraging-technology-to-grow.
Startup funding in logistics 9Exhibit 7
Last-mile and freight platforms have been on the map for a while; tech-enabled asset players
in 3PL market gaining traction
Traditional industry: CEP Storage Transport Tech USD 50 million
Average annual funding, USD millions
Segment 2010–14 2015–19
New last-mile delivery models 29 1,947
Road freight marketplace and solutions 35 1,151
Warehousing 4 654
Air and ocean transportation 10 301
Traditional third-party or contract
3 271
logistics services
New entrants in the parcel business 9 234
B2B e-commerce specialists 7 134
Intelligence providers 1 106
Inventory/order management 17 92
Asset tracking 20 54
Blockchain 11 21
Source: Crunchbase; McKinsey
10 Startup funding in logisticsAsset-based logistics Looking at investments in these China is ahead of the pack and
service providers are categories over time, warehousing has has taken the lead from the US
grown the most when comparing the
the second fastest- average yearly funding in the periods of In recent years, funding has shifted
growing segment 2010 to 2014 and 2015 to 2019. from the US to China. While the US
accounted for 54 percent of total funding
Asset-based logistics service providers back in 2014 and only 35 percent in
are the second fastest-growing 2019 (cumulative), China accounted
segment, so both rather “traditional” for 40 percent in 2019 (cumulative)
segments are increasingly popular compared to just 19 percent in 2014.
among investors. While the asset- The startup landscape in China is
lighter freight platforms and last-mile characterized by a high concentration
delivery companies have collected of very large funding rounds: a mere
the most funding, investors seem to 20 Chinese logistics startups were able
increasingly turn back to good old to collect more than USD 10 billion, while
asset-based models revamped with 61 of their US peers were able to collect
tech capabilities (see Exhibit 7). about USD 9.8 billion (see Exhibit 8).
Exhibit 8
The US received the largest amount of funding in 2014 — in 2019, Chinese startups
dominated funding
Cumulative funding by region 1 over time
Percentage of total, 2014–19
Other 4 3 2 3 2 3
2 2 3
3 3 3 5 Europe takes up a dispro-
Europe 5
7 10
portionally small share
APAC (excl. 11 12 9 APAC (excl. China and
China and India)
India) with high concentra-
17 6
India 14 8
tion of very well-funded
10 logistics startups,
especially in Hong Kong
and Singapore
30
28
29 35 The US share dropped
36
significantly, mostly due to
the funding frenzy in China
US 54
53 51
43
37
40 China was able to increase
its share from 19–40%.
Lack of large funding
China 19 rounds led China to drop
2014 15 16 17 18 2019
1. Funding received by companies headquartered in the respective region.
Source: CB Insights; Crunchbase; company websites
Startup funding in logistics 116
The concentration in China can also delivery providers have received lots
be illustrated this way: six of the top of attention and funding. Another
ten best-funded logistics startups important part of the quote is that the
are from China, the best-funded of cost for enterprises will be lowered.
which being the Manbang Group, an China has relatively high logistics costs
out of 10
Uber-like platform for trucks formed (logistics account for approximately
by the merger of Yunmanman and 13 percent of GDP, while developed
Huochebang; it received USD 1.9 billion countries average at approximately
best-funded logistics startups are in an enormous private-equity round. 8 percent), and the government has
from China Manbang has used the funding to repeatedly expressed its interest
acquire logistics talent and acquire its in lowering these. The Reform
own assets via its integration of Zihong Fund’s stake in Manbang shows that
Logistics. Manbang’s funding round supporting startups is one way they
constitutes the single largest funding intend to do so.
round for a logistics startup and was led
by SoftBank’s Vision Fund as well as Furthermore, local governments
the China Reform Fund Management, set up industrial parks and provide
with other investors, including Google’s infrastructure and capital to create
Capital G, Tencent Holdings, Sequoia an ecosystem in which entrepreneurs
Capital, and others. can cooperate and flourish.
The government expects this to spur
China’s dominance is driven by a economic growth, foster innovation, and
tendency to innovate fast and a generate tax revenue. The latter seems
willingness to try out novel business to be less of a priority; however, venture
models, accelerated by stronger overall capital firms have enjoyed a deduction
economic growth. China has already on taxable income by 70 percent of
become one of the greatest incubators their investment in seed or early-stage
of many disruptive digital innovators high-tech startups since the beginning
and is a leading global investor in of 2019.13 Small companies can also
disruptive technologies. One way to see qualify for significant tax relief if their
how this manifests is the tremendous income does not exceed RMB 3 million
demand growth in e-commerce, which (about USD 435,800).14
has long moved past tier-one cities.10
The country thus seeks new, efficient, Aside from favorable demand growth
and convenient ways of delivering and high government support, a third
the ever-increasing number of goods factor plays an important role in the
ordered online. Previous research success of China’s logistics startups:
shows that the average citizen residing the combination of tech and logistics
in tier-one cities orders more than expertise. This is best observed
70 parcels per year, on average.11 at the Manbang Group, which has
hired hundreds of people previously
The importance of the e-commerce employed by logistics players, such as
sector for China is also reflected in Alibaba or logistics incumbents.
Premier Li’s “Internet Plus” initiative,
which aims to “boost the integration of
logistics and internet technology, lower
the cost for enterprises, and make
people’s lives more convenient.”12
E-commerce does a great deal for the
convenience part, and thus last-mile
10
For more information, see: https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20digital%20consumer%20trends%20in%202019/
china-digital-consumer-trends-in-2019.ashx.
11
For more information, see: https://www.mckinsey.com/~/media/McKinsey/Industries/Travel%20Transport%20and%20Logistics/Our%20Insights/The%20
endgame%20for%20postal%20networks%20How%20to%20win%20in%20the%20age%20of%20e%20commerce/The-Endgame-for-Postal-Networks.ashx.
12
http://english.www.gov.cn/premier/news/2016/07/21/content_281475398667727.htm.
13
http://www.chinatax.gov.cn/chinatax/n810341/n810765/n4182981/201901/c4184156/content.html.
14
https://www.sjgrand.cn/sme-startup-china-guide-recent-tax-cuts/.
12 Startup funding in logisticsIndian market has seen APAC – successful new Delhivery managed to build a parcel
several successful new entrants with traditional network within a few years after its
business models establishment in 2011 and has thus
entrants with traditional far collected around USD 935 million
business models APAC (excluding China) also has a high in funding. The company moved
concentration of very well-funded from providing quick food deliveries
logistics startups, especially in Hong to e-commerce fulfillment and has
Kong, Singapore, and India. delivered over 550 million shipments
thus far. Besides operating an
Startups in Hong Kong benefit express parcel network, the company
from their proximity to large and has 75 fulfillment centers (with more
fast-growing markets in China than 4 million square meters of
and Southeast Asia. For example, space) across India, their own fleet
e-Shang Redwood, a logistics offering less-than-truckload and
real estate developer, has a large full-truckload services, as well as a
portfolio of projects in China and cross-border network of clearance
has even expanded into Japan, agents and forwarders. Delhivery has
South Korea, India, Singapore, and also built its own tech capabilities,
Australia. Similarly, 4PX Express, e.g., through its in-house transport
which was established in Hong management platform and its freight
Kong in 2004, already employs booking and management interfaces
1,500 people across 50 locations Optimus and Orio.
and provides China-focused cross-
border e-commerce services to a Xpressbees is another Indian delivery
large number of merchants. The startup specializing in e-commerce and
Singapore Post and Shenzhen Capital delivers over 60,000 shipments per
Group, a government-owned venture day. The company focuses on same-
capital and private-equity investment and next-day delivery and has gathered
fund, are among the company’s more than USD 160 million in funding
major investors.15 (including an investment from Alibaba)
since their establishment in 2015.
Last-mile startups entering the
market with more traditional modes Bangalore-based digital trucking
(scooters, vans, trucks) are most platform Blackbuck has simplified
successful in Asia-Pacific, especially India’s trucking market and was able
in India, where players, such as to raise USD 285 million since their
Delhivery and Xpressbees, have built founding in 2015. Their platform lists
a completely new parcel network 300,000 trucks from 60,000 fleet
and collected hundreds of millions owners, and the company recently
in funding within a few years. This announced a partnership with Maersk.16
shows that the traditional parcel
players’ offerings have not sufficiently
addressed these markets.
15
http://en.4px.com/index.php/about-us.html.
16
https://www.maersk.com/news/articles/2019/08/21/maersk-and-blackbuck-partner.
Startup funding in logistics 135%
Europe – only a drop in Despite Europe’s strong presence in
the ocean the traditional industry, with big names
like Deutsche Post DHL, Kühne +
The money raised by their Asian and Nagel, DSV, and Schenker, European
US peers has reached levels that logistics startups cannot keep up with
European startups can only dream of. the funding raised in other parts of the
of the cumulative logistics startup Europe’s logistics startups are funded world. Europe contributes 26 percent
funding is accounted for in Europe far less and only account for a 5 percent to the global GDP, and European-based
share of the cumulative logistics logistics companies take up almost half
startup funding. of the global top 50 logistics service
providers’ revenues, but the funding
that European logistics startups receive
is low compared to the US and China
(see Exhibit 9).
Exhibit 9
Funding for logistics startups in Europe lags when compared to the overall funding
landscape
Funding in logistics vs. overall venture funding GDP contribution vs. logistics revenue contribution
by region by region
Percentage of total, 2019 Percentage of total, 2018–19
0 3 1
Other
Other 7
24
APAC 32
APAC 39
57
28
North America 55 North America 29
35 46
Europe 25
Europe 13
5
Overall Logistics GDP Logistics
funding funding contribution revenue1
1. Determined by looking at global revenue of the top 50 LSPs from Armstrong & Associates.
Source: Crunchbase; PitchBook; IMF; Armstrong & Associates
14 Startup funding in logisticsFunding rounds in Europe Apparently, neither the local national borders. Logistics clusters
incumbents nor local investor and tech-startup clusters are seldom
are dwarfed by enormous
communities believe in the opportunity colocated, hindering cooperation
rounds in US and APAC of tech-enabled logistics startups to the and knowledge exchange among the
extent that Chinese and US investors two camps. Digital startups spawn
do. What is considered significant and flourish in capital cities, such as
and makes headlines in Europe, such Amsterdam and Berlin, but have very
as last year’s highlights, including little contact with logistics hotspots
Zencargo’s USD 20 million round in like Hamburg or Rotterdam. This might
April, FreightHub’s USD 30 million in also be a reason why last-mile is such
May, or even Sennder’s USD 70 million a popular and well-funded segment.
in July, is dwarfed by rounds worth Urban tech talent is confronted with
hundreds of millions in Asia and the US. rapid urban e-commerce delivery more
One part of the explanation is that frequently than with the drier issues
venture funding just isn’t as common of warehouse process optimization or
in Europe as it is in Silicon Valley or port and airport operations to process
Shenzhen. However, the overall venture long-haul shipments, usually located
capital funding share of Europe (across outside of cities.
all industries) was at about 15 percent
in 2018, so the 5 percent share of the The analyzed funding is creating
cumulative logistics startup funding still substantial opportunities for startups
seems very small. to drive innovation in the sector. It is
enabling young companies to compete
One significant barrier for the European with incumbents and will challenge the
logistics startups is the established status quo over the next decade.
shippers, such as traditional
manufacturing companies, which In the following section, the implications
have relied on incumbent services for for incumbents, startups, and investors
decades. This makes them reluctant to are analyzed, and key hypotheses
use new services from unestablished are presented.
companies, while younger, faster-
growing Asian peers, who are not
bound by decade-long relationships
to their logistics partners, seem to be
more open to using these new services.
While these European incumbents
have not yet been seriously threatened
by any new entrants in their home
market (partially because these
startups lack serious firepower and
assets), with some of their volumes
in foreign markets, especially India,
Southeast Asia, and China are already
being taken away by these well-funded
startups. Compared to the US and
China, European startups are also at a
disadvantage when it comes to the size
of their home countries, and to some
extent, language barriers and national
borders also pose restrictions on the
growth of these new entrants. This
fragmentation even takes place within
Startup funding in logistics 15Disruption ahead, Incumbents are here to stay – example, in e-commerce, third-party
at least for now logistics companies are increasingly
gradual evolvement,
Although logistics incumbents are not losing shares to the growing captive
or big bust? going anywhere, the question remains: logistics offering of e-commerce and
how disruptive will these startups tech leaders as well as startups that
turn out to be? Will they gradually have tapped into market niches (e.g.,
eliminate traditional value pools and seamless returns handling). Tech
monopolize future ones (as seen in companies, such as Google and SAP,
travel distribution, music, television, are investing in AI, machine learning,
and communication)? Or will they and analytics capabilities focused on
converge with innovating incumbents optimizing supply chains and logistics
competing for the same customers expenditures, while leading online
and profits in the same services? retailers, such as Amazon and Alibaba,
are investing in startups directly
The most mature startups from the innovating in last-mile delivery.
sample have already realized their
need for operational improvements In addition, startups in fast-growing,
and thus have turned to expanding emerging markets have successfully
logistics expertise by hiring staff adopted more traditional business
from the incumbents (e.g., Uber models in view of the lack of strong
Freight with headquarters in Chicago) incumbents. Capturing the growth
or even by developing their own of these emerging markets will
asset-based networks (e.g., Flexport be significantly tougher once
built warehouses in Los Angeles, a local startup has created strong
Hong Kong, and recently added customer ties – another major
one in Shenzhen). The company opportunity lost for incumbents.
also chartered B747s for shipments
from Hong Kong to Los Angeles, To prevent new entrants from capturing
but recently replaced this dedicated the second wave of growth segments
service with more flexible blockspace again and keep other customers
agreements on freighters covering from insourcing, incumbents need
several origins in Asia. to review their global presence
and customer satisfaction across
The good news for the traditional service segments and new customer
logistics providers is that in the requirements, such as increasing
short term, the network, assets, and sustainability, and map it against the
relationships of incumbents are not most promising growth segments.
going to be disrupted, at least not in
their major markets. As of now, no new Overarching partnerships will become
entrant has enough control over its increasingly important for succeeding
network to ensure a globally integrated, in the future, especially since processes
seamless transportation on behalf of a in the industry are so intertwined.
large shipper: a capability that Kühne + Connecting startups with incumbents
Nagel or DHL Global Forwarding can unlock substantial opportunities
consider their domain. for all stakeholders. Incumbents
have the opportunity to learn from
Startups are eating away at young companies and deploy digital
incumbents’ growth prospects capabilities to link their physical
Despite the fact that incumbents are network with customers; startups get
here to stay, startups have managed to improve their credibility and brand
to tap into markets that incumbents awareness as well as gain access to
have long ignored. They were therefore customers. Incumbents can benefit by
able to take a significant share of learning how to become more agile, get
future growth potential away from new ideas, and improve how dynamic
incumbents. This is reflected in some and digital their brand is perceived.
of the lackluster capital market
trading of incumbents today. For
16 Startup funding in logisticsBy 2030, e-forwarding Logistics in 2030 – a more Innovation will continue: by 2030,
balanced picture e-forwarding or crowdsourced delivery
or crowdsourced
Logistics incumbents are likely not will become the new normal, and
delivery will become going anywhere – and for them, that’s startups will build complementing
the new normal as much of a reason for concern as it services to these new segments of
is a relief – but startups are gaining logistics. In 2030, retailers might
momentum in their respective high- leverage a control tower solution
growth regions and niches. When developed by a startup (that might not
these segments (e.g., same-day and even exist yet) to manage Instacart and
in certain categories and cities, even other delivery options.
instant delivery) become part of the
new normal, frontrunning startups will The logistics industry in 2030 will
become some of the largest logistics have moved even closer to customers.
companies. Since the distribution of E-commerce and B2C will become the
funding does not reflect the current new normal, and incumbents will have
revenue distribution of logistics improved their processes to become
companies but is actually in contrast more customer friendly. Logistics
to it (Exhibit 9), the well-funded companies that did not exist ten years
frontrunners from the startup space will ago will join DHL, Maersk, and other
likely originate from emerging markets. global heavyweights on the list of the
In fact, as more funding goes to less- largest logistics companies.
developed markets, the new wave of
big logistics companies will likely come
from those markets. Thus, in 2030,
the revenues of logistics companies
will become more evenly distributed
between the major regions.
The number of corporate investments
in startups will grow further: growth
in China is booming, and incumbents
are enjoying low interest rates (while
eager to lead in e‑commerce logistics
innovations). This will not only include
corporate investments; M&A activity
will also dominate the headlines in
the coming years. Incumbents are
already eyeing targets to insource
growth verticals (e.g., CEVA Logistics
acquired a stake in e-commerce
logistics company Wing) or regions
(e.g., Kühne + Nagel has acquired
Indonesian Wira Logistics).
Not only will the regional revenue split
become more balanced, but also the
capabilities: while increasing complexity
of managing a large logistics business
will push startups to own assets,
incumbents are increasingly improving
user experience and their IT front end.
Startup funding in logistics 17Actions to make Incumbents However, successful digitization for
— Map offering against market incumbents requires investment and
the journey to
growth. Startups have conquered committed leadership. Incumbents need
2030 a success markets where incumbents had to let the incubated startup operate
a weak offering. To prevent new fully independently, but should provide
entrants from capturing the second connections, financial resources, and
wave of growth segments again operational expertise. Maersk has
and keep other customers from successfully created an e-forwarder by
insourcing, incumbents need to building a truly independent entity and
review their global presence and ultimately letting the new organization
customer satisfaction across compete with the existing business.
service segments and map it DHL realized that its asset-light
against the most promising growth brokerage platform was not suited for
segments. The offering is likely to the Indian market and thus acquired its
have more gaps than expected! own assets. Its SmarTrucking business
has already reached industry-leading
— Outsource IT. Just as logistics performance KPIs (e.g., 95 percent
providers convince shippers to on-time delivery) and aims for a rapid
outsource activities that are not expansion of its fleet: 10,000 trucks
core to their business, namely within ten years compared to the 745 it
logistics, logistics incumbents has now.17 UPS already developed a
should avoid building complex private-equity arm back in 1997.
proprietary IT solutions, even more What is now known as UPS Ventures
so when these have to be layered has invested hundreds of millions in
on top of inflexible legacy systems. companies, such as trucking platform
Unless you have exceptionally TuSimple, crowdsourced delivery service
strong tech capabilities internally, Deliv, inventory/return management
use readily available solutions for company Optoro, and more. In addition
the back end of operations (e.g., to launching FreightNet, Kühne +
TMS, WMS, ERP) and focus on Nagel partnered with the Berlin-
a seamless IT integration and a based “Startupbootcamp Smart
user-friendly front end. The money Transportation & Energy” in 2016 and
is most likely better invested in recently launched Reefknot Investments
advanced data analytics and with Singaporean investment giant
interpretation expertise than in Temasek. This USD 50 million venture
hardware and non-differentiating capital fund is looking to support growth
software assets. stage businesses that have advanced
tech capabilities or disruptive business
— Put your money where your mouth models. On October 30, 2019, Reefknot
is and digitize. There are not a lot of made its first investment in Powler.io, an
options in choosing how to go about AI platform facilitating decision making.
this – four to be exact: Reefknot’s investment was part of
Powler’s Series B worth USD 24 million,
1. Self-digitize internal processes which also included investors, such
as Singapore’s SGInnovate. Other
2. Establish own startups successful examples of bold investments
and leadership dedication include SF
3. Acquire digital startups Express’ investments in HiveBox and the
associated parcel locker infrastructure,
4. Cooperate with digital startups Hellmann’s rollout of Freightos’
AcceleRate rate management and
auto quote system, and DB Schenker’s
investment and partnership with uShip.
17
https://www.dhlsmartrucking.com/press-room-details/dhl-to-add-10-000-trucks.
18 Startup funding in logisticsStartups superficial level. In addition, recent in logistics that have not yet fully
— Gain some muscles. To fill venture public offerings have led investors benefitted from digitization and still
capital inflows and growth prospects and the industry to question how cause friction in the supply chain.
with actual volumes, startups need to sustainable the economics of some
expand their scale, deliver operational of these new entrants really are. — Foster overarching partnerships.
excellence, and have a compelling Therefore, investors will become Investors can use their network to
sales process. This perhaps does more cautious when assessing connect startups with incumbents.
not require ownership but at least the investment grade of logistics This can unlock substantial
privileged access to and control of startups and look out for startups opportunities for all stakeholders.
selected tangible network assets that showcase profitability on a unit Startups get to improve their credibility
(think cross-docks and consolidation basis or on a submarket level. and brand awareness as well as gain
facilities) as well as experienced access to customers. Incumbents can
logistics talent. Operational expertise — Stay flexible. In an industry benefit by learning how to become
is a key requirement as complex with strong network effects and more agile, get new ideas, and improve
supply chains are always prone to economies of scale, of course not all how dynamic and digital their brand
errors and external disruptions that startups in this sample will prove to is perceived. Additionally, investors
require on the ground resolutions – be successful. Staying flexible will can connect with startups from
which cannot pe provided by a help, as demonstrated by a number related industries. Since processes
pure software solution. So far, the of young companies that successfully are so intertwined, most established
industry was spared a fundamental changed their business model. players are not pure play, meaning they
disruption – something many were Examples include Uber’s step into combine capabilities from different
worried about only a few years back. logistics: while Uber’s first logistics segments. Warburg Pincus merged its
While it makes for a compelling business, the instant-delivery warehousing service provider e-Shang
deal story, it’s not enough to look platform Uber Rush, was terminated with logistics property investor The
at an interesting market, identify after a few years of losses, its second Redwood Group to create e-Shang
a certain problem, and figure out platform, Uber Freight, is already a Redwood. After suspending its IPO
how it could be improved. Startups sizeable business and is still growing. in Hong Kong in June last year, due
need serious operational expertise The startup Kontainers started as to unfavorable market conditions,
and a holistic understanding of the an e-forwarder and has successfully the group is now looking to revive
entire market and the relationship transformed into a back-end solution its offering.18
between each element. Otherwise, provider for logistics incumbents.
you might end up solving a certain Another example of an investor
problem in an impressive fashion but Investors bringing together startups from
not being able to attract customers, — Look out for the most analog related industries is Insight Partners:
or other processes could be involved steps in the value chain. While their roll-up (acquisition and merger)
in the flow of goods that might not be last-mile delivery models and freight of E2Open, INTTRA, and Amber
supported by the platform. You might platforms have already acquired Road is increasingly creating a
have a good product that serves a billions in funding, the next industries network of information exchange
certain purpose, but you’re not going ready for disruption and massive spanning the entire value chain.
to be a game changer. startup funding could be within
connectivity of ocean and surface- Other interesting opportunities could
— Showcase profitability. In 2019, based transportation. Containers bring together logistics startups
several startups entering the stock still wait between five and seven with startups in autonomous driving
markets through an IPO found days on average to be picked up. In a or electrified transportation, or
themselves in the middle of a world where the industry has come synergies could be created by
disaster. The business models that to expect instant delivery, this is teaming up a digital freight forwarder
failed their IPO had similarities to an opportunity for startups to step with a visibility provider. Investors
those in logistics: disruptors in an in. Another interesting segment is should build their portfolio wisely to
asset-based, network business logistics real estate: with increasing bridge the gaps in startups’ offerings
experienced significant losses demand for warehousing space and unlock major potential, either
but high growth. Business model close to end consumers, innovative through extensive partnerships or
slogans like “Uberization of Freight” solutions like store , micro-, or even roll-ups.
or “Airbnb for Warehouses” might crowd-sourced fulfillment might
look compelling at first glance, but increasingly attract the attention of
the comparison only works on a investors. There are several segments
18
https://www.ft.com/content/a61d4c2e-d5d3-11e9-8367-807ebd53ab77.
Startup funding in logistics 19The ultimate winners Incumbents have the opportunity About the authors
to learn from young companies and
are end customers and
deploy digital capabilities to link their Ludwig Hausmann is a partner in
shippers benefitting physical network with customers; McKinsey’s Munich office. Tobias Wölfel
from increasing startups are in the spotlight of is a specialist in the Dusseldorf office,
incumbents and investors, and can where Jaron Stoffels and Oliver Fleck
competition and study the mistakes of the sector’s are analysts.
increased customer unicorns; investors can select from
The authors wish to thank Troels Støvring
centricity a growing number of companies
spanning all steps of the value chain for his contributions to this article.
and different levels of maturity. Troels Støvring is the former CEO of
Twill (Maersk’s digital freight forwarding
Despite these opportunities for startup) and currently works as an
players in the logistics industry, the External Advisor to McKinsey & Company.
ultimate winners are end customers
and shippers benefitting from
increasing competition and increased
customer centricity. The logistics
sector has exciting times ahead.
20 Startup funding in logisticsTravel, Transport & Logistics February 2020 Copyright © McKinsey & Company Designed by Visual Media Europe www.mckinsey.com @McKinsey @McKinsey
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