Supply Chain Start-Ups Are Coming of Age

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Issued 8/2017 Are Coming of Age Supply Chain Start-Ups Are Coming of Age

Contents

Supply Chain – An industry ripe for digital disruption 3 A new breed of Supply Chain firms and business models 4 Outlook for incumbent players and start-ups 7 Deloitte Digital 9 Supply Chain Start-Ups Are Coming of Age

“Logistics is notorious for being an old-fashioned business, but changing shipper expectations, new market players, and eroded margins have prompted industry leaders to reassess strategies.” Zvi Schreiber, Freightos Supply Chain Start-Ups Are Coming of Age

Supply Chain – An industry ripe for digital disruption

Over the course of the Technological advances, increasing levels medium-haul segment. Often young start- of connectivity, industry convergence and ups can take better advantage of their low last five years there has digitalization are disrupting the industry. levels of bureaucracy in coming up highly been a significant push Emerging Supply-Chain start-ups are targeted, innovative and customized capitalizing on these trends and often have supply chain firms compared to their more of Supply Chain Manage- an Internet-of-Things (IoT), Analytics or traditional peers, which historically lack ment & Logistics related Digital related background. Their business the flexibility and speed in responding model typically builds upon an agile, asset- quickly to changing dynamics. start-ups to the market light, technology driven infrastructure, allowing them to reach scale and often even As little surprise, between 2010 and 2016 For decades the supply chain management grow exponentially with a very lean setup there has been a significant increase in and logistics industry has been dominated and limited risk exposure. Transportation the number of SCM & Logistics related by giants like UPS, FedEx, or Deutsche Post start-up Uber, and hoteling platform AirBnB start-ups. Correspondingly, the amount DHL. These large players typically have are two prominent examples that illustrate of investment deals and related company a holistic offering that covers a variety of that exponential growth is not tied to the valuations has been surging. In 2016, more integrated services along the global supply amount of assets. This principle seemingly than 5 billion US dollar venture capital chain. In addition, they frequently act as starts to extend to industries such as Supply were invested in start-ups in the SCM & an integrator that accumulates resources, Chain Management and Logistics as well. Logistics industry globally, according to capabilities, and technologies to provide industry sources. This doubles the prior end-to-end solutions to customers. As a At the same time, customer expectations year’s funding sum and presents a tenfold result, they now house hundred thousands are continuously on the rise - Convenience increase over the previous three years. of employees globally, billions of revenue is key. Ever faster delivery times, constant and a significant market capitalization each. price optimization and greater flexibility Economies of scale – secured via enormous in terms of modes, pickup locations, or assets – has been their key competitive specific delivery windows are expected. advantage that typically raised large entry This is driving demand for innovative barriers to new players in the industry. This and specialized supply chain solutions, is changing. especially in the urban delivery and

3 Supply Chain Start-Ups Are Coming of Age

A new breed of Supply Chain firms and business models

Deloitte surveyed more Fund. The companies surveyed by Deloitte incl. pick-up, packing, labelling and average a headcount of 50-60 employees. warehousing services. This is often going than 250 start-ups in the This underscores the maturing trajectory along with an e-commerce integration Supply Chain Manage- of start-ups in the industry. offering. Route optimization, tracking of shipments and other analytics belong ment (SCM) & Logistics The survey also reviews the go-to-market to the business model characteristics of space to make the new strategy of the SCM & Logistics start- firms such as Routific, Supply Vision, or ups. Here we observe an “unbundling” of OptimoRoute. market dynamics transpa- supply chain services. A select number of rent start-ups provides a number of services Most of these new firms have a digital across multiple customer segments. DNA with elements of IoT, connectivity, Deloitte’s recent survey1 of SCM & However, the majority of new players analytics, mobile apps or easy-to-use web Logistics start-ups founded over the takes a much more focused approach to portals. As such, they have three major past decade – between 2007 and 2016 – solutions and concentrates on providing advantages of their more traditional peers: reveals that 74 percent had been founded a very specific type of service or offering. only within the last five years. The majority This is a major contrast to the more 1. They work with asset-light (52 percent) of surveyed companies are integrated business models of traditional or in some cases asset-zero located in North America, along the typical logistics service providers. Nonetheless, infrastructure and business start-up clusters in Silicon Valley, New large parts of the physical transport models. Making use of modern York, Atlanta, and Chicago. 32 percent of goods remain with the established technologies, they challenge of start-ups were based in Europe, the players, as they own the assets required historic assumptions of their Middle East or Africa. Within the Europe, to execute deliveries. Start-ups own industries. Middle East and Africa region, Germany and optimize an increasing share of has seen noteworthy market dynamics the customer interaction, rather than 2. While creating online mar- in recent years. More than 30 start-ups disrupting the entire value chain. ketplaces, interfaces, and have been founded in the country since dashboards, they effectively A large number of SCM & Logistics start- 2012. In Germany, innovative start-ups in connect the demand with ups focuses on freight brokerage, last SCM & Logistics can typically be found in the supply side. Hereby mile delivery, convenient solutions and the start-up hubs of Berlin, Munich, and they gain ownership of the supply chain analytics. A few examples Hamburg. We monitor an equal financial customer interfaces, customer will illustrate their innovative, very distinct interest with a corresponding rise of data, and further supply-chain offerings. Companies like Flexport, investment deals and venture capital. transparency. Haven or Roadie offer platforms for Two prominent founding examples in price comparison and booking services 3. Eventually, their “born digital” the year 2016 are FreightHub, led by the for freight shipments. Firms such as character more naturally well-known German brothers Heilemann, Postmates, Flirtey or Rickshaw focus on embraces lean structures as well as InstaCargo, supported by short distance transport in metropolitan and an agile working style. the incubator Rocket Internet. Both areas. Their offering is to secure the urban This leads to a very high companies offer supply-chain brokerage delivery within a few hours via either degree of flexibility when services somewhat comparable to those courier, drone or self-driving robotic serving customer needs. of the successful US-based start-up firm vehicles. InstaFreight, Shyp or Swapbox Flexport, which has received funding offer combined easy-to-use solutions from Google Ventures and the Founders

1 Deloitte’s survey of publically available information focused on companies founded within the last ten years that were established independently by a limited group of entrepreneurs and often subsequently underwent significant funding from external investors

4 Supply Chain Start-Ups Are Coming of Age

In the survey we identified patterns metropolitan areas, some start-ups act as Brokers/Aggregator of business models and customer supplements to their traditional peers by Nearly a third of surveyed start-ups segments. The majority of companies focusing on the express delivery segment, focuses on providing “on demand” focuses on leveraging big data and cloud only. Increasingly, these start-ups test and brokerage platforms, single market places technologies to perform analytical and pilot innovative modes of delivery such as or bundles of multiple market places. brokerage services. They collect rates autonomous vehicles, robots or drones. These typically facilitate customers in and information from other logistics Not surprisingly, supply chain segments bidding and bargaining for the best service providers and create transparency with the largest asset requirements – transportation modes. An example where previously there was little. This overland and ocean/air – still run scarce that very well illustrates this segment is is particulary true for the freight and in start-ups providing actual delivery the firm Transfix. It offers a brokerage transportation related segments. In major capabilities. platform that enables smaller logistics

Business Models and Supply Chain Segments (Select Examples)

Warehousing and Overland Ocean/Air Express Delivery Fulfillment Transportation Transportation

Haven LocaFox lugg FreightHub nimber Roost shutl Flexport Roadie Broker/ Flexe stuart Freightos Aggregator Transfix

shippo Xeneta Supply Vision OptimoRoute convey Windward CargoBee Rickshaw ShipHawk project44 Analyst Loginext rivigo Routific 40ft

MakeSpace Lalamove Instafreight SwapBox Shipster Postmates shyp cloud fulfilment bluegrace Niche Operator Deliv EcomExpress Boxbee

Magazino Starship Otto Weft fetch robotics Flirtey Macropoint Staxxon Technologist Righthand robotics Matternet Veniam

5 Supply Chain Start-Ups Are Coming of Age

companies and individual truck drivers to major cities in the United States. Pricing offer free capacities on a digital market models change based on the number Case Study: Shippo simplifies place. The most significant benefit of shipped items per month. Niche and automates shipping for Brokers/Aggregators typically provide is Operators offer an increased level of retailers to create greater, real-time transparency flexibility in payment modes (e.g. switching around rates and logistics options along on-demand or subscription models) and The business-to-business focused the long-tail of demand and supply. response time towards changing customer start-up was founded in California needs. in 2013 and offers technology to Analysts connect retailers and logistics More than a quarter of surveyed Supply Technologists providers through an interface. Chain Management & Logistics start-ups The smallest group of surveyed Shippo raised $9M+ from provide analytics, ranging from descriptive companies acts as “Technologists”. Firms investors and is serving more analytics (e.g. better visualization of data), in this area typically develop and market than 10,000 customers across the KPIs and dashboards towards advanced technology that bridge a gap between globe. analytics solutions. ShipHawk, as one traditional customers and logistics service example, promises to enhance buyer providers. Cardrops is one company At the frontend, the company experience, logistics automation, and of this kind that sells and installs small provides an application shipping intelligence. This is managed by hardware devices in a customer’s car. programming interface (API) consolidating 200+ delivery options and This technology allows logistics partners and dashboard to retailers. This rates in a cloud solution. The company to remotely open the car’s trunk and simplifies and automates the analyses spend and shipping performance deposit deliveries. In addition, the start-up selection of a service provider by carrier to provide recommendations collects mobility information through their as well as manages the logistics that offer ways to optimize packaging device and conducts analytics in order to operations starting from the strategies and to improve profitability. optimize and improve delivery windows creation of shipping labels until Benefits firms in the segment of “Analysts” and locations over time. Companies in this subsequent tracking of individual typically provide center around increased segment are innovators at the very heart orders. At the backend, Shippo transparency, simplified workflows, and of the industry. They aim to holistically bundles customer orders with towards better decision-making for disrupt the modes of transportation or shipping companies to achieve customers to handle their orders. types of packaging and improve customer volume and generate discounts. experience or significantly reduce cost. Discounts are then shared Niche Operators amongst the stakeholders. Almost exactly a quarter of surveyed “We can react faster to companies offer services in the segment “Niche Operator”. Here firms usually business needs than other provide a one-stop-shop solution for large logistics service selective customer segments or within a limited geographical area (often focused providers” on major metropolitan areas). Shyp, as Michael Loehr | Tiramizoo one example, integrates its solution into customers’ fulfillment workflows. Here it provides carrier comparison services, labelling printing, pickup, and packaging services that can be built into existing e-commerce solutions. The company’s pickup and packaging services focus on

6 Supply Chain Start-Ups Are Coming of Age

Outlook for incumbent players and start-ups

Start-ups are a thread and Collaborate – Many start-ups, and Singapore. This incubator is used as a especially in the Broker/ platform for innovation to connect opportunity for existing Aggregator and Technologist role customers, business and industry players, alike. They need heavily rely on traditional logistics service partners, and DHL experts to envision providers to provide physical order new solutions for the logistics industry. to act swiftly and decisi- fulfilment. Partnering on asset sharing and DHL previously incubated a smart sensor vely providing a smooth technological technology and risk management related integration with their services will ensure service offering using their innovation hub. The increasing number of agile start-ups in exposure to often underserved customer the Supply Chain Management & Logistics groups, especially at the long tail. In 2017, Invest – Providing seed industry might easily be perceived as a FedEx will sponsor a logistics focused investments or venture funding threat by established players as well as start-up accelerator program in Memphis for existing Supply Chain overwhelm customers with the sheer for the third consecutive year. The Management & Logistics start-ups offers a number of new names and offerings. company chose Memphis as one of chance to not only keep a finger on the Nonetheless, it equally offers plenty America’s major distribution hubs and will pulse of a young and innovative opportunity to both groups alike. be providing access to their logistics community, but can offer future revenue experts as well as seed investments for sources. In 2016, UPS’ venture capital arm Established Logistics service providers young companies working on application helped raise $28 million for the same-day- A lot of the disruption from technologically and hardware issues related to final-mile / delivery start-up Deliv. The company advanced and innovative start-ups last-mile delivery, Internet of Things, focuses on delivering from local retailers, still centers on metropolitan regions, additive manufacturing, smart packaging, businesses, and e-commerce companies or specific supply chain segments. or robotics. across 100 U.S. cities. UPS had been Nonetheless, we see maturing players experimenting with same-day-delivery for quickly gaining traction in terms of reach Incubate – Traditional logistics the healthcare or replacement parts and market significance. Traditional service providers have started markets. It explored the investment as a players cannot ignore that development. internal incubator programs to means to better understand other market They will need to increase their pace leverage their own resources, experience, segments and customer requirements in to adapt to a new reality that favors and significant treasure troves of data to order to better adapt its own services in customer centricity and increasingly come up with new innovative ventures the future. equips customers with tools to create that can build into existing services or be market transparency. We recommend do spun-off to create incremental revenue explore the following four strategies to sources. Shipping giant DHL established leverage the current start-up boom: its “DHL Innovation Center” in Germany

7 Supply Chain Start-Ups Are Coming of Age

Acquire – More mature start- Understanding competitive ups, especially those in the forces: Will U.S. and Asian Analyst and Technologist start-ups remain the dominant segment, can present interesting force or will European companies catch acquisition targets to close internal up? Are start-ups underestimating the capability gaps, offer adjacent services or innovation capacity of incumbent players? provide incremental revenue streams in How long will logistics service providers adjacent markets. In 2015, UPS acquired tolerate start-ups encroaching upon their Coyote Logistics, a transportation and services? How will new mega-players (e.g. shipping services start-up. This target Amazon) impact the logistics market? offers a proprietary software to broker shipping services and optimizes capacities Achieving scale: How can by allowing customers to book and sell start-ups realize more significant empty space on existing truck runs. market share aside from only serving niche segments or handling peak Supply Chain Management & Logistics capacity? At what point will unbundling of Start-Ups the existing marketplace no longer be The founding boom of supply chain effective and attractive to customers? management & logistics start-ups in recent years as well as the increasing Moving beyond partnerships: interest from venture capital firms and How can start-ups truly disrupt their increasingly significant investments the incumbent heavyweights of for now seems to have established a the industry or will they be restrained to a diverse and lucrative new subsector. As need to partner and form alliances with these companies continue to evolve, the them? How can start-ups build meaningful next years will be important to determine collaborative models and partnerships how sustainable their business model amongst themselves? and trajectory really are. Especially when compared to their historical peers – In an environment that relies on asset- incumbent logistics service providers such light infrastructures and business models, as DHL and FedEx – and the services and connects multiple dimensions in supply scope these provide, start-ups are faced networks, and embraces lean structure with a number of hurdles to overcome: and agile working styles, addressing these questions holistically matters. Solutions Managing complexity: How rooted in a digital DNA and launched with can complex bundles of services a strategic, market-oriented perspective be brokered and delivered using will be key. easy-to-use interfaces? How can customer groups outside of major metropolitan areas best be served? How will additive manufacturing and 3D printing affect last-mile delivery?

8 Supply Chain Start-Ups Are Coming of Age

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9 Supply Chain Start-Ups Are Coming of Age

Deloitte contacts

J. Henning Buchholz Dr. Philipp Zimmermann Manager Director Tel: +1 832 943 9380 Tel: +49 (0)151 5800 4813 [email protected] [email protected]

A special thank you to Dominique Grueger from Deloitte Australia and Jan Abel and Tobias Morlampen from Deloitte Germany for their contributions to this report.

10 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by gua- rantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/de/UeberUns for a more detailed description of DTTL and its member firms.

Issued 8/2017 Are Coming of Age