Forto’s Potential Fall: What Arises from the Dust of Digital Forwarders

The first wave of digital logistics struggles was characterized by distress, selling off, and bankruptcies, like the insolvency of Instafreight and the collapse of Convoy, a company that had raised $1 billion and was valued at $3.8 billion just before facing trouble. The current second wave is about recognizing that scale requires resources beyond the capability of these companies and requires patience, which most shareholders of VC-backed firms lack.

These events underscore a trend in logistics technology, where the initial hype and massive influx of venture capital are giving way to a more sober reality. The “cheap capital trap” that fuelled growth at the expense of sound returns continues to force players to face harsh economic realities. However, interpreting these setbacks as a wholesale rejection of the digital-first freight forwarding model would be premature and probably wrong. Instead, they signal an evolution towards more sustainable and pragmatic approaches to digitizing the logistics industry.

Reasons Behind the Exit Trend

This second wave of changes in digital logistics differs from the first one as it is more discreet and “orderly.” So, what has changed to create a sense of urgency amongst prospective challengers?

First, our interviews with multiple players in the sector, both on the buy- and sell-side, hint at a recognition amongst digital-first players that further growth requires a level of balance sheet strength that incumbents have but digital-first actors lack and likely cannot replicate easily. Freight forwarding is a working capital-intensive business; the more one grows, the more capital one needs. When capital was cheap, most companies grew by regularly raising equity. Now that that path has closed, they can no longer grow as fast and must partner with balance sheets that can provide the necessary working capital.

Second, as interest rates increased a few years ago, so did working capital expenses. This ate into many companies’ already low gross margins, making their business models less attractive. It is no coincidence that the peak of digital forwarder bankruptcies in late 2023 and early 2024 coincided with the Fed Funds rate peak in Q4 2023 (see chart). The rate increased from near zero to 5.33%, increasing bank and working capital lending expenses. It likely reduced digital forwarder gross margins by at least as much.

A final reason for digital-first actors’ continuous struggle is that exit options are now less prominent. The sector has lost its shine, and shares of companies such as Flexport now trade at a discount on several secondary share marketplaces compared to their last rounds. These companies and their shareholders may have missed the IPO or SPAC bandwagon. Shareholders of these VC-backed companies have mainly invested through limited-life funds and do not have the patience to support them throughout the industry disruption cycle they had initially been bought into. As their funds approach end-of-life, we expect to see more digital logistics companies and their shareholders heading for an exit.

Promise and Pitfalls of Digital Logistics

The fundamental premise behind digital-first forwarders remains sound. With their complex, often opaque processes and reliance on manual operations, logistics providers need more digitalization and innovation. Digital platforms offer the potential for greater efficiency, reliability, transparency, integration, and significant cost savings.

Yet, many first-generation digital forwarders may have overestimated the speed at which the disruptors could transform the industry. The logistics sector is profoundly interconnected and relies heavily on human relationships and expertise to manage the complexities of global trade. Companies that focus solely on technological solutions and innovations neglecting these human factors, have struggled.

Digital-first is a mindset. Those actors think of technology first and not operations. Traditional players say, “You are offering a technology; if our operations people like it, we may run a pilot.” A digital-first actor constantly gauges the latest technology trends, seeks edge, tests innovations, and, if something works, scales it. We would also like to see that entrepreneurial spirit and thirst for experimentation for improvement in the incumbents. However, this usually only exists in startups. Let us remember that operating is about stabilization and optimization. Hence, operators dislike and avoid change, rejecting and regularly killing innovation from the outset.

The Buyers’ Appetite Grows

Buyer appetite has improved substantially from a year ago as more startups may head to the exits. Over the past few months, we have interviewed several larger companies and seen corporations with a distinct appetite for acquiring digital-first logistics providers. This starkly contrasts last year, when incumbents were substantially pessimistic about acquiring digital-first forwarders. Why did the tide turn?

Companies see increasing value in digital logistics – indeed, many have no option but to do so, given growing labor costs. UPS, for example, last year saw its unionized wage costs go up by 6.2% annually, leading to a 3.3% overall increase in operational costs. For an industry with a median gross margin of 20%, there is no choice but to digitize.

Others see digital-first trucking as a new business opportunity to build a separate vertical—but one that only they can deliver and run thanks to their strong balance sheets, existing carrier and customer relations and networks, and global scale. Those incumbents are correct, but success will depend on ensuring that such different and digital-first businesses are built to be independent, even if it means cannibalizing the incumbent host revenues and profits.

Finally, some corporates seek to consolidate or re-orient their businesses to regional priorities. Freight forwarding remains fragmented and continues to undergo consolidation. Specific digital-first forwarders have carved out strong positions in significant niches of the transport landscape and make for attractive acquisition targets for that reason. Conversely, individual buyers have regional growth priorities and gaps they seek to close. Acquiring larger digital-first forwarders offers them a path to strengthen and complement their customer portfolio while adding digital capabilities.

The Broader Context: Industry Trends

The potential sale of Forto occurs against a backdrop of significant change in the logistics technology landscape. Introspective Market Research (IMR) forecasts that the Global Digital Transformation Spending in Logistics Market is expected to grow from USD 63.89 billion in 2023 to USD 128.68 billion by 2032, at a CAGR of 8.09% during the forecast period (2024-2032). According to Market.us, the Global Digital Logistics Market is set to be valued at USD 182.9 billion by 2033, up from USD 30.8 billion in 2023. This expansion estimate represents a CAGR of 19.5% during the period from 2024 to 2033. Key drivers of this growth include the expansion of e-commerce, advancements in artificial intelligence (AI) and machine learning (ML), and the increasing adoption of Internet-of-things (IoT) devices in supply chain management and logistics.

However, this growth is not evenly distributed. The market is shifting towards more specialized and targeted solutions rather than the all-encompassing platforms that characterized many first-generation digital forwarders. There is an increasing focus on last-mile delivery optimization, real-time tracking solutions, and AI-driven predictive analytics for demand forecasting. Buyers of digital logistics companies target specific technologies in addition to the above-mentioned customer portfolio expansion opportunity and potentially a regional focus. With the AI revolution accelerating, the digitalization pressure on incumbents will grow, and so will the opportunities.

The Second-Generation Digital-First Forwarders

As the industry matures, we will see the rise of more nuanced, hybrid approaches that combine technological innovation with deep industry knowledge and capabilities. These second-generation digital-first forwarders will likely exhibit several key characteristics:

1. The willingness to disrupt one’s business models, prioritizing efficiency and customer value over pure revenue growth.
2. Using visibility not just as a service but as a key enabler of automation and efficiency.
3. Comprehensive industry execution platforms that bring multiple stakeholders onto a single system.
4. They integrate end-to-end services, including cross-industry capacity management.
5. People-centric, intuitive systems that allow for fast onboarding and recognize the continued importance of human expertise in logistics.

The Road Ahead: Consolidation and Specialization

The consolidation in the digital-first freight forwarding space will likely continue. Well-capitalized incumbents and more mature digital-first players acquire struggling actors for market reach, technology, and talent. In February 2025, C.H. Robinson completed the sale of its European Surface transportation business to Sennder Technologies GmbH. Such developments lead to a more concentrated market but also one with more robust growth and comprehensive product and service offerings.

At the same time, we will see increased specialization. Some digital-first forwarders may focus on specific regions, modes of transport, or industry verticals where they can develop deep expertise and differentiated offerings, just like many incumbents. This trend towards specialization could help address one of the key criticisms of early digital forwarders—their perceived lack of industry-specific knowledge and relationships.

Conclusion: A Maturing Market, Not a Failing Model

The potential sale of Forto is a sign of a maturing market. The logistics industry is undoubtedly moving towards greater digitization, but the path is proving more complex and nuanced than many early entrants anticipated.

The winners in this evolving landscape will likely be those who can effectively blend technological innovation with deep industry expertise, creating solutions that address the regional or multifaceted needs of shippers and cargo owners and the challenges of global logistics and supply chain management. As the dust settles from this accelerated consolidation and realignment period, we can expect to see a more robust, efficient, and genuinely digital logistics industry emerge.