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More startups and e-commerce challengers muster up the courage to grow their own logistics businesses. Should the established carriers feel uneasy?

This is the third part of the series of articles exploring the ever-changing balance between the startups, the challenger companies and the established players of the logistics markets. We will cover who works with who and how, and what it means for the world of logistics 4.0.

Part III. Innovation from within

In the first two parts of this series, we explored how e-commerce challengers and logistics startups are starting to chip away at the dominance of the existing market makers. But not every legacy carrier or logistics forwarder is content with that.

Some incumbent giants of logistics take great strides to innovate from within. Numerous established logistics companies have set up independent innovation divisions and started in-house accelerator or incubator programmes. Others decided on the outright buy-out of their competition in a series of major investments or acquisitions. In either case, it follows another global trend: venture capital investments in innovation of logistics and supply chain increased 25 times in recent years and reached $4 billion in 2017 according to a recent report by McKinsey & Company.

The new types of innovation units at legacy companies generally split into two categories: internal venture capital funds and internal startup accelerators/incubators. Some innovation units combine the two approaches.

Investing in the future [competition?]

Logistics marketplaces like Coyote Logistics and uShip have been targets of investments and acquisitions from existing logistic giants.

Chicago-based Coyote Logistics launched in 2006 as a digital large scale full-truck-load and transportation management services innovator. American giant UPS purchased Coyote Logistics for $1.8 billion in July 2015 which at the time marked the largest acquisition in the history of the company. While it has been run as an independent entity for several years afterwards, most of the Coyote’s founding team left in early 2018 which marked a complete takeover of the service by UPS. In 2016 UPS also signed a strategic partnership and participated in $30 million investment round in Optoro, a 2010 startup that helps retailers and manufacturers to manage, process and dispose of returned merchandise and excess inventory.

uShip is a less-than-truckload carrier-direct marketplace. The startup opened up its enterprise software platform to larger shippers, brokers and forwarders. In 2016 it signed an agreement with DB Schenker, one of the world’s largest logistics companies, to power Drive4Schenker, an online and mobile-based trucking marketplace.

In the Asian region, global logistics company Kuehne + Nagel and Singapore sovereign wealth fund Temasek have set up a joint venture to invest in early-stage logistics technology startups in early 2018. Kuehne + Nagel also opened a number of innovation centres in Europe and Asia. Temasek recent investments included food delivery startup DoorDash and Ascendas India Logistics Programme.

A place to incubate ideas

Logistics giants took business incubator idea to heart. They not only operate an ever increasing number of accelerator programs for existing startups to grow but also form their own departments to incubate and test ideas in a way similar to how startups do it.

Here are just a few examples of entities operating in this space: DB Digital Ventures, GEFCO Innovation Factory, Lufthansa Innovation Hub, JetBlue Technology Ventures, General Electric Ventures.

Lufthansa Innovation Hub operates as an in-house laboratory and brings innovative ideas to life on a short timescale. Its creations include baggage status notification system LINEA and a carnet ticket sales system Flightpass. Lufthansa also invested in a number of startups such as Fleet Logistics, American multimodal freight forwarding platform. Fleet Logistics, founded in 2014, acts as an online marketplace, matching customers’ demand for freight services with free capacity provided by the carriers.

Deutsche Bahn venture capital arm, DB Digital Ventures, serves as the organisational umbrella for DB’s investment in start-ups and supports entrepreneurs through its incubator program in Berlin. It also launched a joint open innovation platform for railways with Siemens, Swiss Federal Railways and Bombardier Transportation. DB Digital Ventures previously invested in geocoding innovators Coord and what3words, travel analytics and marketplace platform Qixxit, smart traffic light technologies with Connected Signals and satellite communications with Kepler from Canada.

Global port operator DP World has launched its own TURN8 Innovation Accelerator and Investment Fund in 2013 and has invested in over 60 startups, most notably: Virgin Hyperloop, what3words, autonomous vehicle manufacturer NEXT Future Transportation, transporters marketplace LoadMe and kinetic energy recovery systems developer Adgero.

As part of this new digitization strategy, global freight leviathan Maersk announced in 2018 that it had formed a joint venture with IBM to develop the use of blockchain technology to manage and track cross-border trade, and further improve their container booking times. It also brought on a former SAP CEO, Hagemann Snabe, as chairman of its board. Maersk and IBM, however, are reportedly struggling to sign up partners for TradeLens, their distributed ledger technology platform for supply chains.

A new type of threat

Car manufacturers also look towards logistics markets to diversify their business, fearing that their current business model will not be profitable in the coming decades. Daimler Group, for example, invested in several logistics startups in recent years including drone delivery with Matternet, robotic delivery service with Starship Technologies, load and fleet management with FleetMaster and Brazilian TruckPad. It also runs its own startup incubator Startup Autobahn at several locations around the globe. Truck manufacturer MAN has in a similar fashion formed The MAN Impact Accelerator, a worldwide program accepting different kinds of logistics startups. Volvo followed the suit with Volvo Group Venture Capital fund.

In retail space Home Depot recently invested in delivery company Roadie to help it build the fastest, most efficient supply chain in home improvement. Roadie taps into empty space of long-haul truckloads to carry “hitchhiking” deliveries in cases where the itineraries match.

Communications and IT giants show their interest in logistics startups as well. One of these startups, Fleetmatics, a Dublin-based company founded in 2004, provided software-as-a-service fleet management platform and was purchased by Verizon for $2.4 billion in August 2016 to be rebranded as Verizon Connect in late 2018.

What the future holds.

Between the legacy carriers, the challengers and the startups, who is going to win the future of transporting matter from point A to B? The jury is still out on that one. However, there is a rising pressure on the incumbent leaders of logistics to adapt and develop new strategies: to either offer tailored solutions to e-commerce giants like Amazon and Alibaba, to innovate via in-house incubator programmes or to invest in next-generation logistic startups at early stages.

 

Did you enjoy this article? Read the first of the series about The Amazon in the Room here, and the second part about Going directly to the customer.

Photo: Lufhansa / Gene Glover

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