Global logistics – an industry in transition

The expansion of ecommerce has been a boon for the logistics industry and the bane of traditional retailers. Now, as Amazon develops its own distribution capability, logistics providers and retailers alike are threatened.

Paul Asel, Partner, NGP Capital

28.03.2019

The logistics industry is watching closely as the United States and China negotiate to resolve their trade war amidst the threat of higher tariffs. At stake is $635 billion in annual trade – China exports $505 billion to and imports $130 billion from the US (i). 

These negotiations have repercussions for the global economy well beyond the US and China. Many industries engage vast trade networks that span myriad countries leaving few markets or nations exempt from these talks. For the US alone, which imports $2.3 trillion and exports $1.5 trillion annually (i), its entire trade regime is now in play.

Countries are not alone in being embroiled in trade disputes. Last month, XPO issued a profit warning citing the expected loss of $600M, or 3.5% of revenue, from an unnamed customer. Amazon, widely believed to be XPO’s unidentified customer, is expanding its own logistics capacity. 

The expansion of ecommerce has been a boon for the logistics industry and the bane of traditional retailers. Now, as Amazon develops its own distribution capability, logistics providers and retailers alike are threatened. 

A nation of truck drivers

Ecommerce has been a key growth driver for the global logistics industry, which is expected to grow 7.5% annually, from $8.1 trillion in 2015 to $15.5 trillion in 2023. 

The logistics of delivering directly to consumers is far more intensive than distributing in bulk to big-box retailers. Long-haul full-truckload remains the largest market segment in logistics with a 70% share, yet less-than-truckload, parcel and intermodal – which together comprise a 15% share of the logistics market, are the fastest growing segments. 

The politics of logistics extends beyond trade disputes. The US freight industry employs over three million truck drivers. As the graph below indicates, trucking is the largest employer in 29 of 50 states across the US. The American Trucking Association estimates a need for an additional 900,000 truckers (ii) over the next ten years to keep up with demand. 

"Trucking is the largest employer in 29 of 50 states across the US."

The industry already faces a shortage of over 50,000 drivers (ii) amidst the need to replace an aging workforce: 57% of US truckers are over 45 years old and 37% are over 55 (i). Given the backlash over Amazon’s recent pullback of a second headquarters in New York City, and the loss of a potential for 25,000 jobs, one might imagine the political stakes involved with four million truck drivers across the US in the coming decade. 

Top Employers in Each State in the United States

Logistics – a magnet for venture capital investment

Venture capital has poured into the logistics sector in recent years. In 2018, global venture investment in logistics reached nearly $14 billion, more than the three previous years combined. 

Funding for supply chain, logistics and shipping businesses continues to grow in 2019. In February alone, investors committed over $5 billion to the logistics sector.

Major financings include a $1 billion investment in Flexport for intermodal logistics, $940 million in Nuro for its self-driving delivery vans, $700 million in Rivian for electric delivery vehicles, $400 million in DoorDash for local food delivery, and $300 million in Hong Kong-based Lalamove for last-mile delivery.

5 catalysts driving innovation and investment in the logistics sector

1. Ecommerce: Online retail continues to cannibalize physical retail. Ecommerce in the US reached 9.8% of total US retail in 2018, nearly triple the share of retail ten years earlier. Ecommerce is growing even faster in Asia, Europe, and the Middle East. Traditional retailers are embracing omnichannel marketing as ecommerce extends into more retailing categories. The physical landscape will change dramatically over the next decade as ecommerce players build more warehousing capacity, replacing stores eliminated due to overcapacity in the traditional retail sector.

"Online retail continues to cannibalize physical retail."

2. Crowdsourcing: Much as Uber, Lyft, and Didi, among others have disrupted the taxi industry through crowdsourced drivers, the gig economy is infiltrating the logistics sector, enabling new services. Consumers are the biggest beneficiary, with the rise of the concierge economy. Crowdsourcing has lowered delivery costs making home deliveries available for a broader range of items. Food delivery has received most funding, with the rise of Uber Eats globally, Doordash and Postmates in the US, Just Eat and Deliveroo in Europe, Swiggy in India, and Meituan in China.  

"Consumers are the biggest beneficiary, with the rise of the concierge economy."

3. Intelligent Automation: The securities brokerage industry has gone digital over the past two decades. The logistics brokerage industry still runs on phone calls and fax machines, with limited price transparency and inefficiencies born of limited supply chain visibility.  Digital brokerage is now coming to the logistics sector through the confluence of sensors, intelligent automation, and the cloud. ELD and camera technology now monitor drivers, reducing wait times, lowering accident risk, and helping to adjudicate cases when accidents occur. Venture backed companies that have raised $100 million or more in the US alone include Convoy, Flexport, Nauto, Next Trucking, and Transfix, amongst others.

"Digital brokerage is now coming to the logistics sector through the confluence of sensors, intelligent automation, and the cloud."

4. Electric Vehicles: The prospect of replacing diesel trucks is as welcome as replacing gas vehicles is in the consumer sector. Tesla is now tackling the challenges of transporting large trucking payloads. Others are as well including the recently funded Rivian Automotive and Thor Trucks. 

"The prospect of replacing diesel trucks is as welcome as replacing gas vehicles is in the consumer sector."

5. Autonomous Technology: End-to-end autonomous trucking may still be decades away yet the use of autonomous technology in logistics is already live in the warehouse with pilots underway for first and last mile as well as interstate long-haul deliveries. Autonomous delivery startups announced over $1.5 billion in February alone, including Endeavor Robotics, Ike and Nuro in the US and AutoAI, Mogu Zhixing and TuSimple in China.

"End-to-end autonomous trucking may still be decades away yet the use of autonomous technology in logistics is already live in the warehouse with pilots underway for first and last mile as well as interstate long-haul deliveries."
Selected Supply Chain, Logistics and Shipping Startups

Logistics is a vast sector ripe for innovation across the supply chain. Entrepreneurs and investors have flocked to logistics seeking to disrupt an industry representing over 5% of the US economy. 

While investment in logistics has increased substantially, funding has focused on major sectors. We believe many opportunities remain for further innovation across the supply chain as new technologies such as robotics, autonomous vehicles and machine learning develop for the logistics sector.   

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(i) Stifel analyst report

(ii) May 2018 Techcrunch article