In March of this year, the Suez Canal was blocked by a 200,000-tonne symbol. Not only is the Ever Given one of the world’s biggest container ships, it’s also a symptom of the global shipping crisis we’re experiencing due to COVID. Meanwhile, digital freight forwarder Forto has just reached a $1.2bn valuation, placing it firmly in unicorn territory. That makes it a great time to reflect on what’s happening in this industry, tackling one of the most pressing challenges after COVID: shipping services.
Since the 1950s, supply chains have been designed to maximise efficiency – leading to today’s mostly globalised economy. Modern technology upped the ante, with tech giants reaching new levels of productivity still. Firms have sought to specialise and concentrate particular tasks in places that offer economies of scale. Except for Amazon, shipping has not been one of them.
With COVID however, there are growing concerns that inflated shipping and delivery prices are here to stay. They are not… but the future lies with digital actors like Forto and Sennder who are quickly claiming the market from incumbents. So how does the global supply chain influence our daily lives? And what is the impact of price spikes like the one we’re experiencing now? Let’s discuss.
It’s no use denying it: the current market leaders in shipping services are slipping. The global freight forwarding market is massive and estimated to be valued at USD207bn by 2026 globally. But it’s highly fragmented: the top twenty freight forwarders are multi-billion dollar companies which together only claim a total market share of about 30-40%, according to the DCV annual report 2020. Furthermore, they were founded more than 50 years ago and have failed to modernise appropriately.
Of course, there are many structural components in shipping that make it challenging to digitise. The value chain includes a number of different participants, who must constantly communicate with each other and who experience large price fluctuations among them. Most players have grown by M&A as a result, leading to incompatible systems and clunky operations in addition to the already complex nature of the industry.
Some companies have tried to digitise, but failed miserably — and publicly. DHL spent a fortune in its attempt, and had to write off €345m when it abandoned its IT transition project.
Sennder, Europe’s number one digital freight-forwarder platform for trucks has seen customers quickly adopting digital services during the pandemic. David Nothacker, Co-Founder and CEO of Sennder reflects on the past year: “It’s a challenge to sell digital products to a community that is not tech by design. The truth is, when physical landlines or fax machines are inaccessible, you need to find solutions. As a result, many aspects of shipping feel ancient, particularly around customer experience. Tracking is flawed and inefficient, pricing quotes are manual and ridden with mistakes, and many incumbents lack digital integration with client systems.”
These usages are now here to stay, with many customers willing to control their supply chain: “We believe that access to capacity will be a competitive advantage. There are not enough trucks, planes and boats, so ultimately the winners will be able to manage capacity through efficiency. Sennder and Forto will be the leaders of that change.” adds David, commenting on the future of freight forwarding.
If Sennder focuses on road freight, Forto is tackling the sea roads. Recognising the opportunity to not just fix, but reinvent the shipping industry from the ground up, Forto offers an impeccable customer experience and more efficient operations all around. Workflows are digitally streamlined, data is provided in real-time, and complexity and costs are greatly reduced. Their much needed approach proved fruitful.
If globalisation didn’t do it on its own, the COVID crisis propelled this big freight forwarding digitisation from needed to vital. We witnessed it with vaccine rollouts and the extremely complex logistics around them. It will probably take a couple of years before we fully understand and quantify the rippling effects of COVID on the economy — from consumer goods prices and housing to startup valuations and society overall. But immediate problems are already surfacing across the corporate landscape.
Nike announced that “revenue declined 10% in its latest quarter due to supply chain challenges,” including container shortages and U.S. port bottlenecks. The CEO of Fairfield, a bike producer which employs 225 workers and imports its parts from Asia, said his shipping costs more than doubled in recent months.
Matthias Wilrich, VP Vehicles and Supply Chain at Tier, the European mobility leader, says that disruption is an understatement: “A sudden disruption followed by a long period of uncertainty has led to a growing imbalance in international trade, which in many aspects is even worse than a “simple” temporary standstill. Our transport team had to work heroically and is facing last-minute shifts and patchwork solutions on a daily basis. We are lucky that they managed to keep our cargo flowing, albeit at significantly higher market rates.”
We’ve all noticed how the Amazons and Zooms of the world have tripled their share prices, but what we don’t see is the drastic increase in shipping prices. While we were at home, the supply chain went red hot with some consequences. If the immediate focus was on price, the real challenges for businesses and consumers are reliability and availability. We normally take shipping for granted, but as soon as your product is no longer available on the shelves you find yourself scrambling for a reliable shipping partner.
To walk you through Northzone’s decisions to invest, we love sharing our investment memos and selected slides from our early stage portfolio companies. Here’s how we hedged our bets on Forto:
We’re betting that:
– This large industry is ripe for disruption, and incumbents have not been able to automate or execute this vision well. A new approach is required: a digital first freight forwarder.
– A digital freight forwarder can deliver a superior value proposition to its clients i.e. transparency, real time, proactiveness, etc.
– A digital freight forwarder can run more efficient operations and create a cost advantage over incumbents
– Global shipping is a fragmented, multi-trillion dollar market with ~27 freight forwarders doing over $1B in annual revenue.
– The founding team has vision and is well balanced.
– Germany has several structural advantages to build this type of company.
Fast forward to today, on Monday the 21st of June, Forto just closed a $240M round, led by SoftBank Vision Fund, with participation from Citi Ventures and G Squared, and strong backing from existing investors including Northzone, Inven Capital, Inven Capital, Cherry Ventures, and Unbound. In Michael Wax’s own words (Founder and CEO, Forto) to Reuters earlier: “A shipment from Shanghai to a warehouse in Berlin should not be more difficult than a payment via Paypal or Stripe today”.
We’re incredibly excited about what Forto plans next. They have been proving their leadership position in this global context, with many micro crises along the way for the supply chains. The team has proven to be indispensable for their customers, bring long-term value for brands and well-financed for the future. To many more routes!