Editor’s Note: Christine Magee is an analyst for CrunchBase.
In a world where consumers are increasingly expecting frictionless, tech-enabled services, snail mail is just not cutting it.
Just about anything can be ordered from a smartphone, but shipping it across the country takes days and often costs a small fortune.
A variety of logistics startups have cropped up to tackle shortcomings in various sectors of the shipping industry, from local delivery by bike messenger to international delivery via trucking fleet management platforms.
The past year has seen more early stage rounds than ever before, with seed rounds accounting for nearly three-quarters of all deals recorded in 2014. In the first quarter, relatively large rounds for Postmates and Eyefreight topped past totals for venture investments in shipping-related startups – but it seems investors have yet to place any big bets.
This is not because the opportunity is not there. The U.S. trucking industry alone generates over $600 billion in gross freight revenues and employs 6.8 million people. And companies worldwide spend billions every year on shipping expenses.
“It’s a popular space because these gigantic billion-dollar budgets are allocated to this, and it’s a pain in the ass to deal with at all stages,” says Jeff Clavier of SoftTech VC. SoftTech has invested in both Postmates and shipping API provider Shippo.
Shippo has built a SaaS infrastructure that commerce and marketplace operators can integrate into their website to provide easy shipping options for customers. Smaller businesses that generally don’t qualify for shipping discounts can benefit from Shippo’s bulk rates, which continue to improve as the company scales and accumulates more shipments.
“We have tiny e-commerce companies reaching out but also monstrous companies doing the same,” says Clavier of Shippo’s customer base. “It’s a real pain point that exists in every stage.”
Shipping providers face their own set of pain points as well.
Shipping companies spend on average $16 billion per year to reposition empty containers, which accounts for 15% of all operational costs related to container assets. Trucks hauling empty containers are nearly as expensive to operate but not producing any income, facing shipping companies with losses that they make up for with higher charges for consumers.
Cargomatic in LA, Traansmission in NY and Cincinnati-based OneMorePallet are a few startups that have received early-stage funding to tackle this issue by facilitating direct communication between shippers and truck drivers. By removing the middleman, both parties benefit from reduced expenses and wait times.
“Repositioning happens in all kinds of industries – there’s a real problem, there’s a lot of wasted resources there,” says Eric Manlunas, Managing Partner at LA-based Wavemaker Partners. “So if you can aggregate this excess capacity properly, it’s great for consumers.”
ShipHawk, Wavemaker’s latest investment, provides an Expedia-like aggregation and search dashboard that users can filter by price, time and efficiency to determine their preferred method of shipping.
This is just the beginning of a revolution in the logistics and shipping industry.
Automated vehicle startup Peloton has created a vehicle-to-vehicle communications system that enables trucks to keep close formation on the highway, saving fuel and reducing collisions, while Mercedes is currently developing the Future Truck 2025 – a self-driving semi truck that aims to cut down on the 330,000 annual large truck crashes in the U.S. that have resulted in nearly 4,000 deaths.
Clavier has his sights set on a futuristic model of shipping as well – he’s already looking forward to the day when SoftTech portfolio companies DroneDeploy and Shippo can partner to facilitate cross-country drone delivery.