An in-depth look startups and corporations pioneering the logistics journey
A few months ago, I met with executives from Walmart, as part of a delegation visiting Israel, meeting with the brightest minds in the country. Participating in these meetings opened my eyes to the extraordinary world of logistics — a trillion dollar industry that connects the world, responsible for shipping some $19 trillion dollars worth of goods annually. Walmart, Amazon, Target, Gap and every retail business has to tackle hundreds of potential supply chain nightmares to deliver their products from the factory to their consumers’ doorsteps. While the level of innovation taking place today in the industry is unprecedented, startups continue to reinvent the status quo to solve pain points leveraging everything from robotics to drones to big data analytics.
What is Logistics?
Before highlighting the process of shipping goods from point A to B, it’s helpful to begin with a basic understanding of logistics. “Logistics is the management of the flow of goods, information and other resources between the point of origin and the point of consumption in order to meet the requirements of consumers.” The logistics industry is one of many moving parts including transportation, inventory, warehousing, sorting, packing, and last mile delivery.
With the context in mind, let’s take a bird’s eye view of the process, from ordering a product online to your doorstep, and the startups enhancing the logistics cycle at every step of the journey.
Phase One: Departing the Factory
In most cases before ordering a product online, it has already been transported across land or sea to the retailer’s distribution center or warehouse. When many think of shipping, they think of logistics courier giants like FedEx, UPS, and DHL. They picture the parcel delivery man ringing the doorbell and handing over the package. But in reality, the journey begins many steps beforehand.
To begin the process, the retailer typically places an order with a manufacturer or supplier. After the order is placed, the next step is booking the freight journey from the manufacturer or supplier to the distribution center. For this, many retailers use freight forwarders, a service used by companies to assist with international imports and exports, to ship goods and cargo from the origin to their initial destination. Freight forwarders are essentially booking agents that estimate the costs associated with transportation, book the journey, and handle the logistics of ensuring safe travel for the cargo from the origin to initial destination, including customs management, packaging, labeling and documentation management.
In the past five years, the freight journey has evolved from an archaic, offline headache to an online, modern solution_._ Previously, the price you paid for the freight journey depended on how good the freight forwarder was at their job. Today, there are a handful of startups pioneering the experience. As popular consumer air travel websites like Priceline and Expedia arose, entrepreneurs knew that freight was ripe for a similar disruption.
One of the players pioneering the online freight booking space is Freightos, an OurCrowd portfolio company, that is digitizing the international logistics process with their platform for seamless freight booking. Freightos allows importers and exporters to instantly compare and book air and ocean shipments. This is fed by Freightos technology used by over 1,100 global freight forwarders that use Freightos to improve freight sales automation. The Freightos Marketplace, launched in 2016 has over 1,000 B2B customers and dozens of sellers. In the processes, Freightos has created the world’s largest database of freight rates of over 750 million price points.
Capital-rich tech companies like Alibaba and Amazon are also increasingly entering the global freight market, with Amazon recently registering as an NVOCC in late 2016 and Alibaba earmarking some $15 billion dollars for investments over the next few years. Uber, the on-demand taxi behemoth, has also thrown its hat into the freight ring with Uber Freight. Similar to the popular consumer app, Uber Freight connects carriers with shippers on-demand for domestic land travel. Uber also acquired autonomous trucking technology startup Otto in 2016 for $680M to leverage the technology in their freight business.
Other solutions have also been implemented to further enhance and alleviate many of the pain points of the freight industry. Automating processes, tracking shipping containers, processing customer documents, and delivering the cargo from the port to the retailer’s distribution center have all undergone significant innovations. With the cost of processing the documents and information estimated at 2x the actual cost of transportation, IBM and Maersk have partnered to apply a blockchain based distributed ledger to exchange event data, ensure smooth workflows, reduce costs, and ultimately increase the efficiency of the entire supply chain. IBM has also partnered with Walmart to develop and implement a specialized solution for the food services industry. Walmart uses IBM’s blockchain technology to track the supply chain of produce in their stores, especially useful during a food scare event.
In the previously antiquated industry, middlemen monetized their rolodex to leverage and strong-arm retailers into hiring them to navigate the system. By moving the industry online, the centralization of power, industry know-how, and transparency moved from a few to many.
Phase Two: Settling into the Warehouse
After the cargo arrives at its destination, it’s sorted at a distribution center and sent to the retailer’s regional warehouse. At the warehouse, technology is leveraged to catalog and sort, maintain and track, and ultimately guide the merchandise to the correct package to be delivered to the customer.
With the age of automation, robotic solutions were implemented to mimic and replace the manual labor often involved in maintaining these facilities. Major retailers such as Amazon, Best Buy, Lowe’s, Walmart, and Foxconn, among others, have been quick to adopt these technologies in order to reduce the inefficiencies in their warehouses, and increase their bottom line.
In March 2012, Amazon acquired a warehouse robotics company, Kiva Systems (since renamed Amazon Robotics), for a whopping $775M highlighting the significant potential in warehouse technology. As of early 2017, Amazon was using over 45,000 of these robots in their facilities to autonomously track and transport merchandise through the warehouse to cut down on the time lag of humans searching the warehouse floor to fulfill orders.
By implementing robotics technology into the warehouse, Amazon was able to cut packing time from an hour and a half to under 15 minutes, while fitting 50% more product into the warehouse.
Other warehouse technology solutions are being implemented to reduce the time between order and delivery. A group of MIT researchers developed a solution to track warehouse inventory using drones, which prevents mismatches and helps employees find items faster. Their small drones fly around safely as they scan and itemize RFID tags on inventory.
“Between 2003 and 2011, the U.S. Army lost track of $5.8 billion of supplies among its warehouses,” says Fadel Adib, the Sony Corporation Career Development Assistant Professor of Media Arts and Sciences, whose group at the MIT Media Lab developed the new system. “In 2016, the U.S. National Retail Federation reported that shrinkage — loss of items in retail stores — averaged around $45.2 billion annually. By enabling drones to find and localize items and equipment, this research will provide a fundamental technological advancement for solving these problems.” — MIT News
After the merchandise has been tracked, gathered, and ready to be assembled, a startup called RightHand is pioneering the last step of the previously manual process. RightHand Robotics recently began piloting technology to automate the task of recognizing and picking up items from boxes. Founded by a team of researchers from Harvard Biorobotics Lab, the Yale Grab Lab, and MIT, RightHand can pick items at a rate of 500 to 600 per hour, on par with the speed of a human worker, by using machine learning to recognize and handle thousands of items.
Phase Three: Last Mile Delivery
After the package is packed, it’s ready for the final leg of the journey, known as last mile delivery. The most important part of the logistics supply chain is the delivery. Everything that happens up until this point is commonly unknown to the paying consumer.
Innovative solutions have been piloted using robotics, drones, and other technology to ensure the smooth logistics cycle continues.
UPS made a test run earlier this year with their drone technology to increase their drivers efficiency by saving time on parking and walking to the doorstep.
Similarly, drones have been used in last mile delivery to further decrease the time between order and delivery. Amazon, Domino’s, DHL, and even 7-Eleven have all developed drone technology that delivers everything from pizza to a new t-shirt via autonomous drones.
For urban areas, a pain point is being at the destination to accept the package at the right time. Technology startup Doorman relieves this headache by using their address for delivery and scheduling when you want your package delivered. This is a convenience rather than a technological innovation, but as the last-mile experience is paramount to customer success, it’s a worthy idea that solves a real pain point. For smaller businesses, like restaurants, logistics startups like Deliv, Homer, and OnFleet provide solutions for delivery, tracking, payments, returns, and more.
Taken together, the logistics industry has evolved from an offline, archaic industry to an online, modern innovative industry over the past five years. With significant upgrades and improvements at each step of the way, companies are becoming better equipped to handle the volume of transactions placed over the Internet. As service to consumers continue to improve, logistics providers raise the bar for other industry standards as well. With the revolution of technology solutions, robotics, drones, and big data analytics, one can only begin to wonder what’s next?
Thank you Eytan Buchman, Sarah Lavin Ableman, and Yehoshua Zlotogorski for reviewing, editing, and improving this post!
Update: Since posting, it’s been brought to my attention that Doorman will be shutting down. Read more on that here.
Hi! I’m Jordan, and I work for a global VC based in Israel. There’s a lot happening in the VC/startup scene and I figured I’d post my observations here. All opinions are my own. Feel free to follow and get in touch on Twitter @jordanodinsky.