The on-demand supply chain market is experiencing significant interest and growth right now. Within the on-demand supply chain, I am specifically talking about the transportation and warehousing segments, where investment money is pouring in to digital freight matching apps, crowdsourced last miles deliveries, and on-demand warehousing. While these businesses are still in the early stages of development and growth, there is considerable interest as well as questions about the viability of long term success.
I have written about the on-demand transportation market before, especially as it applies to crowdsourced last mile deliveries. This market has seen an incredible amount of money pour in from investors. In fact, the top seven global startups, which include Deliveroo, Instacart, New Dada, Postmates, DoorDash, Fetchr, and Deliv, have raised over $2.5 billion in funding since 2011. These companies, and this market, have shown that consumers and retailers alike are comfortable with crowdsourced deliveries, and will continue to use the services.
The other side of on-demand transportation is within freight. The biggest name here is Uber Freight. While Uber has officially shut down its autonomous trucking unit, it is doubling down on its freight business. The company is restructuring its freight brokerage division, meaning that Uber Freight will no longer be part of the parent’s Advanced Technologies Group. Uber Freight is beginning to gain traction, and the company has announced it is on a $500 million run rate for revenue this year. This appears to be a market share grab strategy, as the company is losing money as it scales up and is expected to do so for the foreseeable future.
There are a number of other digital freight matching companies that also claim they are poised to disrupt the trucking market. Amazon, which has already introduced one trucking app, has been building a digital freight matching app as well. The big name recognition, and the deep pockets of Amazon, automatically put Amazon in the spotlight for disruption. Other companies that have launched freight matching apps include Convoy, Loadsmart, Doft, and a host of others. All of these companies have one thing in common – they are matching freight from the spot market. However, the spot market makes up a considerably smaller portion of the overall freight market than the contract market, so the competition for these loads becomes considerable. This also drives down prices which could have a negative impact on the overall market.
Steve Banker and I spoke with Ed Stockman, Chief Growth Officer at FreightFriend last week. FrieghtFriend takes a unique approach to the digital freight matching marketplace. The company has built a database of where truck capacity exists, and matches loads based on lanes. However, unlike many other services, shippers and carriers need to accept a friend invitation to be able to receive notifications from other companies. This makes a closed network, so companies are only communicating with other trusted entities. Ed told us that one of the problems with freight matching apps is a lack of driver retention. The majority of drivers do not want to be burdened with opening multiple apps to be able to accept loads. This means that a driver may download and use an app once or twice, but there is no guarantee they will use it again.
Ed also mentioned that FreightFriend is a subscription-based service, charging users a monthly fee based on the number of users and the complexity of integrations. This is also a marked difference among most freight matching services, as they act as brokerage services. With so much investment money pouring in, the expectation is a significant return. However, these investors are expecting SaaS margins, when in reality, they are only getting brokerage margins. At some point, this will catch up with these companies.
The other piece of the on-demand supply chain that is gaining traction is on-demand warehousing. On-demand warehousing allows shippers to bypass traditional warehouse leases and turn warehousing services on and off as needed. This enables flexibility in how much space is needed based on the amount of products they need to store. This market is considerably smaller, with only a few entrants at this time. However, this seems like a market that is poised for growth considering that warehouse space is becoming harder to come by and more expensive.
Last week, UPS launched Ware2Go, its digital fulfillment and warehouse matching service. This is a big move for the global logistics company. The service is geared towards helping small and medium sized businesses store their products closer to their customers without having to commit to long-term warehouse contracts. All warehouses are certified before they can be listed on the Ware2Go website, then merchants can choose a warehouse location based on a set of criteria including products, orders, space requirements, and regional delivery needs.
Other startups in the on-demand warehousing space include Flexe, Flowspace, and Stord. Flexe was an early entrant to the market and offers a marketplace for both merchants and warehouse operators. Merchants can search for available warehouse space and fulfillment services, with a fee based on the number of orders shipped per month. Warehouse operators can also rent their available space during non-peak times on the platform.
Flowspace handles the storage, transportation, and service of inventory on a month-to-month basis without space minimums. Merchants only pay for the space they need, and have the option of paying a fee per pallet or by the square foot on a monthly basis. One of the newer entrants to the space is Stord. Stord connects businesses in need of storage and distribution to independent warehouses with excess capacity and manages everything from ordering to inventory management to billing. These companies all offer a subscription-based revenue model, which could provide a positive outlook for investors.
Investment and interest in the on-demand supply chain market is growing. The biggest segment of the market is transportation, with billions of dollars flowing in from investment firms, most notably on the last mile delivery side of things. However, there is still considerable interest in digital freight matching services. On the warehousing side, it is still early in the game, but interest and investment are growing as well. On-demand warehousing can alleviate the stress of securing warehouse space in long-term contracts for small and medium sized businesses. As warehouse rents go up and available goes down, this market is poised for growth.