Digital forwarders have successfully established themselves in their respective sectors and have attracted huge investor attention. The evolving needs of shippers and the capability gaps among traditional forwarders have spurred the interest of venture capital firms that see value in investing in digital forwarding start-ups and their business models.
With global supply chains plagued by bottlenecks, lockdowns and other disruptions, investors continue to place their bets on digital forwarding start-ups. According to Ti estimates, between January and March 2022, funding in digital forwarding start-ups amounted to around $1.2bn. The total amount of investment during the first quarter of 2022 is already 50% higher than the full year of 2021.
Total venture capital funding of digital freight forwarders 2014-2022
The bulk of the 2022 funding has gone to Flexport, which raised $935m in February this year.
Capital continues to flow toward later-stage companies and later-stage rounds (Series B and above). Out of the 11 deals between January 2021 and March 2022, nine are in the growth stage. This means that new start-ups trying to enter the space will be faced with a more limited investment environment. Even though early-stage start-ups will still be able to attract venture capital funding, especially those with unique or niche services and products, new market entrants will overall become less common. This is because the concept of digital forwarding has received enough funding for venture capitalists to either see proof of concept or failure. The market will likely be reduced to the top performers which will be faced with a highly competitive marketplace. It also means that later-stage companies such as Flexport, sennder, Zencargo, InstaFreight and Forto will be faced with a more competitive funding environment. According to David Nothacker, Co-founder & Managing Director of sennder, access to capital will become more limited in the future so growth stage start-ups will have to optimise their resource allocation and those that aren’t yet profitable will have to wait at least two years until they get access to meaningful additional capital.
There is a combination of drivers behind the rising tide of funding flowing into the digital freight forwarding sector. These include its evident growth potential, the increased focus on digital transformation and the structure of the freight forwarding market. The highly fragmented nature of the forwarding market is a key determinant of not only private equity interest but the scaling opportunities of digital forwarders. Unlike heavily consolidated sectors dominated by a few established players, the forwarding market remains highly fragmented, so the digital start-ups do not need to take on a huge incumbent. Hence, fragmentation opens up vast possibilities for digital forwarders and private equity firms.
This investment rush into digital forwarding start-ups has already created three unicorns, i.e. start-ups with a valuation of $1bn and more. These are Flexport, Forto and sennder. The influx of cash is giving these start-ups access to capital to further build out their businesses. Even though top-line revenue figures do not yet fully reflect the ongoing transformation on a broad scale, growth rates among the digital forwarders are remarkable.
- Flexport sales reached $3.3bn in 2021, up from $1.3bn in 2020 and $670m the year before. Flexport is the 15th largest sea freight forwarder on the Asia-USA trade lane.
- Forto has become a Top 20 freight forwarder on the Asia-to-Europe trend lane in just 4 years.
- sennder, a digital forwarder specialising in FTL in Europe, is already the largest FTL player in Italy. Its 2021 revenue is estimated at $590m and the start-up aims to achieve €2bn in revenue by 2025. For comparison, the revenues of the top 3 road transport providers in Europe ranged between €3.5 and €6.4bn. If sennder is on track to reach its target by 2025, it would rank in the top 10 largest road transport providers in Europe.
Download Ti’s latest whitepaper, Full steam ahead – Digitalisation in the freight forwarding industry today. The whitepaper provides a snapshot of the digital forwarding funding scene, competitive landscape analysis and key findings from Ti’s 2022 Digital Freight Forwarding survey.
What’s in the paper?
- Digital freight forwarding funding, including top 10 start-ups by funding received
- The global freight forwarding digital landscape, by revenue and competitive landscape
- Key findings from Ti’s Digital Freight Forwarding Survey 2022, including usage, service modes, types of services used and most valuable services
Source: Transport Intelligence, 14th June 2022
Author: Transport Intelligence