Hello there, Welcome to issue #18. This week Uber launched their UberConnect service, which allows individuals the ability to send packages between each other. Droppa dubbed the ‘Uber for bakkies’ launched a full-service courier offering in conjunction with their same-day relocation service. Finally, The Courier Guy launched a smart locker service app called PUDO (which means Pick Up, Drop Off). The service allows individuals to send packages by dropping them off at a locker & selecting another locker where the package is sent to for pick up by the recipient. Let’s zoom in & see what’s happening & where the opportunities lie.
First, what is logistics? What does it entail?
I like the definition of logistics on Wikipedia:
“Logistics is the management of the flow of things between the point of origin and the point of consumption to meet the requirements of customers or corporations”
Simply put: logistics is everything that happens when getting a product from point A to point B.
There are different types & levels of logistics but for my simplicity & hopefully yours too we’ll stick to segmentation based on the size of the vehicles, nature of cargo & in some cases when the vehicles get smaller we will include segmentation based on time to deliver & customer focus.
Freight Forwarding & The Uber of Trucking
Freight Forwarding is one of the most ancient sectors in transportation & logistics but Freight Forwarding was only formalized in the early 1830’s. From the early days of ships, cargo needed to be accounted for. This was done by an agent called a Freight Forwarder. The agent is almost always an organisation associated with the ship itself. It is the duty of the Freight Forwarder to organise the shipment of cargo between the point of pick up & the final destination of the cargo by coordinating with carriers. Freight Forwarding is a massive $170 billion global industry; The International Federation of Freight Forwarders Associations (FIATA) represents 105 nations & has over 5500 members. Unlike most industries which face the innovator’s dilemma Freight Forwarding is very competitive with more than 25 firms that gross over a billion in revenue but the problem one company saw is how all of them were archaic & refused to digitize the forwarding process end-to-end.
Flexport is a San Francisco based forwarder, which saw this gap in the market to digitize the forwarding process end-to-end by focusing on data-driven insights to provide real-time feedback to their customers using a single dashboard. The famous Harvard Professor Clay Christensen would argue that what Flexport is doing is sustaining innovation but some believe their digital-first approach gives them an edge against the likes of DHL. Their moat, however, is yet to be proven at scale & forwarding remains one of the most competitive industries in the world.
While Freight Forwarding has no relevance in the context of startups in South Africa, it does put the logistics industry in the perspective of how global it is. Another startup does though; Convoy. Convoy is a Seattle based company which took the concept of ride-sharing to another level. Founded back in 2014 Convoy with the premise of reducing wasteful trips in haulage by connecting empty trucks with cargo through a mobile app. This idea took off in Africa as well. 2 years later in 2016 Kobo360 launched in Nigeria, at the same time Lori Systems launched in Kenya & EmptyTrips in South Africa. The novel idea of connecting trucks, primary truck drivers to cargo loads to reduce trip times & increase earnings was largely taken from the ideas of Uber.
To be honest, Freight looks like an extremely complex business & operationally intensive. I broke my brain reading up on it. Not to mention the capital required to scale such a business. According to Crunchbase Flexport has raised $1.3 billion, Convoy – $665.5 million, Kobo360 – $37.3 million, Lori Systems – $36.2 million. Nevertheless, Kobo360 & Lori Systems are among the best run startups on the African continent.
In the context of South Africa, haulage is a highly fragmented but competitive market. Ultimately EmptyTrips succumbed to execution risk.
The consensus idea in this market, in general, is to make haulage more efficient through end-to-end processes using technology largely pioneered by Uber & other e-hailing startups.
Same-Day Delivery & 3PL
When it comes to same-day delivery the natural question one should ask is; ‘What is Amazon doing’. But inspirations can come from unlikely places. Let’s take a look at the largest e-commerce player in South Korea; Coupang. Coupang was founded in 2010 in Seoul by Bom Kim. Initially, Bom Kim dropped out of Harvard Business School to build a clone of the American company Groupon. Bom Kim soon pivoted the business to focus on e-commerce rather than Groupon like daily deals. First, Bom Kim tried an eBay like marketplace but saw what Amazon was doing in America with same-day delivery & decided to obsess over providing same-day delivery to customers in South Korea. Instead of focusing on types of products to offer, Bom Kim offered generic consumables & focused on optimizing delivery times. He called this project; Rocket delivery.
Rocket delivery is an algorithm-human-driven delivery machine. 99.3% of Coupang’s orders arrive within 24hours across the whole of South Korea. How is this possible? Well, it comes down to a few things. Number 1, South Korea is relatively dense (509 people per square km compared to 47 in South Africa). This density has allowed Coupang to invest in a robust cross-country logistics network with over 5000 drivers & 200 warehouses. Number 2, South Korea is a digitally advanced country, thanks in part to some of the world’s largest companies being from there (Samsung, LG etc). Number 3, hyper-growth e-commerce, South Korea is set to surpass Japan & become the third leading country by e-commerce volume behind China & America.
Coupang being an e-commerce company took advantage of a mature market & built out their own logistics network, similar to what Takealot is doing now via MrD.
Does this mean in order to provide same-day delivery one needs to build out their own hyper-growth e-commerce venture?
What if a company cannot invest in first-party logistics but still wants same-day delivery for their customers? Enter 3PL.
3PL which means ‘Third-Party Logistics’ is a term given to an outsourced fulfilment & distribution network. In South Africa, a company called uAfrica was founded in 2012 by BidorBuy founder Andy Higgins as a means to aggregate the fragmented 3PL provider market into one integrated dashboard connected to eCommerce platforms like Shopify via a plugin.
But at the base of it, logistics/courier in South Africa hasn’t changed in decades. Dawn Wing has been around since 1989, The Courier guy since 2000 & Courier IT since 2002. The Courier Guy has shown some initiative over the last couple of years & launching PUDO, the smart locker service as a way to compete in the customer-to-customer (C2C) market held by Aramex, is a good expansion plan.
These companies were not born out of the mobile age but they do their job (somewhat). 3PL is an asset-heavy business & technological advancement is not really a prerequisite to trade, as long as the customer is served. 3PL is a B2B2C industry, efficiency & distribution is the most important moat.
Last but not least: On-Demand Delivery
Most of the disruptive innovation in logistics has come from on-demand delivery providers. Unlike Same-day delivery, on-demand is driven by the customer & not the supplier. This dynamic is important in distinguishing between the two. Another distinguishing feature is time, typically same-day delivery orders are made before a certain time to satisfy delivery within a 24-hour window, sorry I did not explain it earlier. For instance, The Courier Guy has a feature called same-day flyer, which allows for same-day delivery if orders are dispatched before 10:00 am. On-demand delivery is instantaneous & orders are usually fulfilled in less than an hour. On-demand delivery happened at scale because smartphone technology made it efficient to operate a three-sided marketplace at scale.
Back In 2010 two guys in San Francisco were trying to decide what to do after their startup. Their startup, Curated.by, was not catching fire with its intended users. The two guys, Bastian Lehmann & Sam Street together with Sean Plaice started a new company. A logistics company that would connect merchants who sold things like furniture & bikes to customers. When Bastian & the team saw that customers were using the app as a way to order food from restaurants, they quickly refocused the business to service the needs of customers by allowing them to order whatever they wanted. By this time they had seen what Uber was doing with black cars & set out to build their driver network focused solely on bikes. This was the creation of Postmates, one of the largest on-demand delivery startups in America.
Fast forward 2 years Postmates had a plethora of competitors in the food delivery market. DoorDash launched in 2013, Uber launched UberEats in 2014 & Grubhub modified its business model by acquiring food delivery companies. The problem Postmates had was that they were all things to everyone & not one thing to anyone.
Postmates made a dent in the On-demand delivery market & is arguably the pioneer of it.
So this leads us back to South Africa, how does this market look?
There are two things that are happening in the market that makes it interesting:
1. There’s a cross-pollination of services due to COVID: Alcohol delivery startups entered grocery delivery, grocery delivery startups entered alcohol delivery & food delivery companies entered grocery delivery.
2. Courier services are now a strategic intent: Uber launching UberConnect & Droppa’s full-service courier offering.
With the lines being blurred on who does what & the competitive nature of on-demand delivery, it is going to be interesting to see how this market pans out in 2-3 years. Will there be consolidation with the smaller players? How far can Uber & Takealot stretch their services? Is there space for new players outside the big cities? What about bike delivery?
What I do know is that value is being created & in the process infrastructure. Freight Forwarding might be too complex for my brain but I understand that 3PL is important for e-commerce & as e-commerce grows that market will grow too. I also understand the creative destruction in on-demand delivery will only benefit the customer in the long run.
But there are some negative elements too, such as the long-term sustainability of the three-side marketplace model & the contentious issue of driver classification. I change my mind every day when it comes to marketplaces but I have settled on being bullish on marketplaces & logistics innovation.
Closing; some book recommendations:
* The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World by Brad Stone.
*The Innovation Stack: Building an Unbeatable Business One Crazy Idea At A Time by Jim McKelvey.
Thanks to my friend Tshidiso for reading, editing & giving insights.