Innovation Footprints

What if . . . ?

Supply Chain Logistics

#UserManual – Send Us All The Early-Stage Supply Chain Technology Startups

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Brian Laung Aoaeh and Lisa Morales-Hellebo, at #SCIT2019, June 19 – 20, Microsoft, Times Square, NYC. Photo Credit: Ray Neutron.

Author’s Note: This blog post is an updated version of User Manual: The Early Stage Startups I Want To Hear About Most in 2016 and 2017 and User Manual: The Early Stage Startups I Want To Hear About Most in 2017 and 2018. Certain portions of this version may be exactly the same as in the prior versions. However, there are significant differences between the prior versions and this one.

About REFASHIOND Ventures

REFASHIOND Ventures is a seed-stage venture fund that Lisa Morales-Hellebo and I are building to: invest in startups developing technology innovations to refashion global supply chains – across different industries. 

We are in the process of raising our first fund. Once we raise the fund, we will be based in New York City. 

While we are raising the fund, we are collaborating with a family office to make some early investments that fit our investment thesis, and the family office’s investment interests.

The three philosophical pillars of our investment thesis are;

  1. The world is a supply chain.TM
  2. Software is eating the world.
  3. Disruption creates opportunity.

Our working definition of a supply chain: “A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users.”

– Martin Christopher, Logistics & Supply Chain Management: Creating Value-Adding Networks, 4th ed, Pearson Education Limited 2011, p4

We believe that a perfect storm of irreversible social, economic, technological, and environmental forces, has created an urgent and critical need to refashion global supply chains. This process presents the biggest investment opportunity of the next half-century. We are building a fund to invest in that opportunity.

We’ll invest in startups in the following areas; Supply Chain Management, Supply Chain Logistics, and Supply Chain Finance – across industries.

Our initial focus is on startups based in the United States, and Canada.

About The Worldwide Supply Chain Federation

The Worldwide Supply Chain Federation, which we founded in August 2017, is the collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry. Each chapter is a community of practice that connects the builders of technology innovations for supply chain with the buyers of technology innovations for implementation in real world commercial supply chains. The New York Supply Chain Meetup is its founding chapter.

The Worldwide Supply Chain Federation is the world’s first, largest, fastest growing, and most active network of grassroots driven communities focused on supply chain, innovation, and technology. You can learn more here: The Worldwide Supply Chain Federation.

You can check out our Youtube Channel here. Join our community here. Follow @tnyscm on Twitter.

Characteristics We Look for in Teams, and Founders

We look for – we will not learn this until we actually interact with you. But this is what we will be looking for;

  • Teams in which the founders have known one another for a considerable amount of time prior to launching their startup; We look for teams in which the level of trust and respect between the co-founders is high. This reflects our belief that at the earliest stages of a startup’s life, team risk is the greatest risk we must worry about.
  • Teams that will not have difficulty attracting other great people to join the startup; We look for founders who inspire confidence and loyalty from others because they are good at what they do, the kind of people we could picture myself working for. We look for people that others outside the startup can come to look up to as thought leaders in their chosen area of expertise.
  • Founders for whom solving the problem that their startup is solving has become their life’s mission and they will work to solve that problem with or without help from outside investors; We look for founders who have an unconventional opinion about the market opportunity they are pursuing, and can explain their position is with evidence that investors can analyze independently. We look for founders who are focused squarely on solving their customers problems.
  • Teams that can focus on building a simple product that their initial customers love, and who can focus on a niche within which to launch that product. We look for teams that are judicious and frugal in how they deploy the startup’s resources.
  • Founders who value teamwork, and who can become great leaders if they desire to do so; We value transparency, honesty, and openness. We value self-awareness. We like people who are determined and tenacious, who do not give up just because the going gets uncomfortable and things seem bleak.
  • Founders who have a hard time doing something simply because it is what someone else expects them to do; We do not like obedience. We detest arrogance. We admire confidence. We look for founders who are not afraid to be different. We look for founders who have prior demonstrable experience of good decision-making when things are uncertain and information is incomplete. We are not looking for perfection.

Characteristics We Look For in Markets

We look for;

  • Large markets that could ultimately be served by the startup’s product, even though the initial target might be a small portion of the whole. We look for customers capable of and willing to pay for the product, and who are looking for and eager to find a solution to their problem.
  • Markets in which the pain is acute because the problem suppresses customers’ profits significantly, or because the problem makes users far less effective and efficient than they could be.

If currently the addressable market is between $1B and $10B, we want to see evidence that it is growing quickly enough to support the startup’s future goals, and the competition that we assume will quickly follow if the team is successful.

Characteristics We Look For in Business Models

We look for products and business models that:

  • Will benefit from network effects as time progresses,
  • Can scale efficiently and quickly once product-market-fit has been established, and
  • Can eventually benefit from an economic moat as the startup matures into a company, and the business model becomes established.

The Themes We Are Focused On

Notes:

  • These themes cut across different industries and sectors. That is a deliberate choice in the way we are designing REFASHIOND Ventures.
  • The technology sector evolves constantly. Accordingly, our team’s interests might adjust in response. The themes we have described below should serve as a rough guide to how we think about the universe of startups in which REFASHIOND Ventures will invest. It is not comprehensively exhaustive, nor is it mutually exclusive of themes we have not described. If the innovation you are working on fits our definition of supply chain and the descriptions above, please reach out to us.
  • We anticipate that REFASHIOND Ventures first fund will be a pre-seed and seed-stage fund. Our current collaboration will primarily focus on startups raising an institutional seed round, or raising a round between a previous institutional seed round and a series A round.

Our current investment themes;

  • Next Generation Logistics: Platforms or applications that significantly improve how logistics and transportation networks are operated and managed.
  • Advanced Materials: Platforms or products that make it possible to research, invent, and create new types of materials at scale. We are especially interested in the conversion of large quantities of waste of different types into new materials. 
  • Advanced Manufacturing: Platforms or applications that make it possible to integrate advances in software engineering into manufacturing processes. 
  • Data & Analytics: Platforms or applications that help people or other machines to manage, analyze, interpret, make decisions, and take actions based on vast and growing amounts of centralized or decentralized data from disparate sources. Such platforms or products enable large numbers of different types of connected devices, machines, apps, and websites to communicate with one another seamlessly, and with the people managing or using them, within a secure environment. 

Connecting With Us

If you know someone who knows us, an introduction would help. If you do not, never hesitate to communicate with us directly. We are both very easy to reach on the major social networking platforms. 

The best time to start communicating with us is before you are raising a round because we believe it is important to build trust and understanding before entering into the kind of working relationship that exists between startup founders and their early stage investors.

That also gives us sufficient time to understand the problem you are solving, so that if REFASHIOND Ventures invests, we are doing so with conviction. Time enables us to become a more effective advocate on your startup’s behalf when we have discussions about you with other investors we know, and who we feel would be a good match for the round you are raising.

Communicating With Us

If we are not meeting through an introduction, we will respond quickest to founders who get straight to the point, and explain why we should speak with them in 250 – 400 words in their first email to us. We try our best to respond to founders who initiate communication with us. However, depending on what else we have going on, we may not respond if we feel the startup is outside REFASHIOND Ventures’ areas of interest. 

Follow up with us once or twice if you believe we have made a mistake by not responding.

Things We Believe Are Red Flags

  1. Exploding rounds: An exploding round comes with a caveat like “Seed round in ground-breaking tech startup closing in 1 week!” We need time to do our own homework.
  2. Meetings led by an advisor: We prefer our first few interactions with a startup to be with the team of co-founders, not with an advisor or an investment banker. It is okay for an introduction to come from an advisor if that advisor is someone we already know. We do not like to have advisors or mentors micro-manage our interactions with startup founders. That does not inspire confidence.
  3. Lack of control over core technologies: We try to avoid situations in which the startup has a product that has launched to the public, but the startup’s team has no primary responsibility for actually building the core product. If there’s IP we’ll spend some time trying to understand who owns the IP.
  4. Founders who are mainly focused on invention: Some founders are born inventors. In and of itself, that is not a bad thing. However, as investors we have made a choice to invest in founders who want to build potentially big businesses. 

Our Commitment To Startup Founders

Based on Gil Dibner’s VC Code of Conduct;

  • We will be transparent.
  • We will respect your time.
  • We will not ask you for material we do not need.
  • We will not string you along.
  • We will let you know about any competitors in our portfolio.
  • We will be transparent about conflicts of interest.
  • We will not share any of your material without your permission.
  • We will not speak with your customers without your permission.
  • We will educate before we negotiate.
  • We will be honest about what standard terms are.
  • We will not issue a term sheet unless we have made a firm decision to invest.
  • We will reflect the term sheet in the final legal documents.
  • We will not seek an unreasonable equity stake.
  • We will avoid surprises.
  • We will always act in the best interests of the startup.

Without doubt, there will be times when we fail to live up to these ideals. When that happens we hope founders will let us know. That is the only way we can get better.

Can Collaboration and Community Serve as Catalysts For Innovation in Supply Chain?

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Note: A version of this article was first published on July 31, 2019 at Port Technology.

The innovations required to reinvent global supply chains will not happen without collaboration. This article describes our experience facilitating such collaborations, starting in late 2017.

In late 2016 and early 2017, I spent a lot of time studying trucking and shipping, with a view to understanding the industry dynamics at play, and to see what opportunities might exist for software startups. What I learned about the trucking industry piqued my interest in logistics overall, and ultimately led me to a decision to focus on early stage technology investing in supply chain by building REFASHIOND Ventures to invest in early stage technology startups reinventing supply chains.

Through that work it became painfully clear to me that there is a need for closer collaboration between software startups and established, mature companies. 

This article will explain why there’s a need for such collaboration. I will also discuss the approach our community, The Worldwide Supply Chain Federation, has taken to enable such collaboration. Although it is still early, we will end with a discussion of some early indicators of the results we might expect in general.

Note on prior and recent work: Disruption, supply chain management, supply chain finance, and supply chain logistics are topics I have been studying for some time – from the perspective of an early stage venture capitalist specializing in supply chain; Notes on Strategy; Where Does Disruption Come From? (2015), Industry Study: Freight Trucking (#Startups) (2016), Updates – Industry Study: Freight Trucking (#Startups) (2016), Industry Study: Ocean Freight Shipping (#Startups) (2017), Updates – Industry Study: Ocean Freight Shipping (#Startups) (2017), Where Will Technological Disruption in The Fashion Supply Chain Come From? (2018), Is disruption finally underway in the freight brokerage industry? (2019), and Why digital freight brokers might fail to disrupt the freight brokerage industry (2019).

Identifying The Chasm

A consequence that arose from my decision to publish my articles on trucking and shipping is that it prompted several executives at established companies to reach out to me to talk about my findings. The same happened with startup founders – though, they mostly wanted to meet an early-stage venture capitalist who cared about supply chain logistics.

Those conversations made it painfully clear that: On the one hand, executives at established companies know the business problems in supply chain operations for which they desperately need new innovations. However, they typically do not have sufficient time to meet their daily responsibilities at work and scour the globe seeking out such new innovations. Moreover, their companies might not be plugged into the right communities to find such innovations through tradition RFP processes. Moreover, such executives also tend not to have a very good sense of how much certain emerging technologies have matured, and if such technologies might be applicable to the problems they need to solve. I call such executives BUYERS: these are people and organizations who want to buy new technology innovations for supply chain operations. This is particularly true in a nascent area like cryptocurrencies and blockchain.

On the other hand, founders of software startups that are creating new innovations for supply chain tend to understand the technology well, but they lack a deep and nuanced understanding of the business problems that potential customers face. They lack a sufficiently mature understanding of the value proposition they must offer to the BUYERS if they are to win market adoption. I call such startup founders BUILDERS: these are people and organizations who are building new technological innovations for supply chain operations.

For this conversation to make sense, it is critical that we share a common understanding of what I mean by supply chain. 

The definition I have adopted is from the 4th edition of Martin Christopher’s Logistics & Supply Chain Management: Creating Value-Adding Networks. A supply chain is: “A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users.”

Crossing The Chasm

In order to bridge this chasm between BUYERS & BUILDERSTM, Lisa Morales-Hellebo and I founded The New York Supply Chain Meetup in August 2017. We started with a very simple premise: Once a month, for about 9 out of the 12 months each year, we would bring these two groups of people together to:

  • Network, 
  • Talk to one another about the problems they were trying to solve and the products that they were building, and
  • Participate in curated programming that is based on relevant and topical themes related to supply chain. 

Each event would last about 3 hours. The format of a meetup appealed to us because it is inherently grass-roots driven, and emerges spontaneously based on a shared enthusiasm among a group of like-minded people for a particular topic. 

We ultimately settled on a mission for The New York Supply Chain Meetup: To nurture and grow the world’s foremost open, global, multidisciplinary community of people devoted to building the supply chain networks of the future – starting in NYC.

Even before we held our launch event on November 16, 2017 people in other parts of the United States, and in other countries asked us if we would be live-streaming the event. We took this as a promising sign. As we approach 24 months since we initially started working on this, our tentative first efforts have grown into an initiative to build The Worldwide Supply Chain Federation; A collaborative, and mutually supportive coalition of grassroots communities focused on technology and innovation in the global supply chain industry. The New York Supply Chain Meetup is its founding chapter. 

The initiative is entirely grass-roots driven. Our community includes:

  • Startups,
  • Mature Companies – across all industries,
  • Academics from research institutions,
  • Early-stage technology venture capitalists, and other late-stage investors, and
  • Journalists, regulators, professional services providers, and any other groups of people with interests and skills relevant to innovation in supply chain.

We have 1900+ members in The New York Supply Chain Meetup – the founding chapter, 2700+ members around the world, an active chapter in Charleston, South Carolina, and chapters in the process of being formed in several other cities around the world. 

The Worldwide Supply Chain Federation held its inaugural global summit, #SCIT2019, on June 19 and June 20 in NYC. 

  • We had 1000 people sign up for the event before we closed registration. 
  • During the event we had about 400 people attend on each day of the summit. Attendees came from 15 countries. 
  • We had 31 speakers: With 11 startup showcases, and a presentation by the Singapore Economic Development Board on June 20. Video of the event is available on our YouTube channel. 

Also:

In An Age of Platform Competition, Open Collaboration, Open Communities, and Open Ecosystems Matter A Lot

Why are companies like Amazon, Apple, AirBnB, Microsoft, Alibaba, Google, JD.com, Uber and others, posing a threat to companies in traditional industries? Why are startups that many people have never heard of beginning to attack and threaten companies in mature, established industries that one may have considered immune from such threats as recently as even just half a decade ago?

It is because the companies I have listed, and others I have not, understand the importance of business models that are built on open ecosystems rather than proprietary and linear value chains owned by a single company. 

Using the internet and other maturing software-enabled technologies as the foundation, these companies are launching demand-side and supply-side attacks on industries that have become accustomed to relatively sanguine competition among well established companies. 

That raises the question: What is an ecosystem? A business ecosystem has three main characteristics;

  • First: It is a network of networks.
  • Second: The focus of the ecosystem orchestrator must be on enabling and facilitating the creation and exchange of value, between all participants of the ecosystem.
  • Third: The creation and exchange of value must occur in a way that increases the aggregate well-being of the entire network over time.

When executed well, platforms and ecosystems give rise to powerful network effects. Network effects matter because, in the most extreme cases they can lead to winner-take-all outcomes. At best, they lead to winner-take-most situations. 

What’s are network effects? 

As I explained in my September 2014 article on the topic Revisiting What I Know About Network Effects & Startups: “A network effect occurs when the value of a good or service increases for both new and existing users as more customers use that good or service. The network effect is a virtuous cycle that allows strong companies to become even stronger. Network effects are also known as direct-benefit effects.”

The Results Are Early, But The Signs Look Promising 

As I have pointed out already, our effort is entirely grass-roots driven. We are yet to attract significant outside support to accelerate our efforts. Nevertheless we are showing promising early results in the 24 months during which we have been working on this. Here are just a few highlights.

  • A startup in our community is working with a very large shipping company that is seeking software technologies that enhance its ability to make decisions under uncertainty. Such software can be applied in various aspects of the shipping company’s global operations. The software could also be introduced to the shipping company’s customers who also need to optimize their own supply chain operations. The shipping company gains new technology, while the startup wins a channel partner to aid its go-to-market efforts.
  • A handful of startups in our community are building software to enable established freight forwarders modernize their business operations without bearing the expense of developing software from scratch. Many such efforts are led by people with significant experience in the freight forwarding business who have teamed up with technologists to build the technology. For such startups, a community like ours provides a great, low-pressure opportunity for them to connect with potential customers as well as potential investors.
  • Another startup in our community is building a derivatives exchange for the freight markets, creating a new suite of tools that shippers and carriers can use to manage risk.
  • One startup in our community is building a communication platform to enable communication around the transactions that take place between shipping companies and beneficial cargo owners, freight forwarders, and other parties involved in the shipping of cargo. Currently that communication happens over email, and relies on manual, paper-based processes. The team already has significant experience building software for the maritime shipping industry. The need for the product it is building is confirmed by the explosive rate of growth in adoption by very large shipping companies around the world. Where our community can help is with advice about the startup’s interactions with potential venture capital investors, and providing opportunities for the startup to tell its story to a wider audience. In one instance, after presenting at one of our events, a real estate broker told the startup’s founder that the same problem exists in the real estate industry. He also met an executive from a large shipping company who offered to introduce him to the shipping company’s corporate venture capital arm.   

Collaboration Is Especially Critical in Blockchain + Supply Chain

Like everyone who is enthusiastic about supply chain and technology, we are exploring how blockchain and other distributed ledger technologies will affect the supply chain. Here are some of the things I have learned;

In relation to blockchain, one of the lessons I learned while studying the shipping industry in early 2017 was this: 

“One product that it appears the industry would gravitate towards is a system of record that connects all participants in the supply chain, from end-to-end. This would be a platform into which various shipping industry data could be input, and other data can be obtained as outputs. Probably most input data would come from other platforms and data repositories, while output data would be fed to different counterparties based on their access rights and information requirements.” 

In that blog post, which I published in June 2017, I went on to say that this product seemed to be one ideally suited to be built on a blockchain. The platform would need to allow several independent parties to collaborate with one another while providing each of them with anonymity for certain aspects of their interactions. 

For example: Customs agencies around the world might demand special access rights to enable them monitor international trade transactions happening under various national regulatory jurisdictions. Such agencies could desire anonymity under certain scenarios.

About a week after I published the blog, I discovered that IBM and Maersk were beginning to release more details about their plans for TradeLens to the public.

During our meetup in January 2018, we hosted a discussion featuring speakers from UPS, SAP, Sweetbridge, Blockcience, and MState. The keynote speaker at that event was Dr. Michael Zargham, CEO and Founder of Blockscience, and at the time, also a technical advisor to Sweetbridge. The overarching conclusion I reached by the end of the event was this:

 “Successful implementations of cryptocurrencies and blockchains in supply chain will require more collaboration than the traditional industry is accustomed to.” — Why? The technology combines: digital systems; physical systems; social and political organization; economic structures and incentives; finance; and capital markets. No single organization is expert enough in all those fields to go it alone.

At our meetup in April 2018, we had speakers from: Algorand, Maersk, IBM, TigerTrade, EY, MState, Celsius Networks, and Sweetbridge. Professor Silvio Micali of MIT’s Computer Science and Artificial Intelligence Laboratory was the keynote speaker at that event. He described the key ideas behind Algorand, a blockchain he invented expressly to satisfy the demands of businesses. The other speakers discussed what it would take to bring blockchains out of the lab and into the real world of supply chain. Based on the discussions that day, I reached the conclusion that: 

Blockchain applications for supply chain must be interoperable with other blockchain platforms, and they also must be interoperable with the older technologies that businesses have relied on up till now.

TigerTrade started a conversation with IBM as a result of initial informal interactions at our in April 2018. Ultimately, this led them to partner and collaborate on the creation of TRADEFLO, a blockchain-powered platform for global trade facilitation and financing. Tanjila Islam, CEO and founder of both TigerTrade and TRADEFLO presented TRADEFLO at The Worldwide Supply Chain Federation’s inaugural global summit in New York City on June 20, 2019. Tanjila’s experience building TigerTrade directly informed her understanding of the need for a platform with TRADEFLO’s attributes. 

Conclusion

Platforms and ecosystems work well because they allow each participant of the platform to play to its unique strengths, while relying on its ecosystem partners for capabilities that it does not have in-house. This is not an issue that has mattered for shipping companies in the past. But, it is becoming more of an issue now, and it will continue to become a more acute problem in the future as beneficial cargo owners demand more sophisticated services from their supply chain partners. 

Collaboration is difficult because it requires a change in culture. It requires an openness that is not customary in many organizations. Collaboration for the purpose of discovering and nurturing innovative new ideas, products, services, and business models is even more difficult because it requires a commitment from senior leadership. Given how often individuals are shuffled around in organizations, it can be difficult to get anyone to focus appropriately on the long and difficult work that is required to build collaborative partnerships.

However, those companies that do not partner with others to meet their customers’ demands stand the risk of losing those customers to companies that come to grips with platform-and-ecosystem-driven competition more quickly. 

The Democratization of Data for Supply Chain Logistics

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Note: A version of this story was first published on May 29, 2019, at FreightWaves.

Almost every day, there are reports warning of severe weather events, across the United States and in other parts of the world. About two weeks ago, while listening to one of those reports I thought to myself “I wonder how easy it is for someone responsible for supply chain operations at any company to proactively get a sense of where there may be severe weather events worth worrying about?” I couldn’t think of any.

Since that day, whenever I have some slack in my day, I go to Google to see if I could find something that provides a simple to use, and holistic source of data and information to enable all types of businesses make preemptive decisions related to their supply chain operations.

The closest I have found is FreightWaves’ Sonar — specifically, for the particular issue I am thinking about, the Critical Events view.

According to Zurich Insurance Group, an extreme weather event is an unexpected weather incident that is at the extremes of historical ranges for a specific location. The record amounts of precipitation that led to flooding in the midwestern United States in March, and the flooding earlier this month, again in the midwestern United States, are both extreme weather events. As bad as the problem is now, it has been getting worse, and will continue to get worse.

In “Economic Losses, Poverty & Disasters: 1998–2017”, the United Nations Office For Disaster and Risk Reduction (UNDRR) and the Centre for Research on the Epidemiology of Disasters (CRED) state:

“The report finds that between 1998 and 2017, climate-related and geophysical disasters killed 1.3 million people and left a further 4.4 billion injured, homeless, displaced or in need of emergency assistance. While the majority of fatalities were due to geophysical events, mostly earthquakes and tsunamis, 91% of all disasters were caused by floods, storms, droughts, heatwaves and other extreme weather events.

In 1998–2017, disaster-hit countries experienced direct economic losses valued at US$ 2,908 billion, of which climate-related disasters caused US$ 2,245 billion or 77% of the total. This is up from 68% (US$ 895 billion) of losses (US$ 1,313 billion) reported between 1978 and 1997. Overall, reported losses from extreme weather events rose by 151% between these two 20-year periods.”

The ability to know where critical weather events may be developing so that a business can adapt it’s plans for moving goods around is quite important. Severe weather events simultaneously increase costs and decrease revenues.

As I write this article, Sonar is showing me;

  • 591 Severe Weather Watches and Warnings around the world,
  • 5 Severe Thunderstorm Outlooks
  • 2 Tropical Cyclones
  • 40 Earthquakes, and
  • 2 Wildfires.

Sonar also allows me to drill down further, to get local data wherever there’s an asset providing data to the system. I drilled down to see more detail from data assets and sources in Kaduna, Port Harcourt, and Warri — cities in Nigeria. It’s the beginning of the rainy season in West Africa so I may come back periodically to see what the data says.


In addition, I can zoom in on parts of the United States, and identify the specific cities that are most likely to be hit by the storms that are mentioned daily in the news. For example, I as I write this article, can see that there are 160 different assets collectively warning of wind gusts, severe weather, hail, flooding, and tornados across the midwestern United States. If I were expecting a shipment of goods from that region, I could make contingency plans to account for these developments.

FreightWaves isn’t the only company building a platform of this sort. In January 2016, IBM announced that it had acquired The Weather Company. Presumably with the data that it has gained from that acquisition its Watson Supply Chain platform is better placed to help IBM’s enterprise clients take proactive measures to prevent disruptions to their business operations.

The power of systems like the ones I have described will be realized when they are as ubiquitous for businesses as Google Maps and Waze are for consumers. The technology keeps getting better, and the need keeps becoming more acute. The days when such information is only available to big companies that can afford to pay significant sums each year for such data and information are now behind us.

Our Trash Is Creating A Coming Supply Chain Crisis

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Note: A version of this story was first published on May 22, 2019, at FreightWaves.

News reports about the 2019 Copenhagen Fashion Summit (May 15 — May 16, 2019) highlighted current efforts by the French government to encourage fashion companies to establish sustainability goals for the industry. French President, Emmanuel Macron, has appointed Francois-Henri Pinault, CEO of Kering SA to lead the charge. This is part of increasing concern around the world on the issue of waste, and waste management. Initiatives like the one in France, and others around the world, are also shifting focus from our past of linear supply chains to a future of circular supply chains.

Putting things in context

According to the World Bank Group’s “What A Waste 2.0: A Global Snapshot of Solid Waste Management to 2050”;

  • In 2016, 2.01 billion metric tonnes (4,431.3 billion pounds) of municipal solid waste was generated globally. If nothing changes, this is expected to increase to 3.4 billion metric tonnes (7,495.7 billion pounds) by 2050.
  • Food and green waste make up about 50% of waste in low-income and middle-income countries. In high-income countries, this proportion is 32%.
  • Recyclables — paper, cardboard, plastic, metal, and glass, makes up about 16% of the waste stream in low-income countries, and up to as much as 50% in high income countries.

Assuming that a full garbage truck weighs 23 metric tonnes or 50,000 pounds, this means that global waste produced in 2016 was the equivalent of about 87,391,304 garbage trucks a year, or 239,428 garbage trucks per day. If nothing changes, in 2050, global waste will be the equivalent of 147,826,087 trucks, or 405,003 garbage trucks per day.

What are the biggest culprits in post-consumer waste?

Fashion, apparel, & textiles is attracting a lot of attention. The following data and information in Figure 1 — Figure 6 below, from The Ellen MacArthur Foundation’s “A New Textiles Economy: Redesigning Fashion’s Future” report proves instructive. In summary, the problem is growing and solving it will require a new way of thinking, and concerted collaboration to create systemic solutions rather than isolated solutions.

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Plastic waste has also been attracting a lot of attention. Here too, The Ellen MacArthur Foundation’s New Plastics Economy initiative is uniting companies, governments, and multilateral organizations in an effort to curtail and reverse the adverse impact plastic pollution is having on the world. To properly understand the problem posed by plastics, consider that reports suggest that popular everyday items made from plastic can take anywhere from 10 to 5,000 years to decompose through biodegradation. Figure 7 and Figure 8 below put things in further context.

Figure 7

Figure 8

The gravity of the problem posed by plastics especially is captured by media reports that;

  • May 2019 — The National Geographic reported that “more than 180 nations agreed in Geneva to add mixed plastic scrap to the Basel Convention, the treaty that controls the international movement of hazardous waste.” This has become an issue of growing international concern ever since China stopped buying non-industrial plastic waste in 2018 — China is the biggest importer in the $200 billion global market for non-industrial plastic waste. It is becoming increasingly difficult for wealthy countries to export their trash to poor countries.
  • May 2019 — National Geographic and CNN reported that plastic debris was discovered at the bottom of the Mariana Trench, at a reported depth of 35,849 feet (6.79 miles) or 10,927 meters (10.93 kilometers).
  • March 2019 — The New York Times and The Washington Post reported that a dead whale was found on a beach in the Philippines with 88 pounds (39.92 kilograms) of plastic in its stomach.

News media reporting, and statistics, on other categories of waste paint an equally damning picture: For example, according to the United Nations’ Food and Agriculture Organization, about one third of the food produced in the world goes to waste every year.

So, what’s being done about this problem?

Companies, national governments, and multilateral organizations are teaming up to try to tackle the problems posed by increasing amounts of waste. For example: News reports about the 2019 Copenhagen Fashion Summit (May 15 — May 16, 2019) also highlighted Nike’s creation of an open source design guide aimed at nudging the fashion industry towards a future of circular and sustainable supply chains.

There are a few difficult problems in relation to the creation of circular and sustainable supply chains;

  • First: There is a dearth of voices from supply chain logistics in the discussions so far. How we move post-consumer waste to sorting and recycling centers will be a key component of creating circular supply chains.
  • Second: A clean and sustainable environment fits the definition of a public good. So efforts to build circular supply chains could very easily be susceptible to the free-rider problem unless political and economic structures are put in place to prevent that from happening.
  • Third: The success of circular and sustainable supply chains will rest on big behavioral changes for people all over the world — from a linear culture that glorifies consumption and generates a lot of waste, to a cyclical culture that minimizes unnecessary consumption, minimizes waste and maximizes sustainability and the reuse of products.

On the bright side, there are several startups creating innovations to tackle the problem of waste, in different industries. Social movements like #FridaysForFuture could potentially gain strength, and drive the tougher political action that may be required to spur private industry into taking more concrete steps to bring circular supply chains out of the lab and into the real world, at scale.

Is disruption finally underway in the freight brokerage industry?

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Note: A version of this story was first published on May 10, 2019, at FreightWaves.

On April 25, Amazon announced that it was making an investment of $800 million to reduce delivery times, from two days to one, for members of Amazon Prime. The next day FreightWaves was first to report that, without any fanfare, Amazon had also launched a digital freight brokerage website at freight.amazon.com. Before that, on February 5, Convoy, a startup in Seattle that operates a digital freight marketplace, announced that it can now automatically match 100% of loads to carriers, without human intervention.

These announcements have pushed us farther along a curve tracing the evolution of the freight brokerage market, one that has historically operated on the basis of personal relationships, trust, and phone calls.

What is a market disruption?

A market disruption occurs when new entrants into a market supplant incumbent companies within that market in terms of market share and market power, leading to financial distress for some incumbents.

In his book, The Disruption Dilemma, author Joshua Gans distils what we know about disruption into two major categories;

  • The Demand-Side Theory of Disruption (Demand-Side Disruption) is the more popular and widely known version of disruption because it is the process described and explained in Clayton Christensen’s book The Innovator’s Dilemma. A Demand-Side Disruption is driven by changing customer demands and expectations.
  • The Supply-Side Theory of Disruption (Supply-Side Disruption) is much less well known, and results from research by Rebecca Henderson and Kim Clark. A Supply-Side Disruption is driven by a change in the architectural knowledge that forms the basis by which suppliers satisfy market demand for a service or product.

The freight brokerage market is being attacked on two fronts

Amazon’s entry into the freight brokerage business threatens to shift the basis on which the services of a freight broker are delivered to the market from one reliant on personal relationships, trust, and telephone calls to one that relies on a combination of software, cloud computing, connected devices, stochastic optimization, and automation. These platforms will automatically match carriers to only the most profitable loads, and they will minimize operating costs by automatically optimizing delivery routes. A relatively small number of people trained and licensed as freight brokers would be required to handle complex, unusual, and exceptional situations on an ongoing basis. Such a platform would be tightly integrated through application programming interfaces with all the other supply chain management software that customers rely on, as well as other external sources of relevant data. These platforms will eventually surpass the performance thresholds achievable by the best human freight brokers, and they are already being tested by some of the world’s largest companies. If they pass the preliminary tests and become widely adopted by shippers and carriers, they will represent a supply-side disruption.

Simultaneously, there is already a sizeable population of startups building on-demand digital freight marketplaces with the goal of cutting freight brokers out of the picture. For now, these marketplaces mainly fulfill the function of automatically matching loads to carriers, and they typically target the 10% of the carrier market that is made up of owner-operators. Given the razor-thin profit margins that characterize the trucking market, and the reality that brokers can command fees as high as 40% or more of each transaction, it is not difficult to understand why such marketplaces could potentially win market share from some incumbent freight brokerage businesses as time progresses. These marketplaces also compete directly with load boards. If these digital freight marketplaces succeed, they will represent a demand-side disruption.

There are two wildcards

There are two conditions that have to be met before freight brokerage confronts disruption;

  • First, new entrants have to solve the trust problem. Shippers interests are aligned with those of their freight brokers, and freight brokers act as arbiters of trust between shippers and carriers. Conventional wisdom among industry professionals is that this trust relationship cannot be replicated with software.
  • Second, new entrants have to overcome the cognitive and psychological switching costs that keep carriers and shippers firmly locked into the old way of doing things.

Even just a few years ago it might have been difficult to see how these problems could be solved systematically and satisfactorily with a software-centric approach. Conventional wisdom among industry professionals is that the trust relationship between shippers, carriers, and brokers cannot be replicated through software. I am not so certain. Carriers and shippers have the fundamental need to increase throughput, increase efficiency, and improve profit margins. The new entrants can gain market share by proving that they can satisfy those fundamental needs better than their incumbent counterparts on an ongoing basis.

To be clear, none of the innovations I am describing is a perfect replacement for the best freight brokers. Not yet. That said, venture capitalists have already invested $1.6 billion in FreightTech during the first quarter of 2019. This exceeds the $1.3 billion that was deployed in 2017 and is already 55% of the $2.9 billion invested over the course of 2018. Moreover, REFASHIOND Ventures’ analysis showed that Amazon had $31 billion of cash and marketable securities on its balance sheet as of August 26, 2018. That is more than enough capital to fund a sustained push to redefine the basis of competition in freight brokerage — the $800 million investment it announced is just a beginning.

No industry can escape turmoil if a supply-side disruption occurs within the same period as a demand-side disruption. Fasten your seat belts. We’re embarking on a long and bumpy ride.

A Big Change Is Coming To Maritime Shipping And It Could Affect Everything

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Note: A version of this story was first published on April 30, 2019, at FreightWaves.

The maritime freight shipping industry is central to the functioning of the modern world. Yet it is foreign to most people because it is largely hidden from view. A big change in the way the industry uses oil will come into effect on January 1, 2020. This change is an indication of even more changes to come. These changes will affect everyone, and everything. However, the coming change also presents a great opportunity.

Here are some facts about the maritime freight shipping industry:

  • According to the World Shipping Council (WSC) the global maritime freight shipping industry is responsible for transporting about 90% of the world’s trade.
  • According to the World Trade Organization (WTO), global merchandise trade amounted to $17.43 trillion in 2017.
  • WTO members accounted for 98% of global trade in merchandise in 2017, up from 88% in 1995.
  • So the maritime shipping industry is responsible for moving roughly $16 trillion of merchandise, of which manufactured goods account for 70% or $11 trillion.
  • According to the WSC, the system of world trade the world has become accustomed to depends on a maritime fleet of about 50,000 merchant ships which are registered in 150 different nations, employing over one million seafaring men and women, and generating over $500 billion annually in revenues.

Why should you care? The shipping industry has played a central role in globalization. It provides an incredibly efficient mode of transporting merchandise manufactured in relatively low-wage countries to customers in relatively high-wage countries. It also facilitates a highly cost-effective trade in non-manufactured goods. For example, Wiskerke Onions reportedly exports about 185,000 metric tons (more than 400 million pounds) of onions, shallots and garlic and exports about 90% of its products to 125 countries around the world. This is made possible by containerized shipping.

Shipping is a capital intensive industry. Despite its size and significance, shipping as a business is characterized by low profit margins and frequent boom and bust cycles.

The International Maritime Organization (IMO) “is the United Nations specialized agency with responsibility for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships.” It has 174 Member States and 3 Associate Members. On January 1, 2020 the IMO will begin implementing a 0.5% cap on the sulphur content of marine fuel, replacing the existing cap of 3.5%. This change is in addition to a 0.1% cap on sulphur content that is imposed on ships in emission control areas (ECAs).

Why is the IMO introducing the new sulphur cap? This measure is the culmination of concerns among the IMO’s members about the impact that the international shipping industry has on atmospheric pollution, global warming, and climate change. The industry’s emissions lead to about 400,000 premature deaths from lung cancer and cardiovascular disease, and about 14 million childhood asthma cases annually (Jalkanan, Corbett et al., 2018).

This measure does not address nitrogen oxides, carbon dioxide, and particulate matter — each of which is present in emissions resulting from shipping, and so the sulphur cap is the first of a number of regulations that will need to be implemented if the IMO’s member states remain committed to minimizing the industry’s negative impact on climate change.

The data below from NASA’s Global Climate Change portal puts things in context.

The first graph shows NASA’s Global Land-Ocean Temperature Index, which measures the change in global surface temperature relative to 1951–1980 average temperatures. The index has been on an increasing trend since 1910 when it attained its lowest value, meaning that the warmest years on record have been the most recent.

The second graph shows atmospheric carbon dioxide (CO2) levels measured at Mauna Loa Observatory, Hawaii, in recent years, with average seasonal cycle removed. Measuring atmospheric CO2 is important because it traps heat generated by human activity and natural processes in the earth’s atmosphere.


The third graph shows changes in sea level since 1993. Sea level changes due to melting ice sheets and expanding seawater as the world’s oceans and seas become warmer.

The new rules, and others that professional observers of the shipping industry expect the IMO will introduce in the future, will have the effect of making the business of transporting the world’s merchandise more expensive. According to a 2017 Wood Mackenzie Study, global marine fuel costs could increase by up to $60 billion annually in a full compliance scenario. Shipping companies will also be confronted by new capital expenditures for equipment to retrofit existing fleets and an increase in ongoing operating costs. The most certain outcome of these developments is that ocean freight rates will increase, and eventually these increases will be passed-through to the individual consumer. In other words, we should expect price increases for 90% of the things we consume.

There’s intense discussion within the industry about the future. For example, Maersk, the world’s largest container shipping line, has stated that it is taking steps to become carbon neutral by 2050. This discussion takes on increased urgency as the stark realities of global warming and climate change become more pronounced. The traditional solutions to the challenge of greatly reducing emissions from the shipping industry are interesting and we should keep pursuing them. However, I am most excited about the opportunity this presents to consider radically new approaches to solving the problem; New materials for ship construction, new methods of powering ships, 3D printing and localized manufacturing, automation and optimization, and better use of data for predictive analytics, among others.

The business of moving the world’s freight across the oceans and seas is an awesome and critical responsibility. Difficult problems are gathering on the horizon. Difficult problems always offer an opportunity to think different, to think boldly, to refashion existing systems, and to champion the innovators among us who we may have ignored in the past.

Image Credit: Linda Rigano