Date: Tuesday, September 12th, 2023
Source: The Wall Street Journal
Artificial intelligence isn’t new to the logistics world. For years, companies have used the technology to reshape operations.
Now, venture-capital investors are betting the overhaul has just begun.
Venture investors are writing checks to startups leveraging AI for a host of emerging supply-chain applications such as predictive analytics and industrial safety. The data-heavy nature of logistics makes it ripe for an AI remake, investors and entrepreneurs say, and the sector might serve as an early test case for how AI can reshape an industry.
“I think AI can be such a great place to take all of these varying data sources, structure it and then drive predictable and accurate analytics that really get to the end goal of when is my cargo going to get to me, what time and what items are going to arrive,” said Kaitlyn Glancy, a partner at Eclipse, a venture firm focused on industrial technology.
Eclipse has backed startups developing logistics tech with AI applications including Reliable Robotics, which focuses on autonomous cargo aviation; Cheetah, which is developing demand forecasting and inventory prediction for restaurants; and Voxel, which leverages computer vision AI to monitor and score industrial safety in logistics and manufacturing environments.
AI could provide a host of benefits such as helping logistics companies cut costs by reducing timing inefficiencies, enabling retailers to avoid supply crunches, and allowing consumers to have better visibility of when goods will arrive.
Recent advancements in AI, such as conversational AI tools like OpenAI’s ChatGPT, could benefit companies. Third-party logistics providers and freight forwarders could boost productivity by using ChatGPT-like tools to optimize scheduling, planning and pricing, Jonathan Geurkink, senior analyst for mobility tech and supply-chain tech at analytics firm PitchBook Data, said in a recent note.
Supply-chain startups saw a huge infusion of capital during the Covid-19 pandemic as venture investing boomed and the global supply-chain crisis gave these startups the chance to offer potential solutions. Funding for global logistics startups jumped 75% to $62 billion from 2020 to 2021, according to PitchBook. While it has slowed significantly since, the 2021 capital has provided a healthy runway for many of these companies.
One deal announced in May highlights the role that AI could play in the sector. Pando offers an AI software platform to help companies automate their logistics processes. The software allows companies to take the fire hose of data that they manage and apply AI to sync it all together in various ways. The AI can essentially tell companies how to run their logistics differently to boost efficiency and revenue while cutting costs.
Pando raised a $30 million Series B round led by Iron Pillar and Uncorrelated Ventures.
Most of this sector’s current crop of startups haven’t hit public markets. San Francisco-based Flexport, one of the older companies leading the charge in this space, was founded in 2013 and reached an $8 billion valuation last year. Project44, another leader in the sector, was founded in 2014 and was valued at $2.7 billion last year.
Changed Landscape
AI has ushered in new possibilities for the supply-chain industry, said Jake Medwell, a partner and co-founder at 8VC, an Austin, Texas-based venture firm focusing on logistics tech.
“One thing that we ask ourselves in venture capital constantly is, ‘What’s possible now that wasn’t possible four or five years ago?’” Medwell said.
In July, 8VC co-led a $17 million seed funding round into Terminal Industries, an Austin-based startup developing an AI-based logistics yard management platform. 8VC co-led the deal with Prologis Ventures, the venture arm of logistics real-estate company Prologis.
The AI that Terminal Industries can leverage these days has allowed it to offer more interconnected management capabilities than what was previously possible, Medwell said.
For venture capitalist Santosh Sankar, change has come in the type of startup pitches he is receiving. Sankar is the co-founder and managing partner of Dynamo Ventures, a seed-stage firm focusing on supply-chain startups.
In prior years, most of the supply-chain startups that Sankar reviewed incorporated elements of artificial intelligence to improve their products. Nowadays, AI is core. Two out of the three new investments his firm has made this year have significant AI capabilities, which is higher than in past years.
“You’re seeing this throughout our portfolio where there are re-prioritizations of [companies’] road maps where management believes we can deliver on the customer promise and we can do so faster or cheaper if we advance this implementation of AI,” Sankar said.
Due Diligence
Investors say that the supply-chain tech sector’s growth has placed new emphasis on due diligence processes. They say they are fielding more pitches from startups that have branded themselves as AI companies but are only incorporating small elements of the technology into their product.
As a result, investors are training a close eye on differentiating hype from substance.
Sankar said the rush of interest in AI and that it is particularly well-suited to logistics have led to pitches that lean on similar technology.
“The thing that we are very much pressure testing is, in your application of AI, where is your advantage?” Sankar said.
Eclipse partner Aidan Madigan-Curtis takes the time to review and ask questions about the technology.
“I’m always very curious when founders begin to answer questions like, ‘How have you trained your models? How do they really work? What’s the size of your data set? Where did you get access to that data,’” Madigan-Curtis said.