Have you ever stopped to consider the complex, interconnected systems at work that bring packages to your door? Consider this: while packing for a trip you realize that your destination will be cold this time of year, and after frantically searching through your closet, you cannot seem to find your scarf and decide to order a new one online knowing that it will be delivered the next day. With a few taps on your smartphone, a new scarf is delivered right to your door within 24 hours, and you never even had to get in the car or leave home to make it happen. We often take for granted what an incredible feat this truly is. 

The scarf’s rapid delivery is made possible through advanced logistics, which inform the movement of the scarf from a warehouse shelf to a delivery truck via conveyer belt, and delivery truck to your front door. After you place your order and until it is in your hands, logistics is the process that determines the timing, quality, and cost of your order. 

What is Logistics?

The rise of e-commerce over the past 20 years has radically altered consumer purchasing behavior and expectations. Consumers have become more informed shoppers, expertly consulting product reviews and comparing prices from multiple sellers. Sellers, in turn, have aggressively competed with each other to offer increasingly enticing incentives. 

One of the most valuable incentives is the seller’s ability to get a product to a customer’s door quickly. According to a 2019 AlixPartners study, the length of time a U.S. consumer was willing to wait for any item ordered online to be delivered to their home in 2014 was a maximum of 5.5 days. By 2019, the maximum wait time decreased to 4.3 days. Furthermore, 72% of U.S. consumers surveyed for the study said that the option of free shipping “greatly impacted” their purchasing decisions. 

As a backdrop to increasing customer expectations, the e-commerce sector is expected to see its 10th consecutive year of double-digit growth in 2019, with online sales expected to reach about $587 billion. 

In order to tap the explosive growth of e-commerce and other booming sectors, companies must utilize innovative logistics. Companies that implement logistics technology throughout their supply chain gain valuable information on exactly how their products are transported to customers. This information can then be used to streamline processes and save time and money, both of which can then be passed on to customers in the form of faster delivery times and cheaper prices.

For those interested in investing in this rapidly-growing sector, however, there are a few important points to understand.

According to the Michigan State University Department of Supply Chain Management, logistics refers to the “movement, storage, and flow of goods, services and information within the overall supply chain.” 

A related but distinct concept is that of supply chain management, which the University further defines as “a way to link major business processes within and across companies into a high-performance business model that drives competitive advantage.”

Alan Amling, Vice President of Corporate Strategy at UPS, explained the nuance of these terms by way of metaphor: “Logistics is the blood, and the supply chain is the body. So if the logistics doesn’t flow–or one part of logistics, whether it’s the transportation, or distribution, or brokerage–if that doesn’t flow, then the supply chain is damaged.”

The Market Opportunity in Logistics

In 2018, U.S. businesses spent $1.6 trillion on logistics. This figure represents the cost to U.S. businesses of storing, shipping, and managing the movement of goods. As a point of reference, $1.6 trillion represents 8% of the U.S.’s 2018 GDP. 

Of course, storing and transporting goods efficiently is an important, costly endeavor, and the best companies look for ways to maximize those costs. One of the most important ways companies can do this is by investing in new technology that improves the performance of logistics and supply chains. Digitization and automation, for instance, have the potential to radically modernize how goods are moved from one place to another. The savings produced by technologies like these are tremendous, as are the potential earnings for investors aligned with the company selling or implementing the technology.

According to a November 2018 study by American Global Logistics and Logistics Trends & Insights, U.S. companies are projected to make $87.8 billion in new logistics and supply chain investments by 2022. 

The scale of these projected investments are already becoming apparent. In June 2018, Home Depot announced it would be investing $1.2 billion over the next five years to build new distribution facilities across the U.S. in order to speed up deliveries. In July 2019, Walmart announced it would be investing $1.2 billion over the next 10-20 years to build and upgrade grocery distribution centers in China. 

Large, well-managed companies already recognize that investing big in logistics is essential for maintaining a long-term competitive advantage. Furthermore, it is not enough for existing processes merely to evolve with the times; outright disruption is going to be an essential component for recognizing and capturing savings. 

Venture capitalists understand the potential value of disruptive energy in logistics and transportation, and they are correspondingly making big investments in these areas. According to CB Insights, trucking and freight startups raised $3.6 billion in venture capital funds in 2018, double the amount collected in 2017. 

And 2019 is projected to be another huge year for logistics funding, led by deals like SoftBank Vision Fund’s $1 billion investment in Flexport, a startup specializing in freight forwarding and customs brokerage. In a company blog post announcing the investment, the CEO of Flexport, Ryan Peterson, noted that: “The human brain has a strong unconscious bias against tackling really difficult problems. It’s probably one of the big reasons no one before us has succeeded in modernizing our centuries-old industry; it’s a massive, hairy, complex system that’s held back by the inexorable power of inertia … Flexport is dedicated to disrupting this idleness and seeking to make global trade easier and more accessible for everyone.” 

Innovative companies like Flexport are going to continue to challenge the status quo as they seek to modernize logistics, and savvy investors would be wise to pay attention.

How to Invest in Logistics

A search on Magnifi suggests that there are a number of ways to profit from the rise of logistics as a business.

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