What can you learn from the death of our shipping startup?
By Aleksander Gansen, Shipitwise co-founder
After four years of trying to change the way people experience logistics, we finally admit that we are too early in this game. At least 2–5 years, if not more.
Our initial idea was to build a shipping aggregator that would provide an instant dynamic shipping price to anyone.
From Day 1, we decided to be different than the other first and last-mile startups around. Mainly because most of them are only solving the problem of shipping small parcels by integrating with one of the half-a-dozen big shots. These multinationals are after all the only ones that can provide an API and therefore they dominate the market for parcel delivery.
We went on a different path.
Shipitwise signed contracts with several freight forwarding companies across Europe. And then engaged local SMEs by offering to outsource their logistics departments to us. Many did. But at that time, we did not see the big picture.
The price has always been the biggest secret of this industry and no online tools are available to get an instant quote. It is an old-school email + telephone game between the retailers & producers and transportation firms.
Other than that, the huge overheads of the logistics firms are keeping the prices high. Meanwhile, middlemen with access to this “insider information”want to cut their share. We did not see it then.
Yet there were some companies who were actually able to provide us with their valid price list in excel or pdf format for the next 6–12 months. With these, we decided to start an out-of-the-box experiment.
Our engineers wrote a complex algorithm that was able to digitalise these analogue world prices (and bring those shipping firms online). Not only that! It also combines different service providers into a new supply chain. This way making it possible to automatically have different companies seamlessly cover one order.
We initially launched it for internal use, simplifying the life of our team. Moreover, the tool gave any one of us an opportunity to give a quote globally within 1 minute or less. Later making it available to any willing logistics firm.
One of the facts is that the transportation industry has not experienced too many innovations ever since the invention of the wheel, an internal combustion engine and a GPS navigator. The fellow startups like Shyp and Palleter were also trying to shift the minds of the industry insiders. Yet not much has happened until now.
We had an opportunity to present our solutions to some of them and the response was always similar: “How could you build with four engineers within the eight months something we have spent several years of 400 developers on?”. It’s not because we were smarter. It’s because we were vision-driven, agile, lean and hungry.
There has been much more. We also built a universal API to connect forwarders with retailers and e-commerce platforms. However, the transportation companies do not have the capacity or even the will to go further than creating a simple front-end request form that is actually operated manually in the back-end.
We also learned that these web forms did not create a sufficient ROI for them. Thus transportation companies do not want to invest more in improving the user experience of their services. Even worse, these “investments in IT and digitalisation” have so far mostly been made to keep their investors happy. They have never been driven by improving the user experience.
When presenting our solution to several large and very large transportation companies, we heard similar feedback, that sounded like an indictment — “your software and the platform are too customer-focused”.
We also learned that 80% of the bottom line in logistics comes from small customers as they can be charged with much higher margins than the big corporate clients. This is something Transferwise is fighting against in the financial markets. And we wanted to be the ones who would bring transparency to the shipping market.
That is what the logistics firms are actually afraid of. Because by bringing their prices online, they believe to lose their high margin on the small users.
Another serious issue is the opacity and system incompatibility inside the sector between the air freight, land transport and sea freight. Even inside the same corporate structure, these units are not able to synchronise data and keep digital communication without a high touch.
Yes, our algorithm is able to instantly create a new supply chain for each shipment, mixing all three types of delivery, adding the first and the last mile services and the warehousing fees when needed. But then the customer relations inside the transportation companies find it too complex to follow through.
So after trying to integrate our software with all sorts of logistics firms for some time — unsuccessfully — we decided to halt our operations.
Until now, we have raised around 550000 EUR and created a gross revenue of over 450000 EUR with 5000+ shipments going through our platform. We could continue with some follow-on investments. But the economics do not make sense unless we would have a lot of money to burn.
Meanwhile, several industry insiders have confirmed that our solution is 2–5 years (or maybe more) too early in the market.
Taking all of this into account, we see that the best course of action is to halt our operations.
All in all, this industry only pretends to be changing.
Yes, some things could really be done in the last mile delivery and the warehouse optimisation. But it’s still too early even for IoT solutions, as we will not see the game-changing results in container tagging and real-time tracking within the next decade. Meanwhile, this industry cannot handle digital real-time communication with customers nor disclose their price structures at this point in time.
Still, if you’re an investor, incumbent or startup in the transportation space or if you’re interested in the IP that we have created, feel free to reach out to us firstname.lastname@example.org
As for us, we have not yet decided what will come next. We will keep you posted. And make sure to notify us in case you think we can help you.