Logistics technology market grappling with pandemic period overhiring

A wave of layoffs across the broader technology sector over the past year has intermittently bled into the logistics industry, most notably at once high-flying software vendors and digital intermediaries that have been forced to reduce operating costs by cutting headcount.

A return to normal freight demand off a sky-high pandemic peak only partly explains the bloodletting, with Freightos the most recently affected, announcing July 11 it would cut 13% of its workforce.

The other driver is that investors are now demanding a quicker path to profitability than they did during the heady days of the pandemic. Over the last three years, the onus was on growth, not profitability. But that has changed as expectations rationalized.

Freight volumes falling back down to Earth have revealed a hard truth — most logistics technology providers overhired during the pandemic. Many of those hires were in sales, marketing and human resources, roles designed to help venture-backed companies grow quickly.

'Force feeding the industry'

Meanwhile, logistics technology providers that bootstrapped their business have essentially been waiting for this shoe to drop.

"It's mindboggling to me that there's so much money in it when you don't really need so much money," Pieter Kinds, CEO of freight procurement technology provider Freightender, said in a May interview with the Journal of Commerce. "It's like trying to force feed the industry."

"There's nobody in our business who is saying we can double and triple our business every year because everybody wants what we have," Kinds added. "The market is fragmented and you have long sales cycles. Disrupting logistics is more than building dashboards."

The need for some companies to retrench on headcount calls into question whether every venture-backed model works in the logistics industry, which is prone to extreme ebbs and flows in volumes and rates.

"If your product requires advertising or salespeople to sell it, it's not good enough," Chadd Olesen, CEO of logistics artificial intelligence software vendor AVRL, said in a July 11 LinkedIn post. "Technology is primarily about product development, not distribution."

That post was in reference to a report that freight broker Transfix was looking for a new round of venture financing at a valuation far below what the company reached in 2021 and a year after it failed to go public.

But Transfix and Freightos, which provide a freight rate marketplace, rate indexes and rate management tools, are far from the only cautionary tales in logistics. The list of companies that have announced layoffs in the past year stretches from bellwether technology providers such as Convoy, Flexport, Forto, FourKites and project44 to a range of smaller vendors.

Cash efficiency is king

It is clear that companies across the logistics spectrum have been instructed to be more cash efficient. Some company founders have said this directly to the Journal of Commerce in discussions around layoffs. Others have made it clear in their layoff announcements that pursuing better unit economics was the priority.

"Given the persistently weak market conditions, we are refining our priorities to deliver on our plan to reach profitability with the capital already raised," Freightos CEO Zvi Schreiber said in the company's layoff announcement last week. "This includes efficiency measures that should keep us on the path to long-term, sustainable growth."

The broader question is what all of this means to shippers; a focus on capital efficiency from technology providers probably benefits shippers in the long run. It is a venture capital investor's problem if a technology provider it has invested in fails to reach growth and profitability metrics. But it's a shipper's problem if that provider is unable to deliver a valuable product or service.

So, shippers need to be focused on outcomes with vendors, not how many sales or marketing people those vendors employ.

"When I see our customer base, I see a barbell," project44 CEO Jett McCandless said at the Journal of Commerce's TPM23 Conference in February. "There are some customers [that want to see more] and some others that get incredible value and it's critical to their business. That first cohort signs a contract and the tech should just work. But that's not how enterprise software works. You have to have an initiative. You have to put a team around it."

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.