Key Takeaways
- From 2022 to 2023, logistics venture funding fell nearly 90% from its 2021 peak, though software, systems, and last-mile segments remained attractive to investors.
- The US last-mile market expanded from a few traditional couriers to over 100 providers, driven by gig economy and tech advances.
- Last-mile providers' success may rely on specialization and profitability, with shifts in consumer behavior and lightweight packages reshaping the industry into a diverse network.
Exploring the Future Trends of Logistics #
In episodes two and three of the second season of the Logistics Leadership Podcast, Flexe had insightful conversations regarding the state of venture capital funding for logistics and the evolution of last-mile parcel delivery.
To kick off the episode two conversation with Will O'Donnell, who leads the corporate venture group at Prologis, Karl cited a recent McKinsey study on logistics start-up funding. In their research, McKinsey found that, between 2022 and 2023, venture funding in logistics fell by nearly 90% from its $25.6 billion peak in 2021. And while VC funding across all industries fell during the same time period, the investment pullback observed in the logistics industry was significantly greater.
However, the same study found that two industry segments drew more interest from investors than others during this time period: 1) software and systems and 2) last-mile. And, after our conversations with Nate Skiver and Bill Catania in episode three, we wanted to dive deeper into the increasingly diverse landscape of last-mile logistics.
The Evolution of the US Last-Mile Space #
The evolution of the US last-mile space has been quite exponential. For the bulk of the 20th century, the last-mile delivery space was largely dominated by the traditional parcel couriers: UPS, USPS, and FedEx. Then, between 1980 and 2000, the number of providers in the US last-mile market, based on Flexe’s research, tripled, as companies like OnTrac, Lone Star Overnight, Hackbarth, and more established regional delivery offerings. But, the landscape shifted in the early-2010s.
Now, in contrast to just a few dozen providers serving the US market, there are well over a hundred.
Much of this growth followed in the tailwinds of the creation of the gig economy and increasing interest in fully-automated, contactless delivery.
During this time, companies also began to specialize. Rather than solely focusing on parcel delivery, many startups emerged that solely focused on specific problems within the industry, such as reducing the dependence of delivery on drivers, addressing challenges in managing multiple carriers, and developing more optimal routing algorithms.
Deep dive into the logistics industry with our Logistics Leadership Podcast
Last-Mile Venture Funding since 2015 #
By looking at the various venture fundraising activities performed by just under 80 domestic startups in the US last-mile space, it is clear that, despite continued interest in funding these companies, there has been an investment downturn similar to that experienced by the broader industry. In parallel with the larger industry, last-mile funding reached its peak in 2021, where companies that we tracked raised $1.6B to fuel development and growth efforts. In 2024 so far, companies have raised less than 20% of this amount.
However, after determining whether a company tapped into the gig-driver economy, we observed an interesting trend. Before and throughout the pandemic, the bulk of VC funding in the last mile space was being allocated to companies focusing on driverless delivery (i.e. autonomous vehicles, locker banks, delivery drones). But, since the pandemic, the bulk of VC funding in the last mile space has been allocated to companies facilitating courier delivery services. While these startups might not be inventing something new and flashy, they’re finding opportunities to leverage technology, networks, and new labor economies to compete with traditional and regional couriers and disrupt the last-mile delivery space.
While these companies have expanded the scale of their operations over the last two years, one question remains: as Nate Skivers detailed in his interview with Karl, package volume outside of Amazon, Walmart, and new international shippers has not increased much in the United States. So, will there be enough package volume growth to maintain the diversity in today’s last-mile market?
A more diversified future? #
Although speculative, we believe that the answer in part depends on the level to which these new providers prioritize specialization and profitability as they build out their networks. In the last-mile delivery space, this type of specialization has typically focused on delivery promises and service areas.
"Although you have all these partners who have optimized for individual components to get the supply chain to work, you need them to work in tandem, and you need to have connectivity between all these different pieces."
However, changing consumer behaviors may catalyze a shift in how last-mile carriers think about specialization. As Pitney-Bowes identified in their 2023 parcel shipping index, overall parcel revenues in 2023 fell 0.3%, despite a 0.5% increase in total parcel volumes. The reason: changes in parcel sizes driven by an influx in affordable, lightweight packages that increased volumes but provided less revenue-per-package. Resultantly, as traditional and regional carriers continue to prioritize profitability rather than solely top-line revenue may create the space for the new, alternative carriers to thrive, even without massive growth in overall package volumes.
So, while it’s too early to tell, the last-mile space in a few decades may look like what we see today across the broader international supply chain space: a diverse and distributed set of specialized providers specializing in technology or delivery, all connected through last-mile orchestration platforms.
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