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The logistics industry is historically known for its conventional business models. Similar to other markets like ‘big tech’ or direct-to-consumer, venture capital clouded said model. While freight forwarding demand rose over the previous several years, the financiers looked prescient. With the market’s fall back to earth, the growth-over-unit economics model has crashed with it – leaving a wake of companies that once seemed invincible.

A swarm of ‘unicorns’ like Flexport, Convoy, and Deliverr promised to redefine the landscape with their tech-driven solutions. The demise of at least one of these unicorns has become the new platform for punditry on venture capital’s role in businesses that were once devoid of the business model required to make the financing work. There is much to dissect: the journey of these logistics unicorns and the nuanced interplay of technology, market dynamics, and organizational culture in the modern logistics arena.

Convoy and Flexport, with their blitzscaling approach, epitomized the logistics unicorn, garnering massive valuations. Convoy, with its disruptive business model, showed a steep trajectory of growth, vying for a share in the logistics market by undercutting prices and leveraging venture capital to buy market share. However, the reversal in Convoy’s fortune underlined the fragile foundation of hyper-growth models. Flexport’s tale was no different. The acquisition of Shopify Logistics, though ambitious, became a quagmire of cultural misalignments and operational disruptions, culminating in a significant layoff​. These cases accentuate the precarious nature of aggressive scaling without a solid operational and cultural integration framework. Business Insider recently reported:

The integration of the Shopify Logistics team into Flexport had been rocky, five employees said. Some employees saw cuts to their base pay when they joined Flexport, two said. Confusion over compensation continues even now, four months after Flexport acquired the business from Shopify.

Flexport’s acquisition of Deliverr came at a time when the logistics industry was already grappling with considerable challenges. It coincided with a period of significant market volatility exacerbated by the ongoing global pandemic and its ripple effects on global supply chains.

Both represented in the above data – the integration of Deliverr into Flexport’s operational matrix presented a complex set of challenges. As Flexport endeavored to integrate Deliverr into its framework, a series of unforeseen challenges unraveled. The complex endeavor of merging Deliverr’s technology platform with that of Flexport revealed significant incongruences, particularly as the two platforms were built on different coding languages. The seemingly insurmountable task of fully integrating these divergent systems exposed the brittle nature of rapid, perhaps hasty, technological integration in the face of market pressures and investor expectations.

The differing organizational cultures, operational models, and technological infrastructures between the two entities added layers of complexity to the integration process.

In a remarkable contrast, Shopify exhibited a level of prudence by offloading its logistics arm when the integration with Deliverr hit a roadblock, showcasing an ability to recalibrate strategies based on evolving circumstances. I explained this in a May 2023 essay on where Shopify will be in one year:

As Amazon narrows its focus and others in retail prepare for a period of hyper-efficiency, Shopify’s eschewing of so many valuable employees and initiatives will give way to a product focus that will be rewarded by markets.

Shopify is a software business and it will succeed as one, it is not the business of manual labor and analog communication.

Another multimodal freight forwarder, DSV saw its third quarter air cargo volumes fall 14% year on year. DSV’s chief executive Jens Bjørn Andersen was recently quoted: “A real recovery in global freight volumes does not seem to materialise in 2023.” DSV, with its traditional business model, demonstrated resilience in the volatile market, underscoring the importance of a balanced approach between technological innovation and grounded operational practices. But all in all, it was not enough. Andersen is due to step down as CEO in 2024.

Technological Disruption: Blessing or a Curse? The allure of disrupting the logistics sector through cutting-edge technology was clearly irresistible. However, the failure of some unicorns revealed the idealogical pitfalls. While technology promises efficiency and cost-reduction, the Convoy and Flexport cases highlight how the overly aggressive pursuit of market share and rapid scaling can lead to a precarious business model, unable to withstand downturns.

On the flip side, the advent of intelligent solutions for domestic and international forwarding, returns optimization, and fit software presents a lower-cost approach to technological integration​ that minimizes the exposure retailers may have with the traditional logistics industry.

The Flexport saga brought to the fore the criticality of organizational culture. The cultural discord post-acquisition of Shopify Logistics resulted in a loss of employee morale and operational synergy, eventually leading to layoffs​. This underscores the necessity of a productive and unified organizational culture to navigate the intricate waters of mergers and acquisitions in the logistics techno-sphere. The inflated valuations and the investor euphoria surrounding the logistics unicorns reflected a certain level of detachment from the ground realities of the logistics market. The drastic re-rating of Convoy’s valuation when the freight market collapsed illustrated the harsh reality of market dynamics clashing with investor optimism​.

Lessons and Forward Pathways. The tales of Convoy and Flexport serve as cautionary narratives for the logistics sector. They underline the imperative for a balanced approach towards growth, technological integration, and organizational culture harmonization. The pragmatic strategies of Shopify and the steady approach of DSV provide a blueprint for sustainable growth and resilience in the face of market volatility.

Due diligence in acquisitions: The sequence of acquisitions and offloadings underscores the importance of thorough due diligence before embarking on acquisitions, especially in a volatile market. It’s crucial to assess not only the financial viability, but also the technological compatibility and cultural alignment between the entities involved.

Technological resilience: The challenge faced in integrating disparate technological platforms accentuates the need for building technological resilience. This includes adopting flexible, modular, and interoperable systems that can accommodate or integrate with diverse technological architectures.

Cultural synergy: Cultural discord can pose significant hurdles in the integration process post-acquisition. It’s imperative to foster a culture that is adaptable, inclusive, and conducive to seamless integration.

Investor and market expectation management: The pressure from investors and market expectations can drive companies towards aggressive growth and acquisition strategies. There’s a need for a balanced approach that weighs the benefits of growth against the risks associated with rapid expansion and acquisitions.

Agile operational models: Adopting agile operational models can enhance the ability to respond to market fluctuations, technological advancements, and unforeseen challenges. This includes embracing a culture of continuous learning and improvement.

Enhanced regulatory compliance and risk management: Ensuring compliance with evolving regulatory frameworks and having robust risk management strategies in place can mitigate the fallout from unforeseen market dynamics.

Strategic partnerships: Instead of outright acquisitions, exploring strategic partnerships or alliances might provide a more flexible approach to tapping into new markets or technological capabilities.

Customer-centric approach: Remaining grounded in delivering value to customers can guide decision-making and operational strategies amidst the tempest of market and technological evolution.

Sustainable growth: Adopting a philosophy of sustainable growth, as opposed to blitz-scaling, may provide a more stable and sustainable trajectory in the long-term, aligning operational realities with market expectations.

Innovative solutions: Exploring innovative solutions such as AI and machine learning for better logistics and supply chain management, employing intelligent solutions for domestic and international forwarding, and investing in research and development to stay ahead of the technological curve.

The forward pathways for logistics and tech-centric enterprises lie in synthesizing these lessons into a coherent strategy that navigates the delicate balance between technological innovation, market demands, and operational sustainability.

The death of logistics unicorns like Convoy and the trials of Flexport are emblematic of the broader challenges and opportunities within the logistics sector. They offer critical insights into the delicate balance between technological innovation, market dynamics, and organizational culture. As the logistics sector continues to evolve, the lessons from these narratives hold the promise of guiding the sector towards a more sustainable, resilient, and technologically harmonized future. Through a lens of balanced growth, prudent technological integration, and a robust organizational culture, the logistics sector can leverage the promise of technology while staying grounded in the enduring principles of operational excellence and market prudence.

By Web Smith | Editor: Hilary Milnes with art by Alex Remy and Christina Williams

Some industries are more fragile than others – even if that’s not felt by the average consumer. Of the most fragile is eCommerce, something that people use everyday without thinking, but which depends on a weakened state of trade made all the more complex by a number of concurrent global conflicts. Of them, there are now two that have captured the American imagination, concern, and even involvement: the Russo-Ukrainian War and Israel’s growing conflict with Palestinian terrorist groups, a geo-political complexity that requires an understanding of the region’s history, religious factions, and divisive politics to begin to understand.

We are more aware of persisting war than ever before. We are also more aware of the interdependency between the nations that fight them. The idea that the two are dependent on one another is not new, however. The following is extracted from Commercial Traveller, written in December 1842 under the banner “War and Commerce”:

We are not writing as politicians, for, although we are not without a political creed, in our commercial capacity we are of no political party. We look upon war as the deadliest enemy of commerce, and of human industry in all its forms, and we believe that commerce and the arts are so far necessary to national prosperity, that no people can be great, prosperous, and happy without them.

Around 80 years later, Alvin Saunders Johnson wrote the following in the Political Science Quarterly (1914): “International trade, we are often told, is one of the most powerful of the influences making for universal peace.” The section was entitled, “Commerce and War.”

In an era of unparalleled global connectivity, the boundaries between geopolitics and commerce have become increasingly porous. This intertwining of worlds is most evident when a singular event, like the eruption of a geopolitical conflict, sends ripples through commercial hubs thousands of miles away. Here’s but one of many examples:

The Chinese e-commerce website Shein has stirred new controversy by calling off its campaigns with Israeli Instagram influencers after it was criticized for selling Palestinian flags — and not Israeli ones — following Hamas’ terror onslaught against Israel earlier this month.

As the recent Russo-Ukrainian War has shown, the resilience of the global eCommerce ecosystem is both a testament to its adaptability and a reflection of its vulnerabilities. For one, it’s highly dependent on a healthy middle class. This March 2022 quote by Christopher Smart of the Barings Investment Institute still stands:

There was an emerging middle class [in Russia] that is now going to be knocked back. It’s going to be isolated. It’s going to have a currency that doesn’t really hold any value outside the country.

In this delicate balance between progress and conflict, warring nations emerge as crucibles, illustrating the intricate dance of commerce in the shadow of geopolitics. Below is five ways that the conflict between Russia and Ukraine directly impacted global commerce.

Supply Chain Challenges:The ongoing war coupled with associated economic sanctions strained the global supply chain, which is still recovering from the pandemic’s effects. Many American brands might believe they are insulated from European disruptions, but many US manufacturers rely on components from Europe. Notably, over 300,000 US companies are intertwined with supply chains in Russia or Ukraine, according to Practical eCommerce. Considering Russia’s significant exports, ranging from fuel and wheat to precious metals, businesses in countries like China, Germany, and Italy may face prolonged procurement times.

Rising Shipping Costs: As the conflict intensified supply chain pressures, global gasoline prices soared. Gasoline prices in The Netherlands and the US have surged since 2022, leading to higher transportation costs. Major carriers, from UPS and FedEx to international shipping giants like Maersk, alerted businesses about potential fuel and “war risk” surcharges.

Dampened Consumer Spending: The war’s ripple effects on global economies curtailed consumer spending and confidence. A typical American consumer, grappling with increased gas prices, dwindling investments, and escalating food costs, is likely to limit discretionary purchases.

Increased Borrowing Costs: The Russo-Ukrainian War accelerated global inflation. With the US Federal Reserve hiking interest rates in response to rising prices, borrowing became costlier for both businesses and individuals.

Potential for Product Hoarding: Memories of pandemic-triggered shortages linger. The Ukrainian crisis spurred some consumers into panic buying. Online retailers were advised to assess whether their products were prone to such buying frenzies (which could potentially lead to stock issues).

Israel, Ukraine, and Russia are each critical to global trade. But when worlds of commerce, cultural derision, and military conflict collide, the ripple effects are unpredictable. The response to conflict is mostly predictable, though: when will it end?

Infrastructure and “Soft Power Diplomacy”

Online retail, which grew considerably during the pandemic, wasn’t spared when Russia invaded in Ukraine in 2022. From supply chain disruptions to increasing borrowing costs, businesses, no matter where located, were facing the realities of a war occurring continents away.

The Israel-Palestine conflict could have a more direct impact on the US. As of writing this, the U.S. has deployed several vessels from the U.S Navy’s fleet and ordered 2,000 military personnel to be ready for deployment.

With around the size and population as the state of New Jersey, Israel, is a small-yet-powerful nation with an outsized impact. To put this in context, India is projected to reach $165 billion in eCommerce revenue by 2025 with 1.41 billion residents. Israel, with its 9 million residents, is expected to reach $12 billion in eCommerce retail value by 2025. Israel will generate 7% of India’s projected 2025 eCommerce totals with .64% of India’s population. And to be fair, online retail is not its leading industry.

The country boasts the United States and China as its top two import partners according to data collected by the CIA. As the global pandemic’s restrictions eased, Israel exhibited a surge in private consumption, revealing a robust retail framework. According to the International Trade Organization, Israel has an 87% internet penetration and a 47% eCommerce penetration, representing 4 million of the 9 million in Israel. This number is expected to grow to 5 million users by 2025.

With giants like Shufersal leading the local scene, and international heavyweights such as IKEA and Apple marking their presence in country, the market seemed poised for accelerated growth. Israel also boasts industry stalwarts like Yotpo, Mixtiles, Freightos, and Jifiti. Still, Israel’s eCommerce sector lags behind global averages, suggesting vast untapped potential. Yet, as Israel contemplated leveraging this potential and as local retailers like Rami Levy and Shufersal pivoted towards online sales, the global landscape darkens with clouds of new wars.

For the Russo-Ukrainian War, the tangible impact of the war on commerce was evident in supply chain disruptions. Despite being an ocean away, businesses worldwide, including those in the United States, felt the shockwaves. Many, unbeknownst to them, relied on materials sourced from either Russia or Ukraine. Russia’s significant exports like fuel, oil, and metals form a crucial part of global manufacturing, and disruptions here inevitably rippled outwards. The resultant long lead times were an immediate concern for eCommerce platforms, many of whom thrived on efficiency.

This, combined with the spike in transportation costs, isn’t just a transient concern; it changes the fundamental economics of eCommerce, pushing businesses to reassess their strategies. Here’s an example from an August 2023 feature in WWD on Ukrainian eCommerce:

In what organizers described as “soft power diplomacy,” Ukrainian makers of all disciplines are carrying on with their businesses to the best of their abilities, despite the ongoing invasion by Russia.

The cost of Ukraine‘s recovery and rebuilding was estimated to be $411 billion in March, based on a Word Bank report. Millions have left Ukraine since the fighting began in February 2022, including many craftspeople and workers who had provided services for the Ukrainian designers and makers. Impressively, 80 percent of the team behind the project is based in Ukraine, and all of the vendors and brands are also there. Given that, whenever there is a heavy attack, plans change, deadlines move and whatever work is underway is reconsidered.

From a macroeconomic perspective, the Ukrainian-Russian War catalyzed global inflation. Central banks worldwide, like the US Federal Reserve, responded with interest rate hikes, inevitably affecting borrowing costs for both companies and consumers. For burgeoning eCommerce platforms, especially in evolving markets like Israel, this could mean reduced credit availability, directly influencing expansion plans and operations.

Despite the challenges, history has shown that commerce is resilient. During the pandemic, businesses globally adapted, innovating to cater to a homebound consumer base. Similarly, in the face of geopolitical tensions, eCommerce platforms can leverage strategies like stockpiling specific high-demand products or diversifying supply chains to minimize dependencies on conflict zones. But as these two wars continue to intensify, exposure will only grow.

The intricate dance between war and commerce is a testament to the interconnectedness of our global economy. As Israel and other nations navigate their conflicts, those conflicts become all of ours (though their costs are infinitely higher). The ability to adapt and evolve will define the future of global eCommerce. The balance between technological progress, market dynamics, and geopolitical tensions will continue to shape our world, underscoring the importance of preparedness, agility, and innovation in the face of adversity. International trade is one of the most powerful of the influences making for universal peace.

It appears as though international trade is not enough of an incentive. We’ve proven this again and again, spiting ourselves in the process.

By Web Smith | Editor: Hilary Milnes with art by Christina Williams and Alex Remy

Let’s revisit 2021’s Netflix Playbook 2.0, shall we?

In the above forecast, I laid out a three-phased projection for the streaming giant, timed to Josh Simon’s hire as VP of Consumer Products. The forecast revolved around Netflix’s eventual transition from a straightforward streaming platform to a brand with tangible, immersive physical experiences akin to Disney. After reading the recent Bloomberg article on Netflix’s physical retail plans, it’s clear several of these projections have come to pass. From Netflix Playbook 2.0:

Simon’s hire is as directional as it is functional. Earlier in the new VP of Consumer Product’s career, he spent time working at Nike. But it was his six years working for Walt Disney Studios and Blumhouse’s live experience business that will shape Netflix’s brand and audience strategy for consumer products. He’s tasked with “identifying and building plans across different lines of business in consumer products” according to a 2020 article by Variety.

Phase One: Original Brand Retail. In 2021, I speculated that Netflix’s endeavor into direct-to-consumer retail signaled more than just a commerce push. Their Shopify build was a clear indication of a strategic shift, targeting a younger, more vibrant demographic. The recent Bloomberg article notes that Netflix has hosted pop-up experiences around the globe, emphasizing its brand merchandising focus. Their earlier foray into licensing its popular show Stranger Things was a precursor to this broader retail approach. It showcased the latent potential of leveraging their vast intellectual property, which they’re now unlocking more systematically.

Phase Two: Live Events and Activations. I had pinpointed Netflix’s move towards live events, recognizing the crucial steps it had taken with the Stranger Things drive-thru experience in LA. This prediction was based on its demonstrated potential in creating a bridge between its digital content and physical events. Fast forward and this is no longer mere speculation. Netflix has introduced 40 pop-up fan experiences in 20 cities worldwide, as stated by Bloomberg. And according to PYMNTS:

Fans may find themselves enjoying a meal at a “Stranger Things” themed restaurant or tackling a “Squid Game” obstacle course. These experiences aim to enhance the overall enjoyment and create lasting memories.

Events such as The Queen’s Ball: A Bridgerton Experience emphasize Netflix’s active efforts to foster fan engagement through live activations.

Phase Three: The Netflix Universe. The most substantial realization of our earlier forecast was the solidifying of the Netflix Universe with a focus on retail. The forecast suggested that Netflix would transcend digital bounds and create physical locations for fans to engage with. Bloomberg confirms this with “Netflix House”. These permanent venues are set to offer a medley of retail, dining, and live experiences, echoing Netflix’s ambition to emulate companies like Disney in creating tangible worlds for its fans. Netflix’s strategy of transforming digital success into physical reality is now fully in motion. Their move aligns with earlier forecasts made about the company transitioning into a multi-faceted entertainment company, not just a content creator. As speculated, Netflix is tapping into its rich array of intellectual property to promote its brand, build communities, and enhance its marketing game. As was stated in 2021:

If the streaming giant proves that IP-fueled merch can sell, so might brick and mortar retail, pop-up experiences, and amusements. Don’t be surprised if Netflix’s digital experiments precede its venture into physical retail, events, and a permanent home for its beloved original properties. It’s created franchises that are valuable.

Netflix has proven that IP-fueled merch is a viable product for the company. Josh Simon’s words in the 2023 article confirms as such: “We’ve seen how much fans love to immerse themselves in the world of our movies and TV shows, and we’ve been thinking a lot about how we take that to the next level.” This sentiment was the crux of my thesis, emphasizing Netflix’s long-term strategy to evolve and grow in response to the changing media landscape.

The trajectory that Netflix is on was entirely predictable. The signs were there: its continuous push to innovate, its venture into DTC retail, its exploration of live fan experiences, and the quest to build tangible connections with its audience. Perhaps one day soon, this moonshot will also come to fruition: “It is unlikely that Netflix will ever find it suitable to acquire 25,000 acres of land like Disney before it, or even 415 acres like Universal Studios. But in nearly every metropolitan region in America, there is a dying mall – one that bustled in the era depicted by Stranger Things‘ fictional Starcourt Mall.” Netflix is just a few iterations short of taking over an entire mall and redeveloping into a single, national hub for its many retail and experiential tests.

As we move forward, it’ll be fascinating to watch this streaming titan continue to redefine its place in the global entertainment industry, morphing from a digital-first entity to a holistic cultural phenomenon.

By Web Smith | Editor: Hilary Milnes with art by Alex Remy and Christina Williams