Beacon: Trade finance as the key to supply chain data mining


It’s obviously a good day when the world’s richest man decides to participate in your latest fundraising. But what does a $15 million investment enable you to do?  We’ll come back to that later…

The organisation in question is a UK business called Beacon Technologies. This is a company, founded a couple of years ago as Global Technology Holdings Ltd, who subsequently, perhaps wisely, decided that Beacon was a more memorable and customer friendly name? The goal of this enterprise is to establish a position in the global freight forwarding market by using technology to simplify and streamline forwarding activities, as well as bring about a step-change in customer service. At this point, we should pause and try and recall the many other well-intentioned technology-driven enterprises who set out on the path to transform the business of freight forwarding. Some are still on the journey, but numerous others have fallen by the wayside with their dreams unfulfilled.

Putting my natural cynicism aside, it should be recognised that the founders have done very well in attracting an impressive calibre of investors from across the technology sector. They have also identified that technology alone will not transform the business of freight forwarding, but helping to address the financial inefficiencies that have bedevilled the sector for years, just might.

This leads me to speculate that this business is primarily about two things; addressing the need for sustainable cash flows and capturing the very large amounts of data generated by supply chain activities.

The company understands that most businesses using forwarding services have a problem with cash flow. So they are providing supply chain finance and discounted shipping rates in an attempt to entice SME’s to move across to their operating platform. The intention is to provide a simplified and streamlined experience that is much more user friendly than conventional offerings.

I respectfully suggest that at this point they should also focus on providing practical and workable supply chain visibility alongside the trade finance option.  Survey after survey over decades has identified the lack of visibility as being the biggest impediment to streamlined logistics and supply chain operations. But this is really difficult to do and no doubt their marketing team has already done some very expensive research identifying the less complex services their target demographic requires.

In terms of technology, the narrative across the industry and echoed by many commentators (including this one), is that greater investment is required. For decades established companies saw information systems as an expensive overhead that after the initial Capex, should be drip-fed investment, so long as it helped to keep headcount down. This worked for a while but didn’t really transform the industry as a whole.

The introduction by the airlines and shipping lines of large scale internal IT systems (e.g. American Airlines Sabre) and the ability to directly connect to Customs clearance systems, did provide a significant improvement for larger shippers, but not much else. It was the international expansion of the integrated carriers (FedEx, UPS, etc.) and the deployment of their global track and trace systems that illustrated to shippers what was possible. The fact that they used their technology capabilities as competitive weapons was a wake-up call to carriers and logistics service providers alike. Thanks to advances in technology and the advent of Cloud platforms and services, almost any company can now develop and deploy similar technology at very low cost, providing they have the relevant knowledge.

I believe the real prize for Beacon is data. If they are successful in attracting a large and diverse customer base of global shippers, the related streams of data will feed and train their AI (Artificial Intelligence) algorithms, helping to drive operational efficiencies and improved customer services.

But this is only the start. All of the major logistics players understand the value of supply chain data and they are all exploring the power of Machine Learning and AI services. The potential insight into the sourcing strategies of manufacturers and shippers, how they design and operate their supply chains and who their customers are, is a treasure trove of incalculable value. The fact that Amazon, Ali Baba and JD.com know so much about their customers and can tailor, and in some cases predict, new services for them, illustrates the power of these AI-driven logistics platforms.

This is why investors including Amazon’s Jeff Bezos, the ex-Chairman of Google Eric Schmidt, and other tech-related luminaries are interested. Although their investment strategies are similar to most venture capitalists (bet on a lot of horses in the hope of picking a big winner), they do focus on companies that can identify and exploit staggering amounts of data. This is because data is the Oil and Gold of tomorrow.

It is unlikely the investors care if the Beacon founders lack the detailed industry knowledge of how forwarders manage Hazmat shipments across a multi-model transit, or can recite the relevant IMCO or Customs tariff codes. They assume that they will be able to hire teams of people that do understand them and also deal with the challenges they present (another reason why transforming this industry is much harder than it looks). They are also assuming that Beacon can entice enough of the simple point to point shipments from smaller shippers who also need access to trade finance. If those shippers have operating margins able to support the cost of trade finance through Beacon and decide to sign up, it will introduce a new business model into the market.

But their potential customers should also be clear that by working with them, they will also be training the Beacon AI algorithms to potentially compete with them in the future. This is likely because the investors have put their money in expecting the business to scale and by scale, I don’t mean they need to get thousands of customers on their platform, they need millions. A task that is not impossible when you consider how many companies are connected to the supply chains of the major manufacturers and traders across the globe.

The biggest challenge incumbent logistics players are having to recognise, is that many of the new entrants to the market have access to huge amounts of investment capital. A large amount of this capital is directed at technology platforms rather than people. Because of the advances in technology, the cost of extending information services to the edges of global operations is very low, enabling the capture of data, in detail, to a very granular level. Incumbent players may have the customer relationships, established contracts and operational knowledge, but also have slim margins. Insight and knowledge is where customer value and high margins will be found going forward.

A phrase attributed to the Elizabethan adventurer Sir Walter Raleigh (1552-1618) seems very appropriate to describe the ambition of companies such as Beacon Technologies:

For whosoever commands the sea commands the trade; whosoever commands the trade of the world commands the riches of the world, and consequently the world itself,

…and about that $15 million dollar investment – no doubt the first of several fundraising rounds, each one bigger than the last if all goes well. When the news broke early this week, the founder of the business confirmed in a TV interview that the bulk of the investment is for hiring people. Looking at the vacancies listed on the Beacon website, they are looking for technology and AI specialists, and people with experience in those fields do not come cheap. This will drive up the cost of hiring similar people for other players in the industry. For incumbents, this is a problem as they have to fund staff costs from cash flow, whereas venture-funded startups – thanks to the largess of their investors, do not.

However, some of that money has also gone towards some very effective PR, which has generated a great deal of coverage in the mainstream media and from commentary and opinion (such as this) in sections of the trade press. So in terms of initial impact, this small startup has got a great return on that aspect of their expenditure. Let’s see if the rest of the funding is equally well spent.

Source: Transport Intelligence

Author: Ken Lyon

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