On behalf of all of us at BGSA Holdings and Cambridge Capital, we wanted to share some highlights of BGSA Supply Chain 2023. For those of you who joined us, we hope you had a great time.
For our 17th annual Supply Chain conference, we returned as always to the Breakers in Palm Beach. Amidst the sunshine and palm trees, we were able to join with over 350 CEOs and leaders across all areas of the supply chain sector.
This record turnout included CEOs from North America, South America, Europe, Asia and Africa. We got to exchange ideas with leaders in logistics, distribution, freight forwarding, truck brokerage, warehousing, trucking, shipping, last mile, fulfillment, and other areas. As technology has become more and more embedded in the supply chain, we met with software all-stars in WMS, TMS, reverse logistics, predictive pricing, digital brokerage, and a host of ecommerce logistics categories. And we got to talk with legends including Apple CEO John Sculley, boxing champion Mike Tyson, Wimbledon winner John Lloyd, and many more. This was truly a "Davos for Logistics" week!
What Did We Learn?
2022 was the year the supply chain broke the world. From a distance, the supply chain markets appeared to spiral out of control in 2021, driven by shortages, delays, and bottlenecks. In 2022, these challenges appeared to retreat, as we saw a return to normalcy in many categories. For instance, global shipping rates, which shot up over 7x in some categories, retrenched to pre-COVID levels.
This "reversion to the mean" should have been good news for the economy, as it provided predictability to shippers, carriers, and logistics providers. Yet the reality was the exact opposite. The S&P dropped 20%, the NASDAQ fell 34%, and the basket of unprofitable software companies (a public proxy for private venture capital) fell 60%. By comparison, the BGSA Supply Chain Index fared relatively well, losing just 15%.
The macroeconomic environment worsened: inflation spiked to 9%, while GDP flattened at nearly 0%. These macroeconomic forces hit everyone. At BGSA, we track the BGSA Supply Chain Index, a basket of 68 companies across nine segments, including logistics, trucking, rail, supply chain technology, and all other related segments. In aggregate, the Supply Chain Index decreased 15% in 2022, and aside from healthcare distribution and energy logistics, all other categories fell. The steepest drop, global parcel/logistics, fell 27%, as the ecommerce COVID surge of 2020-2021 cooled off, and companies like UPS, FedEx and DHL retrenched.
Our Outlook for 2023
We see four key issues: (1) Supply chain recession; (2) China: the great decoupling; (3) Tech: baby and bathwater; and (4) Capital Markets: carpe diem.
First, we are in the midst of a supply chain recession. Truckload, LTL, ocean, rail — in nearly all categories, freight rates have dropped. In the largest segment, truckload, which represents close to $400 billion, we've witnessed the steepest decline in rates in the last 5 years.
Second, we are at the beginning of a US-China decoupling that will reshape global supply chains. For 50 years, dating back to President Nixon's visit to China in 1972, the US engaged in a strategy of economic diplomacy. In some respects, the strategy worked. But in other respects, it created a dangerous dependency — the US now relies on China for 80% of its rare earths elements. As a result, companies are increasingly shifting their supply chains. China's loss is Mexico's gain. Manufacturers are moving plants to India, South Korea, Japan, and Europe — but nowhere is the shift more likely than Mexico. We expect a continuation of US-Mexico trade and a buildout of the US-Mexico rail network, as goods manufactured in Mexico can make it to Chicago in less than half the time of China.
Third, we are witnessing a massive increase in supply chain technology investment. Skeptics may point to overfunded companies with no moat — investors funneled billions into 15-minute grocery delivery, and two of those companies, Gorillas and Getir, announced layoffs and merged. Yet the real story lies in the successes: in the last 2 years, investors have committed over $100 billion to the supply chain sector, minting 51 unicorns. We believe the innovation is still in the early innings.
Fourth, the capital markets reflect an active deal environment. In 2022, deals fell into five categories: consolidators buying competitors (Lineage Logistics-Versacold in cold storage); logistics companies expanding services (STG Logistics-XPO Intermodal); ecommerce companies moving into logistics (Cart.com-FB Flurry); cross-border expansion (Schenker-USA Truck); and investors doubling down on winners (Tiger Global's second investment in less than a year in Greenscreens.ai, which expanded over 500% in the past year).
Perspective at Cambridge Capital
At Cambridge Capital, we believe we are in the early innings of a transformation in high-growth digital supply chains. Key themes include last-mile logistics, AI to automate supply chains, supply chain visibility, reverse logistics, and tech-enabled "man + machine" services. Our investments include Bringg (last-mile logistics SaaS), ReverseLogix (end-to-end returns management), Parcel Perform (supply chain visibility), Everest (tech-enabled freight management), Boa Logistics (temperature-controlled LTL), byrd (European e-commerce fulfillment), Liftit (Latin American trucking marketplace), DeliveryCircle (on-demand specialty delivery), and Greenscreens.ai (predictive pricing for truckload freight, grown over 500% this year). Cambridge has a simple philosophy: back outstanding CEOs who are building top-quality businesses in the supply chain arena, on a majority or minority basis, with $10-$50 million checks.
Perspective at BGSA
On the advisory side, BGSA continues to expand its M&A services. BGSA has earned a reputation as a leader in M&A for transportation, logistics, and supply chain services, and has worked on over 50 transactions in the sector. Clients and transactions have included NFI, C.R. England, GENCO (now FedEx), New Breed (now XPO), and many others. Just this week, BGSA's client Werner Enterprises announced the sale of Werner Global Logistics to Scan Global Logistics Group.
Closing Thoughts
In sum, we thank you for being a part of the BGSA Supply Chain ecosystem. We all learn and benefit from the collective wisdom of this outstanding network of CEOs and industry leaders. Please save the date for next year's BGSA Supply Chain Conference: January 24-26, 2024, when we will again return to the Breakers in Palm Beach for our 18th annual conference!
Thank you and best wishes for the coming year.
Benjamin Gordon
This story was published by an outside outlet.
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