The past year have seen a plethora of companies launched with a focus on introducing new technology in shipping, and the pace does not seem to be abating.
There is no doubt that the shipping industry indeed can benefit highly from new technology, and that it is now on a path to become digital – I have even outlined this in my book “Liner Shipping 2025” published in 2017.
Hence, I am neither questioning the need for digitization in shipping, nor that it will indeed happen.
However, it might be about time to start looking at whether valuations are beginning to diverge from reality. In other words, whether shipping tech valuations are entering a bubble. This does not imply that all shipping-tech companies are overvalued, nor that they do not necessarily add value. But it does imply that some valuations perhaps should be considered.
Of course, I know that proponents of every single tech company will have their arguments as to why their particular valuation is perfectly fair and correct.
However, let me show two examples, but more can be found, and let the readers here judge for themselves whether the valuations are fully justifiable and worth the value, or whether we might indeed be entering bubble-territory.
The first example is block-chain based 300cubits who are launching Ethereum smart contracts to address non-conformance to contract terms. For this they launched their own crypto-currency termed TEU. 300cubits held a pre-ICO funding round which concluded in late September 2017.
At that point in time, 1 TEU had a price of 0.24USD – in turn implying a total market cap of 24 Million USD. In early January 2018 – 3 months later – the company announced a round for private placement in their Telegram group at a price of 2.8 USD/TEU (given today’s price of ETH).
Hence this means that the valuation of this shipping tech concept has apparently increased by more than 1000% in just 3 months to a market cap of 280 million USD – and this at a point where live-trials according to their road-map are still in the future.
The second example is Flexport, for which there was a good blog post recently, here.
Based on the data, Flexport appears to have a valuation 19 times higher than a traditional freight forwarder. Fundamentally speaking this boils down to whether you believe an innovative way of moving freight can make you so much more profitable than the traditional way of being a freight forwarder. What if the increased efficiency instead manifests itself as lower costs for the cargo owners, just as we always see when liner shipping companies obtain better efficiencies only to have it eroded by lower freight rates?
This brings me back to the starting point. I have no doubt that shipping will undergo significant digitization in the coming years. But that does not conversely mean that all tech solutions out there will necessarily thrive – and it may well be that some of the valuations we are beginning to see in shipping are rather optimistic.
By: Lars Jensen, CEO, Partner at SeaIntelligence Consulting