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Mar 29, 2022

PeakSpan's Thesis for Dispatch

Originally posted

The PeakSpan team is thrilled to have led a $50M growth financing for Dispatch, a B2B software-based marketplace solution facilitating last mile on-demand wholesale industrial delivery. Upon meeting Andrew, Ryan and the entire Dispatch team nearly two years ago — it was love at first sight. To say we have been blown away with their progress since then is an understatement. The team more than doubled the overall scale of the platform across multiple vectors while also greatly increasing marketplace efficiency, SLAs and market liquidity. That is what you call a well-oiled machine. This is all with very little capital raised for a business model that should require the contrary. The team has remained hyper focused on B2B industrial supply despite ample opportunity and temptation to expand to other verticals — a choice that has led to ample rewards for the business. It’s rare to come across a business with such a large, untapped market opportunity that isn’t already swimming in heavily VC-backed competition — and in the case of Dispatch, you can square that rarity with the multiple and clearly significant moats and walls that the team can constructed over the years. Today, Dispatch serves over 10k customer sites with a network of 9k+ drivers across 50 US markets. We couldn’t be more thrilled to have partnered with the team and where we will be leveraging this capital to expand Dispatch’s software offerings, marketplace technology backbone and expansion into 50 additional markets.

Last mile delivery is the final stage in the supply chain for a product and involves transportation by or on behalf of an organization from a hub such as a warehouse, depot or distribution center to the final point of consumption, most commonly a domestic residence, but also (and especially in Dispatch’s case) includes commercial and industrial premises, as well as other facilities. Dispatch has disrupted B2B last mile delivery by building an industry leading digital labor marketplace for order overflow management. Last mile industrial delivery remains a fragmented industry in the United States, dominated by companies using their own capital-intensive fleets or traditional couriers. This space is ripe for digitization through last mile B2B software-based marketplaces such as Dispatch.

Dispatch focuses on mediating delivery services for industrial products, which are typically provided by manufacturers or third-party distributors to customers such as engineers, service technicians and builders, who typically require delivery to a worksite. These products may be purchased online through the web or a mobile app, by telephone or in physical outlets, and traditionally the customer would need to visit a retail location or depot to collect the item(s), or they would be delivered by the product manufacturer/distributor using in-house delivery assets.

Use of a digital platform such as Dispatch allows delivery of required products directly to an individual site, with speed of delivery often being critical. Sourcing delivery services from logistics services providers removes the need for the end-user to travel to collect product(s) themselves and reduces the need for product suppliers to manage delivery services in-house, as well as simplifying the process of identifying and contracting a logistics services provider.

The total annual industrial product distribution revenues in the main sectors addressed by Dispatch are approximately $927 billion. In the Industrial sector, total supply chain costs (including last mile delivery and other supply chain activities) are estimated at 10–15% of shipper revenue. Last mile delivery costs typically form approximately 40% of total supply chain costs, indicating that last mile delivery costs are around 4% of shipper revenues (assuming total supply chain costs are 10% of revenues). This includes in-house costs (where shippers undertake last mile delivery themselves) as well as expenditure with external logistics services providers. Using an assumed 4% of revenues spent on last mile delivery, it would indicate a total addressable market of $37 billion. The below market drivers further support Dispatch’s market opportunity:

  1. Increased Propensity to Outsource Delivery: A global study of shippers undertaken in 2020 indicated that the average percentage of total logistics expenditure outsourced had increased to 52% in 2020 (up from 36% in 2015) and that 57% of shippers are increasing their use of outsourced services
  2. Growing Customer Demands on Logistics Services Providers: A 2018 global survey of shippers identified that two-thirds require next-day delivery, half also require same day delivery and almost 60% require full visibility on shipments
  3. Requirements for More Efficiency in Delivery: Delivery efficiency was named the #1 challenge in a recent last mile delivery survey
  4. Use of Technology in Delivery Services: A global survey of organizations identified that 95% believe that analytics is a necessary element of the services provided by their LSP, but only 26% are satisfied with the current analytics capability of their provider
  5. Reducing Environmental Impacts on Last Mile Delivery: Analysis commissioned by the World Economic Forum estimated that between 2019 and 2030 in the top-100 cities globally the number of delivery vehicles in operation will increase from 5.3 million to 7.2 million (36% increase) and associated CO2 emissions will increase from 19 million to 25 million tons (32% increase)
  6. Key Benefits of Digital Labor Marketplaces: By 2025 digital labor marketplaces may add $2.7 trillion to global GDP through factors such as increased labor market participation and increased productivity
  7. Trend in Platform Work: 16% of Americans have earned money via an online gig platform

Below is PeakSpan’s thesis for Dispatch:
Dispatch has seen consistent growth over the last two years driven by further penetration of their existing 50 markets and expansion of national enterprise accounts. In the Company’s current markets, Dispatch maintains best-in-industry SLAs, successfully delivering upon over 99% of delivery requests. Market alternatives claim broad coverage but don’t offer a guarantee on all orders (imagine if Uber did not work every time!). The main alternatives in market do not have a network of drivers and instead are the broker between customers and independent logistics services providers. Despite Dispatch’s success in recent years, even their top markets are significantly underpenetrated. As an example, the Company estimates that they have less than 2% market share in Minneapolis, their longest serving market and which represents significant potential. Further, the Company benefits from a highly skilled and asset-lite model and variable cost structure allowing them to quickly scale in new markets and recoup initial fixed costs. This leverage pays dividends for Dispatch, as well as Dispatch’s customers who benefit from broader market coverage and higher quality service. The delivery service offered by Dispatch is white labeled to the end-user, generating meaningful brand value for the local business who appears to have highly sophisticated delivery capabilities. The platform is extremely sticky with significant expansion by way of order volume and # of locations. Dispatch’s ICP is tightly focused on industrial supply (whereas the bulk of driver networks and fleet delivery software solutions focus on B2C — restaurant and retail verticals). This model sees high barriers to entry given the driver base and network effects, plus very few competitions/incumbents are capitalized to build a national footprint.

Dispatch is building the market leading last mile on-demand wholesale industrial delivery marketplace. The opportunity in this segment is still exceptionally large with several avenues to grow significantly, driving immense value to all constituents in the industrial supply chain.