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Jul 15, 2021

PeakSpan's Thesis for ShipHawk

Originally posted

The PeakSpan team is thrilled to have led ShipHawk’s Series B financing, partnering with the Company at an intense inflection point in their scale-up journey. Q2 2021 was a record-setting quarter for ShipHawk across shipping volumes, new revenue, customer implementations, and product advancements — all supporting the Company’s continued accelerated growth. We’re energized to support this team in continuing their mission of democratizing world-class, data-centric warehouse automation solutions for mid-market E-Commerce brands!

Our thesis for ShipHawk is simple. Brands are feeling intense pressure to ship in 1–2 days and have difficulty doing so while also preserving margins (especially in the mid-market). Selling through platforms like Amazon is an option, as is using a 3PL, but not an attractive one is given the high cost and lack of direct connection with the customer. Instead, retailers are going to need to take an “Amazon-like” approach to E-Commerce logistics, leveraging technology at every node in the supply chain to effectively compete and survive. We authored a blog post on this topic back in March surrounding this exact concept (“What Billy Beane can teach us about e-commerce logistics”). Turns out, the way we ended this blog post is the same way Jeremy Bodenhamer (co-founder/CEO of ShipHawk) titled his book: “Adapt of Die.” ShipHawk is helping mid-market brands adapt to this new era of E-Commerce and supply chain complexity.

Before getting to the nuts and bolts of our thesis — just a few quick words on the team. We’re truly lucky to be partnering with a group of such high-caliber individuals. What makes this team special in particular? They are data-driven in a way we would expect a $50M ARR company to be. They have deep domain expertise in warehouse automation which is a serious asset in finding a solution and being a thought partner to their customers. Not only just providing the right solutions/guidance, but the team is expert in getting customers live with low friction — a superpower and which is not trivial in their segment. Lastly, the culture at ShipHawk is one of high self-awareness, intense focus, perseverance, learning, and an emphasis on growing talent from within. All will be critical towards this next period of scaling.

Our Thesis for ShipHawk

[abstracted from our investment memo]

ShipHawk’s current momentum is supported by several macro tailwinds which have been persisting for years but have more recently accelerated due to the global pandemic, including i) E-Commerce volume rising, ii) an explosion of direct-to-consumer (D2C) business models, iii) a shortage of blue-collar warehouse workers, iv) the Amazon effect (e.g. pressure to meet one-day delivery), and v) globalization. All of these factors have led to larger throughput volume and reinforced expectations for mid-market shippers. To meet demand while preserving margins — solutions like ShipHawk are mission-critical towards ensuring that picking, packing and shipping functions become assets versus inhibitors. ShipHawk’s solution is best suited for mid-market product-based companies who leverage an ERP, such as NetSuite or Acumatica, and require a remedy for handling high-volume, multi-channel shipping. ShipHawk’s rate optimization and cartonization engines have been refined and optimized for years, designed specifically for E-Commerce, with data as the focal point. We see few pure-play competitors in the midmarket, with the vast majority of alternatives being legacy/acquired platforms or SMB-focused shipping software where the technical barriers to entry are lower.

E-Commerce in the US grew 44% in 2020, from $598BN in 2019 to $861BN in 2020. The underlying infrastructure needed to support growth in consumer demand is under tremendous stress and lacks the adequate technology investments required to keep up. With fulfillment costs rising faster than revenues, small and mid-market brands who don’t own large supply chain operations are having their margins eaten into, a dynamic which is further exacerbated through the “Amazon Effect” (e.g. Amazon’s supply chain is best in class and can handle intense demand with flawless execution and two-day delivery). In the midst of this demand, and in an effort to simply “keep up,” warehouses are running sub-optimally. For example, the average box is 40% too large (link) for its contents, which results in 24 million extra truckloads on the road each year (link). To quantify this, shippers are overpaying by 25% or more on each shipment. Experts estimate that the US will need another 1 billion square feet of warehouse space by 2025 (link). Mid-market shippers in particular are at a loss because they are seeing high volume/demand but do not have the capacity to source more warehouse workers, purchase more square footage, or optimize internal logistics. ShipHawk helps high growth companies automate order processing at scale, drive timely order fulfillment, generating cost savings with the same volume of (or fewer) workers.

Key Market Drivers

Growth of E-Commerce

E-Commerce grew 44% from 2019 to 2020 (link). In 2020, retail e-commerce sales worldwide amounted to $4.28 trillion and are projected to grow to $5.4 trillion in 2022 (link)

Labor constraints

55% of logistics companies said labor scarcity is their number one problem (link)

With job openings close to a 20-year high, supply chains are struggling to keep up with a new boom in consumer demand (link)

Carrier capacity constraints

Given the dramatic rise in shipping with an insufficient prevalence in transportation vendors, carriers now hold more pricing power and are driving shipment rates higher, specifically 1–2 day deliveries (link)

Changing of the guard/technology adoption in supply chain

As family-owned warehouse operations are passed to future generations, we continue to see an uptick in the utilization of software solutions, especially in relation to E-Commerce

Added supply chain complexity

Post-Covid, 64% of retailers said they were challenged to adapt their supply chain to E-Commerce (link). Many of ShipHawk’s competitors were built prior to the E-Commerce boom

Availability of carrier, product and pricing data

With carrier and LTL rates being digitized, and product information (including dimensional data) now more available, ShipHawk can power actionable optimizations

Legacy driven failure

Infrastructure investment trails consumer growth. Fulfillment costs are rising faster than revenue generation. E-Commerce rising faster than warehouses built / pickers entering the workforce

SKU growth and breadth

US rental rates for warehouses are expected to quintuple from 5% to 25% in the next 5 years. The US may need another 1 billion square feet of warehouse space by 2025 (link)

Multi-channel sales

We are seeing a continued proliferation of purchase points — from social commerce to online marketplaces, to E-Commerce storefronts, all in addition to physical retail

Rising consumer expectations and delivery promises

Small to mid-market brands who don’t own large supply chain operations are having their margins damaged, which is further exacerbated via the “Amazon Effect”

63% of consumers expect a standard delivery to arrive within three days. 9.7% of customers say same or next day delivery is the most important factor of delivery (link)

We will be providing the ShipHawk team with capital to invest in product, customer success, and marketing/awareness building while also surrounding the business with i) more resources, ii) PeakSpan’s GTM, supply chain, and E-Commerce advisor benches, and iii) tuck-in acquisition funding/support. We look forward to supporting the team in continuing their mid-market warehouse automation leadership journey.